Graphic Packaging Q1 Earnings Call Highlights

Key Points

• Management launched decisive cost and portfolio actions after a 90-day review, including a Croatia divestiture, elimination of more than 500 roles (mainly salaried), cancellation of automated roll-warehouse projects (one-time ~$40M write-off) that avoid roughly $200M of future capex, and a disciplined ~$450M 2026 capex plan while deploying AI for inventory and predictive maintenance.
• Q1 results beat toward the high end of expectations but showed margin pressure: net sales rose 2% to $2.2B, adjusted EBITDA was $232M (10.8%) and adjusted EPS $0.09, with adjusted operating cash flow negative $183M (improved year-over-year); the company cited incremental inflation/competitive pricing, announced a $60/ton bleached cup stock increase, reaffirmed 2026 guidance (adjusted EBITDA $1.05B–$1.25B; adj. FCF $700M–$800M) and plans to pay down about $500M of debt in 2026.

Graphic Packaging NYSE: GPK reported first-quarter 2026 results that management said came in at the high end of expectations, while outlining a series of operational and cost actions following a 90-day review of the business. The company also reiterated full-year guidance despite incremental inflation and continued pricing pressure in portions of its portfolio.

First-quarter results and demand trends

Net sales increased 2% year over year to $2.2 billion, supported by a 1% increase in total volume and a $50 million benefit from favorable foreign exchange, according to Senior Vice President and Interim CFO Charles Lischer. CEO Robbert Rietbroek said volumes improved as the quarter progressed.

Adjusted EBITDA was $232 million, with an adjusted EBITDA margin of 10.8%. Adjusted EPS was $0.09. Lischer said adjusted EBITDA included a $6 million foreign exchange benefit and declined $133 million versus the prior-year quarter. He attributed the decline to multiple factors, including:

• A $46 million headwind from price, volume, and mix, driven by “the unusual competitive price environment” and index-driven changes in bleached paperboard pricing in late 2025.
• Commodity input and operating cost inflation of about $37 million, roughly $10 million higher than the company expected.
• Net unfavorable performance of $56 million, including approximately $25 million of disruption and downtime tied to severe January weather in the central and eastern U.S. and “domestic disturbances in Mexico.”
• Additional costs versus the year-ago period from heavier scheduled maintenance and production curtailments to reduce inventories, at about $20 million each.

Adjusted cash flow was negative $183 million in the quarter, an improvement from negative $442 million a year earlier. Rietbroek highlighted the year-over-year improvement, while Lischer said the quarter included heavier capital spending than expected for the rest of the year related to completing the recycled paperboard mill in Waco, Texas.

On end markets, Rietbroek described scanner data as reflecting a “more selective and value-conscious consumer.” He said food and health and beauty were bright spots, citing strength in “everyday essentials” and protein-driven categories such as yogurt, bars, and refrigerated ready meals. He said the beverage business remained stable, while food service and household categories reflected affordability pressures and weather impacts.

90-day review leads to portfolio, workforce, and capital actions

Rietbroek said the company completed a 90-day business review and concluded its foundation is strong, with talented teams and an integrated asset base. He said management sees “meaningful opportunity ahead” and is taking “decisive, focused actions” aimed at profitability and free cash flow.

Among the actions discussed:

• Portfolio simplification: Rietbroek said the company reached an agreement to divest non-core assets in Croatia and expects to complete the transaction in the second quarter.
• Workforce reductions: The company eliminated more than 500 roles globally, primarily salaried positions, through employee separations and elimination of vacancies. Rietbroek said the reductions represent less than 3% of global roles but more than 10% of global full-time salaried roles.
• Capital discipline: Management implemented what Rietbroek described as a “rigorous capital spend process” and reiterated its full-year 2026 capital spending target of approximately $450 million.
• Use of technology: Rietbroek said the company is deploying AI to streamline inventory management and procurement and using remote monitoring and machine learning to enable predictive maintenance and reduce unplanned downtime.

Lischer said the company canceled certain projects that no longer align with operational priorities, including automated roll warehouses at Texarkana and Kalamazoo. He said this resulted in a one-time, primarily non-cash write-off of about $40 million and avoids about $200 million of capital spending over the next few years, citing an expectation that the company will operate with less inventory going forward.

