Q2 2025 Graphic Packaging Holding Co Earnings Call

Unknown Executive: 2025 Earnings Call. At this time, all participants have been placed on the listen-only mode, and the floor will be open for questions and comments after your presentation.

Mark Connelly: It is now my pleasure to turn the floor over to your host, Mark Connelly. The floor is yours. Good morning.

Good day, everyone. Welcome to Graphic Packaging. Second quarter 2025 earnings call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after your presentation.

It is now my pleasure to turn the floor over to your host, Mark Connolly. The floor is yours.

Mark Connelly: We have with us today Mike Doss, President and Chief Executive Officer, and Steve Scherger, Executive Vice President and Chief Financial Officer.

Unknown Executive: During this call, we will reference our second quarter 2025 earnings presentation available through this webcast and on our website at www.graphicpkg.com.

Good morning. We have with us today Mike Doss president and chief executive officer and Steve Sher Executive Vice President and Chief Financial Officer.

Unknown Executive: Today's presentation will 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. These risks and uncertainties include, but are not limited to, the factors identified in today's press release and in our SEC filing.

during this call, we will reference our second quarter 2025 earnings presentation available through this webcast and on our website at www graphic pkg.com

Today's presentation will 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.

Michael Doss: Now let me turn the call over to Mike. Thank you, Mark. Good morning, everyone. And thank you for joining our call today. Graphic Packaging is a global leader in sustainable consumer packaging. In the second quarter, we saw a continuation of uneven volumes as consumers remain stretched. Promotional activity helped drive modest volume improvement in some categories. Conversations with our customers suggest potential for an increase in focus on volume growth and protecting their market share in the quarters ahead. Meanwhile, the last major investment in our vision 2025 is nearing completion, and we expect to generate cash substantially in excess of our needs beginning in 2026.

these risks and uncertainties include but are not limited to the factors identified in today's press release and in our SEC filings,

Now, let me turn the call over to Mike.

Thank you, Mark. Good morning, everyone and thank you for joining our call today.

Graphic Packaging is a global leader in sustainable consumer packaging.

The second quarter, we saw a continuation of uneven volumes as consumers remain stretched.

Promotional activity, helped Drive modest, volume Improvement in some categories.

Conversations with our customers suggest potential for an increase in focus on volume growth and protecting their market share in the quarters ahead.

Michael Doss: In the second quarter, graphic packaging sales were $2.2 billion, adjusted EBITDA was $336 million, adjusted EBITDA margin was 15.3%, and adjusted EPS was $0.42. Volumes in the Americas were modestly better than expected, driven mainly by an increase in beverage promotion and some targeted promotional activity in food and food service. Our decision to curtail production to further reduce inventory levels did impact our adjusted EBITDA margin, but positions us to operate much closer to normal levels in the second half.

Meanwhile, the last major investment in our Vision 2025 is nearing completion, and we expect to generate cash substantially in excess of our needs beginning in 2026.

In the second quarter Graphic Packaging sales for 2.2 billion dollars. Adjusted IBA was 336 million adjusted, even down, margin was 15.3% and adjusted EPS was 42 cents.

Volumes in the Americas were modestly better than expected, driven mainly by an increase in beverage promotion and some targeted, promotional activity, and food and food service.

Michael Doss: Turning to slide three, we will bring our Waco recycled paperboard investment to life in the fourth quarter. While the project remains on schedule, we are experiencing higher costs, principally labor and final engineering and design costs related to permitting and insurance requirements. We are now estimating 2025 capital expenditures of $850 million. In 2026, capital spending will decline 5% of sales, consistent with our original target. The higher spending in 2025 will be offset by lower cash taxes after recent federal tax law changes and lower working capital as we reduce inventories, so we expect no net impact on estimated 2025 free cash.

Our decision to curtail production to further reduce inventory levels. Did impact our adjustments, but positions us to operate much closer to normal levels in the second half.

Turning to slide 3, we will bring our woe recycled paper board investment to life. In the fourth quarter for the project remains on schedule. We are experiencing higher costs, principally labor and final engineering and design costs related to permitting and insurance requirements.

We are now, estimating, 2025 Capital expenditures of 850 million in 2026 Capital spending, will decline 5% of sales consistent with our original targets.

The higher spending in 2025 will be offset by lower cash taxes after recent federal tax law changes and working capital as we reduce inventories.

Michael Doss: With Waco set to begin production later this year, we closed our Middletown, Ohio paperboard manufacturing facility in May. We are now serving those customers mainly from existing inventory.

