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Founded in 2007, Graphic Packaging Holding Company is a provider of consumer packaging solutions. The company has designed, produced, and sold paperboard packaging for major brands across the food, beverage, food service, household, and personal care industries. Operating globally through its Americas, Europe, and Asia Pacific segments, Graphic Packaging offers a range of unbleached, bleached, and recycled paperboard products, as well as packaging machinery and food service items like cups and containers.

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Graphic Packaging Holding (GPK): Company Profile, Stock Price, News, Rankings

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Graphic Packaging Holding

graphic packaging holding

Greetings. Welcome to the Graphic Packaging Holding Company Fourth Quarter and Full Year twenty twenty four Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

I will now turn the conference over to your host, Melanie Skijes, Vice President of Investor Relations. You may begin.

Good morning, and welcome to Graphic Packaging Holding Company's fourth quarter and full year twenty twenty four earnings call. We have with some of the call today Mike Doss, the company's President and Chief Executive Officer and Steve Sugar, Executive Vice President and Chief Financial Officer. On today's call, we will be referencing our earnings presentation, which you can access through the webcast and also on the Investors section of our website at www.graphicpkg.com. Today's press release and the presentations made by our executives include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission. Now, let me turn the call over to Mike.

Thank you, Melanie. Good morning, everyone, and thank you for joining our call today. Graphic Packaging is a global leader in sustainable consumer packaging. In 2024, we demonstrated the strength of our business model delivering strong and steady margins and challenging market conditions. We are well positioned for 2025 and to meet our Vision 02/30 aspirations in the years ahead.

For the full year 2024, sales were $880,000,000,0.0 adjusted EBITDA was $170,000,000,0.0 margins were 19.1% and adjusted EPS was $2,.49 In the Graphic Packaging sales were $210,000,000,0.0 adjusted EBITDA was $4.00 $4,000,000 margins were 19.3% and adjusted EPS was $0,.59 Turning to Slide three, 2024 marked the start of our transition from our Vision 2025 transformation plan to Vision 02/30, which we presented at our Investor Day last February. Our transformation to a leading consumer packaging company will be largely complete later this year. I will come back to Vision 02/30 later in my remarks. In we divested our Augusta, Georgia bleach paperboard manufacturing facility along with most of our open market bleach paperboard sales exposure. Augusta was a high quality asset with a strong team, but did not have the level of competitive advantage we believe was required to support ongoing capital investment.

We elected to put the capital to better use for our stockholders. After the divestiture, of our sales come from high value consumer packaging. We made a number of moves during 2024 to improve our environmental footprint, including the execution of a virtual power purchase agreement, which significantly increases renewable energy use in our European operations. Minimizing our environmental footprint and helping our customers minimize theirs is fundamental to our mission. During the we applied $200,000,000 of the Augusta divestiture proceeds to repurchase approximately 2% of our common shares outstanding.

And during the full year 2024, we paid dividends of $122,000,000 After the close of 2024 and in recognition of the strong results our business model is delivering, as well as declining capital spending needs, the Board of Directors approved a 10% increase in our quarterly dividend to $0,.11 per share effective with the April 2025 dividend payment. Volumes did turn positive in the second half up 1%, although the pace of normalization was slower than we and many of our customers had anticipated. Full year volumes were down approximately 1%. We delivered a strong 19.1 adjusted EBITDA margin for the full year 2024 with outstanding quarter to quarter stability despite a challenging market environment. Our financial performance demonstrates just how much graphic packaging has evolved.

When I became CEO back in 2016, our business, which was about half the size, far less balanced than it is today, wasn't capable of generating the consistency that we now deliver. Our team has done an outstanding job executing at a high level to build a consumer packaging business capable of generating strong and steady margins and cash flow across a variety of market environments. 2024 saw clear consumer focus on finding value, significant growth in private label and more consumers shopping for groceries at club and superstores. Our portfolio, which is designed to move with the consumer responded well to those trends. We introduced new packaging innovations in all categories with significant new innovations for our private label customers across The U.

S. And Canada and Europe. As our experience demonstrates, our private label customers and retailers are just as committed as our branded customers to plastic production and to a more circular, more functional and more convenient packaging that consumers prefer. And finally, we delivered innovation sales growth of $2.00 $5,000,000 in 2024. Turning to the on Slide four, our Waco, Texas recycled paperboard investment is moving ahead well and remains on schedule for start up in the On a smaller scale, but no less important strategically, we continue to make targeted investments in our packaging facilities to drive productivity and expand our capabilities.