In response to a question about first-quarter “special charges,” Lischer said the largest components included the $40 million write-off related to the automated roll warehouse project, about $20 million of severance costs, and a roughly $13 million write-off of assets tied primarily to intangibles associated with the AR Packaging acquisition and the Croatia divestiture.

Pricing, inflation, and second-quarter outlook

Management described an inflationary environment that shifted expectations for the first half of 2026. Lischer said the company experienced incremental commodity cost inflation tied to the conflict in Iran, which impacted logistics, energy, and resin spend. He said the company is about 60% hedged for natural gas purchased in North America and electricity purchased in Europe, and that many contracts include commodity cost recovery mechanisms that can lag.

On April 9, the company announced a $60 per ton price increase for bleached cup stock effective May 8, Lischer said. He added that non-index-based paperboard sales would see the increase realized in the second quarter, while many packaging contracts require third-party index recognition before increases can be passed through.

For the second quarter, Lischer said volume expectations are consistent with the company’s full-year range of down 1% to up 1%, with pricing similar to the first quarter and foreign exchange expected to be a slight benefit. He said the company expects some commodity costs to remain elevated in the second quarter before moderating later in the year, with a sequential $10 million incremental inflationary impact in Q2 versus Q1. Q2 adjusted EBITDA is expected to be $230 million to $250 million.

Lischer said the company is reaffirming 2026 guidance, with adjusted EBITDA expected in the range of $1.05 billion to $1.25 billion and adjusted free cash flow expected at $700 million to $800 million. He said the company expects cash flow to be back-end weighted, reflecting seasonality, capital spending timing, and inflationary cost recovery timing.

Free cash flow priorities, debt reduction, and inventory targets

Graphic Packaging ended the quarter with $5.6 billion of net debt and net leverage of 4.4x, Lischer said. He said the company intends to pay down approximately $500 million of debt in 2026 and remains committed to its dividend.

Rietbroek said the company expects to reduce capital spending to 5% of sales or less and reduce inventory from 20.5% of sales at the end of 2025 to 17% to 18% of sales in 2026, with a longer-term target of 15% to 16%.

When asked about working capital and inventory, Lischer said the company does not expect inventories to be rebuilt next year and expects continued working capital benefit from lower inventory, adding that 2027 cash flow should benefit from lower cash taxes and lower interest expense.

Operations, innovation, and sustainability initiatives

Rietbroek highlighted progress at the Waco facility, saying ramp-up is progressing and customer qualifications are ahead of plan. He also said the company is completing a cogeneration plant project at Waco to strengthen power supply assurance and advance customer sustainability goals.

On innovation, Rietbroek said the company filed 13 new patents during the quarter, bringing its portfolio to approximately 3,100 patents. He also discussed recent customer work, including private label butter packaging using PaceSetter Rainier recycled paperboard and a premium two-piece box created for Keurig Dr Pepper’s Coffee Collective Wake-Up launch.

Rietbroek also cited sustainability-related recognition, including Worldstar Best of the Best awards in January 2026 for PaperSeal Shape and ProducePack Punnet, and said EnviroClip Duo received an award of distinction at the PAC Global Awards. He added that Graphic Packaging finalized a virtual power purchase agreement with NextEra Energy Resources for a 250-megawatt solar project in West Texas expected to begin commercial operations at the end of 2027.

In closing remarks, Rietbroek said the company is focused on strengthening the balance sheet, improving accountability, and accelerating free cash flow, adding, “We are on offense.”

About Graphic Packaging NYSE: GPK

Graphic Packaging Holding Company is a leading provider of sustainable paperboard packaging solutions, offering a broad portfolio of products designed for food, beverage and other consumer goods markets. The company specializes in the manufacture of containerboard, folding cartons and engineered fill materials, as well as beverage packaging systems including paperboard cups, carriers and related components.

Through a network of manufacturing facilities across North America, Europe and Latin America, Graphic Packaging serves a diverse customer base that includes major consumer packaged goods companies, quick-service restaurants and retail chains.

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