So we expect no net impact on estimated 2025 free cash flow.

With Waco, set to begin production later. This year, we closed our Middletown, Ohio, paperboard, manufacturing facility in May.

Michael Doss: Waco is the last major investment of our Vision 2025 transformation program. Recycled paperboard has, by a wide margin, the lowest environmental footprint, the lowest upfront capital and sustaining capital requirements, and with our quality advantage, can replace more expensive-to-produce bleach paperboard in a wide range of applications. When you look at the numbers from an investor standpoint, there is just no comparison. We will continue to utilize bleach paperboard where appropriate. From the vantage point of cost, capital and consumer appeal, recycled is superior to bleached, and we will continue to keep our footprint in bleach paperboard small and focused.

We are now serving those customers. Mainly from existing inventory, Waco is the last major investment of our vision. 2025 transformation program recycled paper board, has by a wide margin. The lowest environmental footprint, the lowest upfront capital and sustaining Capital requirements. And with our quality Advantage, can replace more expensive to produce bleach, paper board, and a wide range of applications. When you look at the numbers from an investor standpoint, there is just no comparison. We will continue to utilize bleach paper board where appropriate from the vantage point of cost, capital and consumer appeal, recycled a superior. Bleached and we will continue to keep our footprint in Bleach paperboards, small and focused.

Michael Doss: We were pleased by the recent decision of the Recycled Materials Association to, for the very first time, include paper cups in their single stream and dual stream recycling specifications. Graphic Packaging's own Ed Tucciarone worked closely with the Association and with our colleagues at Closed Loop Partners and the Food Service Packaging Institute to promote and encourage this important update. The Association's guidelines are highly influential with waste collectors and with thousands of material recovery facilities in deciding what does and doesn't get collected in municipal recycling and collections. is the largest producer of paper cups in North America and a major user of recovered fiber.

Ations.

Graphic Packaging, along with Ed to Chiron, worked closely with the association and our colleagues at closely partnered organizations and the Food Service Packaging Institute to promote and encourage this important update. The association's guidelines are highly influential with waste collectors and with thousands of material recovery facilities in deciding what does and doesn't get collected in municipal recycling and collection systems.

Michael Doss: This update has particular significance to us. We designed Waco to take full advantage of this high quality underutilized fiber source, which today mostly ends up in landfills.

As the largest producer of paper cups in North America and a major user of recovered fiber, this update has particular significance to us. We designed woe to take full advantage of this high-quality underutilized fiber source which today mostly ends up in landfills.

Michael Doss: I've already mentioned our action on inventory, Steve will discuss capital allocation in his comments in a few minutes. As expected, volumes across consumer staples remain uneven. A stretched consumer is spending more money on groceries, but leaving the store with fewer items than they did a year ago. Our volumes in the Americas were roughly flat, modestly better than expected, and we again helped perform the broader CPG and QSR markets we serve. Our international results remain positive, but growth slowed modestly, confirming that consumers in those markets are also stretched, as we cautioned last quarter. Private label and store brands continue to gain traction in select food categories.

I've already mentioned our action on inventory staple discussed Capital allocation in his comments in a few minutes.

As expected, volumes across consumer staples remain on the rise, even as the stretched consumer is spending more money on groceries but leaving the store with fewer items than they did a year ago.

Our volumes in the Americas were roughly flat modestly better than expected. And we again outperformed the broader cpg, and qsr markets, we serve

Our International results, remain positive, but grow slowed modestly, confirming that consumers in those markets are also stretched as we caution last quarter.

Michael Doss: Trade marketing activity has also been accelerating, suggesting that private label offerings will continue to expand across more grocery and other consumer staple categories. We have an excellent position with retailers and co-packers and have been particularly pleased with the reception our innovation portfolio is getting from these customers. We delivered innovation sales growth of $61 million in the second quarter and are on track to reach our 2% of sales growth target for the full year. While we have seen a few customers scale back their packaging innovation plans in the near term, most customers remain committed to reducing the environmental footprint of their packaging and our innovation sales pipeline remains robust.

Private label and store brands, continue to gain Traction in, select food categories.

Trademarking activity has also been accelerating suggesting that private label offerings will continue to expand across more Grocery and other consumer staple categories.

We have an excellent position with retailers and co-actors and have been particularly pleased with the reception. Our Innovation portfolio is getting from these customers.