Culture is the second pillar of our Vision 02/30 and keeping our team safe and focused on delivering results for customers is essential to our success. We continue to have one of the industry's best safety records and in the we saw improvement in employee engagement. We had 87% global participation in our recent employee survey, which is really outstanding and we saw a meaningful improvement in 11 of the 12 categories we measure. Engagement and safety go hand in hand and are two of my highest priorities. In the volume was up 1%.

Price was down 2% consistent with results. Results in beverage, food service and household were relatively steady overall, while food was modestly weaker and health and beauty remained mixed. We saw further gains during the quarter with our private label customers and participated in the continued growth in grocery sales by club and superstores. In Europe, where consumers tend to shop more often for prepared, ready to eat foods, we are seeing volume gains with our convenience channel customers. The European convenience channel is a high service rapid turnover refrigerated food market where our extensive packaging and logistic capabilities are a critical competitive advantage.

As I noted, innovation sales growth of $63,000,000 in the quarter brought our full year innovation sales growth to $2.00 $5,000,000 We are well positioned to achieve our goal of at least 2% innovation sales growth again in 2025. Our customers are always looking for better, more sustainable packaging solutions and no one has invested as much or built as powerful platform as we have to deliver the more circular, more functional and more convenient packaging solutions that consumers prefer. Slide five is a reminder of just how broad our portfolio really is and why we are able to generate strong results even in challenging market conditions. Turning to Slide six, let's look at our sales in more detail. Overall, year over year and full year packaging sales roughly flat with a relatively steady performance in beverage, food service and household of modestly weaker results in food.

Food represented approximately 38% of our packaging sales in 2024 and here we saw a continuation of the uneven results we experienced all year. We saw significant gains in pasta, which is seeing growth from consumers looking for simple and less expensive alternatives to prepared meals and takeout. We are also participating in the growth in Mac and Cheese. Always an affordable choice, Mac and Cheese is also benefiting from the newer gourmet varieties, which are taking a classic comfort food off market while remaining relatively affordable. It is worth noting that in both The Americas and in Europe, private label represented the biggest share of the growth we're seeing in both pasta and mac and cheese, although branded is also doing well.

But these gains were not enough to offset the continued weakness in frozen and refrigerated prepared foods categories, which tend to come in at a higher price point. Confectionery continues to see weakness in Europe as a result of high cocoa prices, while The U. S. Demand has been more stable. Coffee and tea saw significant gains, thanks in part to our Bordeaux product innovation, but also from a shift in coffee consumption to home and office and away from coffee shops driven in part by the consumer focus on value.

Categories like yogurt did well in both The Americas and Europe as consumers opt for this less expensive source of protein. As we think about shifting food purchasing behavior, it is important to consider the role retailers are playing. While growth in private label is significant, retailers are also creating and expanding loyalty programs. Loyalty programs are designed to keep consumers coming back at a time when consumers are increasingly visiting more stores, but spending less in each one. The market will continue to shift and Graphic Packaging is one of the very few companies with the capabilities to execute quickly and in scale for the largest CPGs, co packers and smaller regional customers.

Beverage, which represents about 25% of our overall packaging sales, saw some modest improvement with continued solid growth in Europe. Our European business is benefiting from regulatory requirements to eliminate plastic and we expect those regulations to support growth in the business for several years to come. We are well positioned after the investments we have made in anticipation of this trend, including at Bristol in The UK, where we've doubled the size of our facility and built a world class innovation center. Foodservice represented 21% of our packaging sales in 2024. After 11 consecutive positive quarters, nine in a row with over 5% year over year growth, we saw stability in the against a very strong comp last year.

Our multi year outperformance of the foodservice market has been driven by the growth and investments we've made and in innovations that are helping our customers meet their goals to reduce plastic consumption and improve functionality. Foodservice continues to represent a big opportunity for us driven by plastic and foam replacement and the demand for better, easier to use and easier to recycle containers. Promotional activity by quick service restaurants remain strong. Our food service customers continue to focus on value options and are making other menu changes to drive volume and we are working closely with them to develop best solutions for their strategies. Household products represents approximately 12% of our packaging sales and the results were generally flat year over year.