We delivered Innovation sales growth of 61 million in the second quarter and are on track to reach our 2% of sales growth Target for the full year.

Michael Doss: Turning to slide four, the breadth and depth of our consumer staples packaging portfolio is the foundation of our strength. We're in every aisle of the supermarket, and are a major packaging supplier to quick service restaurants. Over time, we expect to grow our presence substantially across household products, and health and beauty as customers increasingly embrace recycled paperboard as a less expensive, more logical and more appealing alternative to bleach paperboard. Turning to slide five, overall second quarter packaging sales were roughly flat year over year. Food results remain uneven. Snacks are among the more discretionary grocery items and saw pressure although bars continue to benefit from wellness trends.

What we have seen is a few customers scale back their packaging innovation plans in the near term. Most customers remain committed to reducing the environmental footprint of their packaging, and our innovation sales pipeline remains robust.

Turning to slide 4, the breadth and depth of our consumer Stables. Packaging portfolio is the foundation of our strike. We are in every aisle of the supermarket and are a major packaging supplier to Quick Service restaurants over time. We expect to grow our presence substantially across household products and health and beauty as customers increasingly Embrace recycled paper board. As a less expensive, more logical. And more appealing alternative to bleach paper board.

Turning to slide 5 overall second quarter, packaging sales were roughly flat year-over-year.

Michael Doss: Cereals saw a continued weakness, but pasta, sauces, and prepared foods saw gains as consumers shifted from high-cost alternatives. Our Bordeaux container is driving solid growth for us in coffee, where we are also benefiting from a trend towards more home and office consumption. In the Americas, frozen foods saw further declines as consumers shifted to fresh and refrigerated categories, including bakery. Grocery stores generally earn higher margin on freshly prepared food items and are continuing to expand and promote their fresh offer. In Europe, frozen food results remain solid as consumers in those markets continue to prioritize convenience. After solid beverage seasons in 2023 and 2024, we are encouraged to see 2025 again off to a very good start.

On even snacks are among the more discretionary grocery items and salt pressure although bars continue to benefit from Wellness trends.

Cereal, saw continued weakness, but pasta sauces and prepared foods saw gains as consumers shifted from high cost Alternatives. Our bio container is driving solid growth for us in coffee, where we are also benefiting from a trend towards more Home and Office consumption.

In the Americas. Frozen Foods saw further declines, as consumers, shifted fresh in refrigerated categories, including Bakery, grocery stores. Generally earn higher margin on freshly prepared, food items and are continuing to expand and promote their fresh offerings.

In Europe, frozen food results, remain solid, as consumers in those markets, continue to prioritize convenience.

Michael Doss: Beers declined moderated for us and carbonated soft drinks saw good growth on the back of higher promotional activity around Memorial Day. July and August are the heart of the beverage season and July results have been very good. Energy drinks, flavored seltzer and wellness beverages are continuing to gain in popularity with Food service results were relatively unchanged, despite some aggressive but targeted promotional activities. We are actively engaging with our QSR customers on their strategies to drive higher foot traffic. Promotional activity in Europe continues to drive volume more successfully than it has in the United States to this point.

After solid beverage seasons in 2023 and 2024, we are encouraged to see 2025 again off to a very good start.

Here's the decline. Moderated for us, and carbonated soft drinks saw good growth on the back of higher promotional activity around Memorial Day.

July and August are the heart of the beverage season and July results. Have been very good, energy drinks, flavored Selzer, and wellness beverages are continuing to gain in popularity with consumers.

Food Service results were relatively unchanged despite some aggressive but targeted promotional activity. We are actively engaging with our qsr customers on their strategies to drive our foot traffic.

Michael Doss: Household product results were relatively unchanged overall, with tissue products turning positive and food storage remaining strong. Health and Beauty is still mostly an international business for us, although we expect that to change over time. Fragrances are showing further recovery after a good result last quarter, and healthcare products also showed improvement.

Promotional activity in Europe, continues to drive volume more successfully than it has in the United States to this point.

Household product results were relatively unchanged overall with tissue products, turning positive and food storage remaining strong health and beauty is still mostly an international business for us. Although we expect that to change over time, fragrances are showing further recovery after a good result, last quarter and Healthcare products also showed Improvement.

Michael Doss: Slide 6 highlights our five packaging innovation platforms which are key to generating top-line growth over time. We are seeing good opportunities across each of these areas and every new product launch adds to our insights and to the value we bring to our customers.

Michael Doss: On slide 7, I want to highlight an innovation specifically designed for club store customers. Most of the innovations we have highlighted recently are focused on plastic replacement, but sometimes innovation means taking a fresh look at traditional packaging solutions and creating something better. One of our largest CPG customers asked us to help them develop a more cost-effective bulk packaging solution for coffee pods. Working closely with their product development marketing teams, we developed a solution that reduces materials, cuts production, and material handling costs, improves on-shelf marketing impact, and delivers a superior customer experience. The traditional packaging method for bulk coffee pods is called dump fill.

Areas. And every new product launch adds to our insights into the value, we bring to our customers.

On slide 7, I want to highlight an innovation specifically designed for club store customers. Most of the innovations we have highlighted recently are focused on plastic replacement, but sometimes innovation means taking a fresh look at traditional packaging solutions and creating something better.

1 of our largest cpg. Customers asked us to help them develop a more cost-effective bulk. Packaging solution for coffee pods,

Working closely with their product development marketing teams, we developed a solution that reduces materials cost, production and material handling costs, improves on-shelf marketing impact, and delivers a superior customer experience.

Michael Doss: You set up a corrugated box, dump the pods in and glue the box shut. Our nested pod solution is better for nearly every angle. As you can see in these pictures, by orienting pods and layers, the new design eliminated the dead space at the top and fit the same number of pods into a 21% smaller package. It also uses 30% less material per package. Reorienting the container to be narrower and taller gives the package more shelf appeal and takes up less space in the consumer's pantry. The taller, narrower box also means that we can stack 26 boxes per layer on a pallet rather than just 16.

The traditional packaging method for bulk coffee pods is called dump fill.

You set up a corrugated box, dump the pods in and glue the Box. Shut our nested pod solution is better from nearly every angle.

As you can see in these pictures by orienting the pods and layers. The new design eliminated, the dead space at the top and fit the same number of PODS into a 21% smaller package. It also uses 30% less material per package reorienting, the container to be narrower and taller gives the package more shelf, appeal and takes up less space in the consumer's. Pantry, the taller narrower box also means that we can stack 26 boxes.

Michael Doss: and are only stacking four layers high rather than five. Moving the opening to the top center made the sides and corners of the package stronger. With fewer layers and a stronger structure, we were able to switch to a layer thinner materials. And finally, we replaced the expensive bleach paperboard top sheet with our paste center veneer recycled paperboard. That lowered the cost further and reduced the package's overall environmental footprint with a 100% recycled alternative that provides the same outstanding print quality. This new nested coffee pod solution is on store shelves right now and represents the gold standard for coffee pod packaging.

Per layer on a pallet rather than just 16 and our only stacking 4 layers High rather than 5.

Moving the opening to the top Center made the size corners of the package stronger with fewer layers, and a stronger structure. We were able to switch to layer that are materials. And finally, we replaced the expensive bleach paperboard, top sheet with our Pace, Setter reneer recycled paper board, that lowered, the cost further. And reduced the packages overall environmental footprint, with 100% recyclable, alternative, that provides the same outstanding print quality.

This new nested coffee pot solution is on the store shelves right now and represents the gold standard for coffee pod packaging.

Michael Doss: Turning to slide 8, our vision for graphic packaging is clear. Our focus on innovation, culture, and commitment to sustainability is how we generate best-in-class results for our customers and for all our stakeholders. When our Waco investment is complete, we will have everything we need to reach our Vision 2030 goals.

Michael Doss: On the governance front, I'm happy to report we recently published our 2024 impact We've added two new directors to our board in the past year, with extensive operational and senior leadership experience in food and healthcare, and we are in the process of declassifying our board. Our commitment to driving shareholder value is stronger than ever, and Vision 2030 is our road map.

Turning to slide 8, our vision for Graphic Packaging is clear. Our focus on Innovation culture, and commitment to sustainability, is how we generate best-in-class results for our customers. And for all our stakeholders, when our Waco investment is complete, we will have everything we need to reach our vision 2030 goals.

On the governance front. I'm happy to report that we've recently published our 2024 impact report. We've added 2 new directors to our board in the past year with extensive operational and Senior leadership experience in food and Healthcare and we are in the process of declassifying our board.