Tissue continues to be one of the weaker year over year, but we are seeing better growth in cleaning products, particularly in Europe as we are in Pet Care. Over time, we see clear opportunities to expand as part of the portfolio in both The Americas and in Europe. And finally, Hilton Beauty, a small but promising part of our overall packaging sales continues to show mixed results. This is mainly a European business for us now, although we have some very exciting opportunities here in North America, thanks in part to Pacesetter Rainier, our 100% recycled paperboard that performs as well as more expensive bleached paperboard. The high end of the cosmetics market remains challenged, but we are seeing improvement at the lower price points.

Biofragrance is also showing encouraging gains. Healthcare remains challenging, but we suspect majority of the destocking is over. If you'll turn with me to Slide seven, we present typical seasonal patterns on the left and our actual and expected experience on the right. Seasonality in the was relatively normal in beverage where we saw the usual dip, but as I noted after eleven quarters of impressive gains, our foodservice results were relatively flat in the Our other markets, food, household, health and beauty performed broadly in line with normal seasonality patterns overall with quite a bit of variation within those segments, driven by the consumer search for value. Monthly patterns were also mixed.

Oct. 0 overall was not as strong as we typically see. Nov. 0 was fairly normal and Dec. 0 followed the typical pattern, but with incremental impact from the timing of the holidays this year as expected.

I have already summarized our experience. Looking ahead to the we expect the consumers focus on value to remain strong. And importantly, as you were hearing from many of our customers, driving volumes moving up in priority. Many of our food and beverage customers are ruling out more new products and new configurations to reach consumers in new and existing channels. In foodservice, we continue to see focus on promotion with new menu choices emphasizing value and more limited time offerings designed to drive foot traffic.

Each of these represent an opportunity for us to partner with our customers to create real value and we are encouraged by the level of engagement we are experiencing. Slide eight outlines the company's five packaging innovation platforms and notes the scale of the opportunity we see in each one. Each of these five platforms made important contributions to our innovation sales growth in 2024 and will again in 2025. Alongside volume growth, plastic substitution is a top priority for many of our customers and we have outstanding commercially proven solutions for a very wide range of new applications. Turning to Slide nine, I thought it would be useful to step back and look at the breadth of the innovation we delivered in 2024.

Each quarter I've been highlighting an innovation win, but there are dozens of exciting new packaging innovations that we haven't talked about. From trays and bowls to beverage multi packs to toothpaste to razor blade packaging, we have introduced some of the most innovative, most functional and most convenient new packaging available anywhere. We are a clear global leader sustainable consumer packaging innovation and we are excited about the opportunities we see in the year ahead. On Slide 10, you can see from the picture that our Waco, Texas recycled paperboard investment is moving ahead nicely. Our decision to accelerate equipment purchases has helped us de risk key elements of the project.

Today, we have all the major equipment on-site and that gives our contractors more flexibility and more ways to stay on schedule. We are signing recovered fiber contracts to coincide with the startup, setting up the logistics to bring trimmings from our own packaging plants to Waco and talking to a wide range of sources to collect and recover paper cups. We designed WAIKU to be able to recycle up to 15000000 paper cups per day because cups are an outstanding fire source. Our ability to process paper cups generated in the Texas triangle of Houston, Dallas and San Antonio is one of the many competitive advantage that we've designed into this important strategic investment. Stepping back for just a moment, Vision 2025 was about transformational investment, investment in capabilities to drive greater top line consistency investments in innovation to drive growth and create the kind of packaging that consumers prefer and investment in competitive advantage, which is what our WeCo recycled paperboard manufacturing facility is all about.

Waco is the last major investment of Vision twenty twenty five and will allow us to fully capture the competitive advantage and quality and economics that started with our Kalamazoo investment and will soon be in place throughout North America. Turning to Slide 11, Vision 02/30 marks our transition from major transformational investment to innovation and execution. We have built a world leading sustainable consumer packaging company on a foundation of innovation, an exceptional team and a commitment to protecting and preserving the planet. We focus our resources to deliver outstanding results for customers, stockholders and all our stakeholders. We are already making excellent progress towards our Vision 2030 goals and aspirations, and I'm incredibly proud of the results our team delivered in the challenging market environment we and our customers faced in 2024.

Now let me turn it over to Steve for a review of our company's financials and operations. Steve?

Slide 12. Sales for the full year 2024 were $880,000,000,0.0 Fourth quarter sales were $210,000,000,0.0 Volumes, which turned positive in the were up 1% in the Full year volumes were down 1%, a modest decline given the challenging market environment. Price declines remain steady and relatively modest at about 2%, consistent with the Prices are stable as we begin 2025. The divestiture of Augusta and lower open market bleeds paperboard sales reduced reported sales by $3.89,000,000 dollars for the year and by $103,000,000 for the quarter. Other M and A excluding Augusta was a $27,000,000 positive for the year and a $14,000,000 negative for the The reflects two months of sales impact from the Russia divestiture, which took place in November 2023.

Recent currency movement has been noteworthy following the November election in The United States. Foreign exchange was a $15,000,000 sales headwind in the taking the full year to an approximately $24,000,000 headwind. I'll come back to the implications that a strong U. S. Dollar could have on our 2025 results in just a few minutes.

Adjusted EBITDA for the full year was $170,000,000,0.0 and $4.00 $4,000,000 for the Adjusted EBITDA margins remained strong and steady at 19.1% for the full year and 19.3% for the Net performance was an outstanding $2.70,000,000 dollars for the full year and $80,000,000 for the offsetting lower pricing and inflation. The adjusted EBITDA impact of the adjusted divestiture and lower bleaching paperboard sales was a negative $164,000,000 for the full year and a negative $39,000,000 in the Power issues in the and the decision to accelerate digester maintenance into the reduced twenty twenty four adjusted EBITDA by approximately $30,000,000 for the full year and $5,000,000 in the These items should not repeat in 2025. Other M and A excluding Augusta was a positive $10,000,000 for the year and a negative $3,000,000 in the Foreign exchange was a $9,000,000 adjusted EBITDA headwind for the year and $5,000,000 in the The swing we saw in foreign exchange was the largest piece of the shortfall versus our expectations. We ended the year with $5,000,000,000 in net debt and net leverage of three times in line with our expectations. Net debt is at a reasonable level for us given the consistency of our sales and margins, our declining capital spending needs and the rapidly rising cash flow generation we are anticipating as we move toward 2026 and beyond.

We have no debt maturities in 2025 and only modest maturities in 2026. During 2024, we reduced outstanding shares by $560,000,0.0 or approximately 2%, even as the company invested $120,000,000,0.0 of capital and kept leverage within the target range. Slide 13 highlights the impressive margins that our business delivered in a challenging volume environment. Despite a broad based customer and retailer destocking and consumers under pressure from inflation, both of which reduced our volumes, we are generating appropriate value for the packages we deliver and that is translating into strong and steady margins. Turning to the outlook on Slide 14, we expect 2025 sales growth consistent with our Vision 02/30 based financial model in the low single digits.

That of course includes our 2% of expected innovation sales growth. Given the volume challenges our customers are facing, the bottom of our 2025 adjusted EBITDA range assumes a year not very different from the one just ended. Even at that level, margins would be in the 19% range, which again speaks to the strength of the business model. Over the next six years of Vision 2030, we are confident in our ability to achieve our base model of low, mid and high single digit growth for sales, adjusted EBITDA and adjusted EPS. We have quantified the impact of the foreign exchange headwind that developed in At current forward rates from Bloomberg, foreign exchange is an approximately $120,000,000 sales headwind and an approximately $20,000,000 adjusted EBITDA headwind in 2025 as compared to 2024.

Our largest currency exposure is to the euro, but we also have meaningful exposure to the peso, pound, Swedish krona, Canadian dollar and yen. Our base financial model and our 2025 core guidance as presented on Slide 14 exclude the foreign currency impact. The column on the right adjusts those core figures to incorporate the currency headwinds. If we leave currency aside for a moment, our expectation for 2025 would call for a relatively normal overall quarterly cadence broadly in line with the pattern outlined on Slide seven. In the we successfully accelerated capital spending again, taking total capital expenditures in 2024 to approximately $120,000,000,0.0 versus our previous estimate of $110,000,000,0.0 20 20 4 was peak CapEx for Graphic Packaging and we are now targeting 2025 capital spending in the range of $700,000,000 down $100,000,000 from our previous estimate.