Stephen Scherger: Now let me turn the discussion over to Steve for a review of the company's financial performance and capital allocation. Thank you, Mike. Turning to slide nine. Sales for the second quarter of 2025 were $2.2 billion. If we exclude the impact, the Augusta Divestiture... and the impact of foreign exchange in the quarter, packaging sales were roughly flat. Packaging price was approximately 1% lower. which mainly reflects the impact of third-party price recognition from 2024. Overall volume was up approximately 1%, with America's basically flat and international modestly positive. Justin Ibada was $336 million in line with the commentary we provided in June.

Our commitment to driving shareholder value is stronger than ever and vision. 2030 is our roadmap.

Now, let me turn the discussion over to Steve for a review of the company's financial performance and capital allocation.

Thank you, Mike.

Turning this slide 9.

Sales for the second quarter of 2025 for 2.2 billion dollars.

If we exclude the impact of the Augusta deer and the impact of foreign exchange in the quarter.

Packaging sales were roughly flat.

Packaging price was approximately 1% lower.

which mainly reflects the impact of third-party price recognition from 2024,

Overall volume was up approximately 1% with America's basically flat.

And international modestly positive.

Stephen Scherger: The second quarter is our biggest maintenance quarter and we took aggressive action to manage inventories, which had an incremental impact on a reported margin, but positions us to run at more normal levels in the second quarter. During the second quarter, the impact of lower prices, input cost inflation. Labor Benefits Inflation, and the Augusta Divestiture reduced EBITDA by approximately $64 million. Our actions to reduce inventory drove net performance negative in the quarter, more than offsetting a modest benefit from higher volume. for a combined net negative $13 million. Inflation did moderate in the second quarter, with lower resin, recovered fiber, and logistics costs compared to the first quarter.

Now, just an even de was 336 million in line with the commentary we provided in June.

The second quarter is our biggest maintenance quarter, and we took a g of action to manage inventories.

Which had an incremental impact on our reported margin of positions us to run at more normal levels in the second half.

During the second quarter, the impact of lower prices.

Input cost inflation, labor and benefits inflation and the Augusta Devastator reduced ibida by approximately 64 million.

Our actions to reduce inventory, drove net, performance, negative. In the quarter.

More than offsetting a modest benefit from higher volume.

For a combined. Net negative 13 million.

Stephen Scherger: Ford Exchange was an $11 million tailwind.

Inflation did moderate in the second quarter, with lower resin, recovered fiber, and logistics costs compared to the first quarter.

Foreign exchange was an 11 million Tailwind.

Stephen Scherger: Slide 10 highlights the still challenging consumer packaging environment on the left and the strength of our business model and execution on the right. While inflation and our inventory management decisions pushed our margins below normal this quarter, less maintenance and the actions we have taken on both costs and production should push margins closer to normal levels in the second half, and we will see the Waco investment benefits starting in 2026.

Flight 10 highlights the still challenging consumer packaging environment on the left.

And the strength of our business model and execution on the right.

Management decisions pushed our margins below normal. This quarter less maintenance and the actions. We have taken on both costs and production should push. Margins closer to normal levels in the second half.

And we will see the whoa investment benefits starting in 2026.

Stephen Scherger: Turning to slide 11. We repurchased 1.6% of the company's outstanding shares during the second quarter at an average price of $22.26 per share. We allowed net leverage to rise modestly in the quarter, taking advantage of what we believe was an unusually attractive stock price. We expect to end the year with net leverage below 3.5 times in line with our guidance. and the appendix to today's presentation on slide 18. We highlight the company's strong record of opportunistic share reversal. Since 2018, when we completed the combination with International Papers Consumer Business, Graphic Packaging has repurchased nearly a quarter of the company, while we doubled its size and completed the transformation into a global consumer packaging leader.

Turning to slide 11.

We repurchase 1.6% of the company's outstanding shares during the second quarter and an average price of 2226 per share.

We allowed net leverage to rise modestly in the quarter, taking advantage of what we believe was an unusually attractive stock price.

We expect to end the year with net leverage below 3.5 times in line with our guidance.

In the appendix, to today's presentation on flight 18.

We highlight the company's strong record of opportunistic. Share repurchase.

Since 2018, when we completed the combination with International Paper's consumer business, Graphic Packaging has repurchased nearly a quarter of the company.

Stephen Scherger: With the Waco investment nearing completion, free cash flow will rise substantially, and as of June 30th, availability under share repurchase authorizations was approximately $1.75 billion.

while we doubled in size and completed the transformation into a global consumer, packaging leader,

With the Waco investment nearing. Completion free, cash flow will rise. Substantially.