As a reminder, beginning in 2026, we expect capital spending to be roughly 5% sales with 2% of that representing maintenance capital spending and the rest available for growth projects, greenhouse gas emission projects and other productivity initiatives. Slide 15 summarizes the company's Vision 02/30 based financial model and our capital allocation priorities. Once the Weyco investment is completed later this year, our priorities turn to a more normal level of reinvestment for growth, which is included in our 5% of sales CapEx target, growing the dividend, opportunistic share repurchase, deleveraging and tuck under M and A. Turning to Slide 16, over the next several years, we expect to generate significantly more cash than we require for reinvestment. 2025 marks the beginning of a multiyear cash flow expansion cycle and we intend to deploy that incremental cash to generate outstanding returns to stockholders while we further strengthen Graphic Packaging's position as the world's leading producer of sustainable consumer packaging.

On Slide 18, you will find supplemental information that may be useful for modeling purposes. That concludes our prepared remarks. We will now turn the call back to the operator to begin Q and A. Operator?

Certainly. At this time, we will be conducting a question and answer session. Your first question for today is from Louis Merrick with BNP Paribas Exane.

Good morning, Mike. Good morning, Steve. Thank you for taking my questions. Just to start, I was wondering if you could give us a bit of a flavor for how you're thinking through the impacts from any possible tariffs you have mentioned from President Trump, both for yourselves and the wider industry and if there are any potential second order effects that might entail? And now just got a quick follow-up.

Yes. Thank you, Louis. I'll start with some of the macro on that and I'll turn it over to Steve to make commentary perhaps on the financial side of that.

a minute around what was announced here at the end of last week in terms of Canada and Mexico, kind of high level, we manufacture products largely for customers in those geographies and the facilities we have, both in Mexico and in Canada. If you look at kind of the cross border in North America, we have estimated that around $300,000,000 of paperboard in some cases that's flowing in and some cartons that would flow out of The U. S. And into Canada as an example. So it's relatively small, I think around 3% of our total sales.

We really don't have exposure to China in a material way at all. And so as you kind of look through that, the biggest impact we've seen so far has really been on the translational impact on strengthening these currencies. And Steve gave a pretty good explanation of what that looks like. Of course, these tariffs are now on hold for thirty days. So like everybody else, we're going to have to wait and kind of see how that plays off or certainly that's Canada and Mexico.

But that's how we're thinking about it. We do have some actions as things get clear where we could shift some production to probably minimize some of those things once we have clear line of sight if in fact something does go in and we need to respond.

Perfect. Thank you. And then just focusing a bit more on the volumes, clearly return to positive volumes in the Have you seen that trajectory sort of continue as you've as that played out in Jan. 0?

Yes. Thanks, Billy, question on that. If you kind of look macro 2024, the first half we were down 2%, the second half we were up 1%. We delivered two zero five million dollars of innovation sales. I'm really proud of that.

Our funnel for innovation remains very strong and our confidence level we continue at that kind of pace with what you see on Page eight and nine of our deck remains very, very high. So as we look at 2025, we've given you a guide of 1% to 3%, it's early in the year. But if you look at Jan. 0, we saw it's our weakest quarter as you can see on Slide seven relative to kind of how the timing plays out with our customers. But we actually expect a little growth here in and that's consistent with what we saw here in Jan.

Your next question is from Anthony Pettinari with Citi.

morning. Mike, could you talk a little bit about kind of the relative strength in the different substrates that you produce, maybe kind of industry operating rates and how your system is operating obviously post divestiture with Agustin?

Well, our system is operating very well as you saw from the performance that we generated on a year over year basis. And I guess the relevancy of operating rates for us is a bit diminished, as you know, Anthony, relative to how we think about the business. Specifically, what I'm talking about is on our solid bleached paperboard that's made fully cartons in our unbleached excuse me, our bleached, uncoated paperboard that we use for cup stock. That's almost 100% integrated into our own operations. So it's really not as relevant for us anymore.

We get a ton of questions on imports. The reality of it is, as I've told you guys in the past, it really doesn't make my list of things that keeps me up at night because it doesn't impact our overall business. Relative to CRB, coated recycled paperboard and the un bleached paperboard, those grades continue to be strong and in demand. We're investing heavily on coated recycled paperboard, as you know, and what we're doing in Waco. And ultimately, we publicly said that the ultimate most likely result is we will close our smaller undercapitalized facilities in Ohio and Quebec.

Once that machine is up and running, which we expect to be making commercial paperboard on it in So when you kind of think about where that positions us, we're going to have five incredibly well capitalized assets that are making the paperboard that we need and that flow through our 120 converting facilities spread around the globe. And that's the business we're running, really selling packaging, we're selling cups, and that's why you've seen our disclosures really make more of a shift towards end use markets, what's the consumer doing, how we're performing in those markets, because it's really more relevant for how we're running the company and how we think investors should be looking at us.

Got it, got it. That's very helpful. And then you talked about volume assumptions for 2025. I'm just wondering if you could talk a little bit about pricing assumptions or at least the pricing environment as you start the year, both in terms of just kind of the strength of the market, but also your efforts to move customers off of the RISI index?

Yes, Anthony, it's Steve. Good morning. Just a couple of things there. Overall in our guide, as Mike just said, we're assuming continued modest volume growth kind of in that 2% range, consistent with our innovation engine year over year. Right now pricing heading into 2025 is pretty neutral.

The 2% price declines that we manage through 2024 are fundamentally behind us. So we've got relative price neutrality heading into 2025. And that's pretty consistent with what we're seeing on the input cost side as well, which is pretty neutral over on a year over year basis. And actually we've been very pleased, Mike and I were talking about it this morning with the progress we're making with our customer negotiations, where we're putting in place our internally developed index for price changes with our long term customers who are on multi year contracts. And so overall, interest in receptivity has been high and we're executing on those on a proprietary basis with our customers.

So we're actually very pleased with the momentum on that front.

Your next question for today is from Phil Ng with Jefferies.

Hey, guys. I was curious to get your latest thoughts on the quarter itself is a little softer than we expected. It's a little noise with some

help us flush out whether it was productivity or just how Augusta kind of shook out? Just give us a little more color and how that kind of plays into 2025?

Yes, I mean, I thought volume and price largely back in line. EBITDA leads relative to consensus was a little lighter. Help us think through were there any big surprises in the quarter that we should be mindful of?

Yes. Thanks, Phil. Really two things. First, our expectations. One, volume came in at 1%.

We had kind of guided for the quarter inherently in the 1% to 3%. So volume was a little bit lighter than we expected, little bit less promotional activity and volume from our customers. So about 1% was volume driven, 1% of the top line, of course, that flows through our EBITDA and then really was FX. This move post the election was kind of an $8,000,000 to $10,000,000 hit for us relative to what we expected it to be when we last chatted and put out our guidance. So really it's those two things, Phil, nothing operationally of any substance margin, overall stability very high at 19.3%.

So a little bit of a late FX move and 1% volume versus an expectation of modestly higher were the two things that caused a little bit of shortfall versus our expectations in

Okay. And when we think about 25%, your 1% to 3% volume growth, that's kind of largely assuming markets are still pretty muted and a lot of that's innovation. Is that the right way to think about it, Steve? And I guess, the reason why I'm asking is, where are you seeing some of the biggest wins on the innovation side of things? Some of the CPG companies have called talked about maybe dying down back to those sustainability ambitions as consumers dealing with inflation.

So just kind of give us a little more perspective, where are some of the wins? Where are you super excited? And then any way to kind of quantify any wins you picked up on the Rainier side just because it's a low cost, really high quality product?

Yes. Why don't I start Phil and then Mike can bring some additional context. You summarized it well. In 2025, our primary assumption is that the 2% innovation growth will be the primary driver of volume growth for the year, which assumes pretty margin or market neutral, so market neutrality. Now keep in mind 2024, we were down 1% on volume.

We were part inside of that, up 2% innovation minus 3% on the market. So the market goes kind of a minus three to pretty neutral on a year over year basis, hence the 2% volume growth on the top line price relative stability. So that's kind of the context around that. Mike laid it out in his commentary extremely well. The portfolio of innovation is quite wide, and it's dozens and dozens of categories and they fall across the portfolio, which is good to see a lot of singles and doubles in baseball terms.

And I'll let Mike talk about Regnier where we're actually feeling quite good about the testing and the momentum on that front.

I appreciate the question on that, Phil. I guess from our standpoint, our progress with Regnier continues to accelerate. We're very pleased with what we've seen. We've got commercial sales on that paperboard grade primarily in the Health and Beauty segment that are in place. Our trial activity remains quite high in interest around this high quality coated recycled paperboard that compete with bleached paperboard continues to accelerate.

We'll continue to give everybody an update on that. We're just not going to break it out every quarter. We kind of see it as one of the innovations that as part of what Steve just referenced.

Okay. Appreciate all the color guys. Thank you.

Your next question is from Gabe Hajde with Wells Fargo Securities.

I had a question about inventory levels. And I'm looking at inventory days that have kind of jumped up since 2018. And I suspect part of that might be related to the cups business, maybe holding a little bit more inventory for QSR to make sure that they have what they need. But it also kicked up a little bit in 2023 and 2024. I'm just curious if there's anything that's intentional, number one.

And then number two, on the production side, the paper side or maybe folding cartons, I don't suspect you guys are holding a whole lot of inventory there. What that might imply for your own operating rates in 2025, meaning it matched up with what you expect to be kind of 2% -ish volume rates?

Yes, your read is good. I appreciate that the question you're asking there. I mean, in some cases, we did have inventories that were a bit completed coming out of the rush through the pandemic, if you will. And so our customers wanted us to get those back to contracted levels, which we've done. The biggest impact on a year over year basis, though, Gabe, some of the planning we're already doing to get ready for the Waco startup, as you can appreciate, we've got a couple of vaporware manufacturing facilities that we need to take down and what we need to start up.

So we have to make sure we protect our customers during that process. You'll see that wash through pretty quickly as Waco comes online. We expect to harvest that working capital. It's something we've got an eye on. We want to normalize our paperboard and the levels that we have.

But when you're going through a big startup like that, you've got to make sure that you cover for some of the contingencies. That's what we're doing. There's nothing more to it than that.

Got it. Okay. And then maybe Steve, you talked about kind of price it sounded like price cost neutrality, and maybe that includes productivity. We've only heard from a couple of companies thus far, but it seems like labor and some of these indirect costs are still rising. And so I'm curious what may be assumption you have for the more visible direct inputs that we can track on the outside world versus maybe where you guys are doing better on the indirect side?

Yes. Okay. You're spot on there. You summarized it well. Overall, our pricing, as we mentioned, pretty stable heading into 2025 along with accumulation of our input cost, the input commodity cost.

We continue to have labor and benefits and other inflation. It's in that 3%, four % range as we've seen in the past, maybe a little higher than historical, but it's in that $100,000,000 range for us on a total basis. And as such, our confidence that our productivity initiatives will more than offset that again in 2025, remains high given the productivity initiatives that we have in place. So those fundamentals remain intact, which is why margin stability remains extremely high. And then of course, we'd expect to earn on the volume growth that we've shared with you.

So no, those overall fundamental components of the business all around very high levels of margin stability as we head out of 2024 and into 2025 really remain intact.

Your next question is from Ghansham Panjabi with Baird.

Yes. Hey, guys. Good morning. Mike, kind of thinking back to 2024, it's clear that your major customers started ramping promotional activity higher, but frankly it just was not enough to move volume velocity in a material way. Do you sense any shift in terms of what they may do different in 2025, if anything, maybe in terms of packaging mix or lower price point architecture, etcetera?

Yes. Well, you certainly heard it in my prepared remarks that we're seeing a lot of activity around new products and trying to position things. Some of that is tied to the GLP-one new drug set there that our customers are reacting to and that creates opportunities for us. Anytime there's a change, as you know, Gotcha, that's an opportunity for us to have a conversation with our customers and we are seeking those. But you read this right, look, promotional activity, what we really saw in 2024 was one customer in a category promoted.

The overall segment of the category didn't really grow. It shifted that producer or that promoter actually won that at the expense of somebody else, but didn't really expand the category. We saw it on foodservice too, where some of those promotions were really high, the $5 value meal as an example, where you saw a mix that improved, but then a portion of the mix actually declined. And so it was really just prioritizing mix as opposed to growing the overall pie. So I guess 2025, as you heard Steve say, we've got a pretty neutral market assumption there.

Graphic Packaging Holding (GPK) Q4 2024 Earnings Call Transcript

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