And as of June 30th, availability under share repurchase authorizations was approximately $1.75 billion.

Stephen Scherger: Turning to the Outlook on slide 12. We have updated our guidance to reflect performance to date and a somewhat narrower range of outcomes. with no change to the Adjusted EVIDOM it. Volume uncertainty remains elevated given the stretched consumer and the targeted promotional activity we are seeing, particularly in food packaging, our biggest market. Many, if not most, of our CPG and QSR customers continue to express caution about their own near-term volume outlays. As I mentioned, we expect second half adjusted EBITDA margins to be meaningfully better than first half as a result of actions we have taken to reduce EBITDA margins.

Turning to the outlook on slide 12.

We have updated our guidance to reflect performance to date and a somewhat narrow range of outcomes, with no change to the adjusted EVAa midpoint.

Volume uncertainty remains elevated given the stretch consumer and the targeted promotional activity. We are seeing

Particularly in food, packaging, our biggest Market.

Many, if not most, of our CPG and cues customers continue to express caution about their own near-term volume outlooks.

Stephen Scherger: Less Scheduled Maintenance and Normal Seasonality. As Mike mentioned, the increase in capital spending in 2025 is offset elsewhere, and so our expected 2025 free cash flow remains unchanged. This late-phase increase in project costs is not expected to materially affect overall investment returns. WACO's economic and quality advantages are expected to be even stronger than they were in our previous estimates.

As I mentioned, we expect second half adjusted Eva doll. Margins to be, meaningfully better than first half. As a result of actions, we have taken to reduce inventories

Let's schedule maintenance.

And normal seasonality.

As Mike mentioned, the increase in capital spending in 2025 is offset elsewhere and so are expected, 2025 free cash. Flow remains unchanged. This late phase increase in Project costs is not expected to materially affect overall investment returns.

Waco's, economic and quality advantages are expected to be even stronger than they were in our previous estimates.

Stephen Scherger: Slide 13 summarizes the company's Vision 2030-based financial model and capital allocation priorities, which are unchanged. As we move toward 2026, graphic packaging will return to a more normal level of reinvestment for growth and productivity, which is included in our 5% of sales CapEx target. We expect to generate free cash substantially in excess of our needs over the next several years. and we plan to return significant capital to stockholders while also reducing debt levels. We remain committed to an investment grade credit rating by 2030. On slide 14, given the weaker near-term volumes and their impact on 2025 adjusted EBITDA, we've adjusted our expectations for 2026 free cash flow to $700 to $800 million.

Slide, 13, summar of the company's Vision, 2030 bass, financial model, and capital, allocation priorities, which are unchanged.

As we move toward 2026, Graphic Packaging will return to a more normal level of reinvestment for growth and productivity, which is included in our 5% of sales, capex Target.

We expect to generate 3 cash substantially in excess of our needs over the next several years.

And we plan to return significant Capital to stockholders while also reducing debt levels.

We remain committed to an investment grade credit rating by 2030.

On slide 14.

Given the weaker near-term volumes and their impact on 2025 adjusted EBITDA.

Stephen Scherger: as volume moves back to more normal levels. We expect to achieve our original free cash flow targets in 2027 and beyond.

We have adjusted our expectations for 2026 free cash flow to $700 million to $800 million.

As volume moves back to more normal levels.

Unknown Executive: In the appendix that begins with slide 15, you will find additional information that may be useful for modeling, information on seasonality, and the review of our buyback. which I referenced earlier.

We expect to achieve our original free cash, flow Targets in 2027 and Beyond.

In the appendix that begins with slide 15, you will find additional information that may be useful for modeling information on seasonality.

Unknown Executive: That concludes our prepared remarks.

And the review of our buyback history, which I referenced earlier.

Unknown Executive: Operator, let's begin the Q&A. Certainly.

That concludes our prepared remarks.

Operator, let's begin the Q&A.

Unknown Executive: The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality.

Unknown Executive: In the interest of time, please limit yourself to one question and one follow-up question. Please hold just a few moments while we poll for any questions.

Certainly the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone. At this time, we ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide Optimum sound quality.

In the interest of time, please limit yourself to 1 question and 1 follow-up question please. Hold just a few moments while we pull for any questions.

Anthony Pettinari: Your first question is coming from Anthony Pettinari with Citi. Anthony, please post your question. Your line is live.

Your first question is coming from Anthony Pinari with City. Anthony, please put your question; your line is live.

Stephen Scherger: Good morning. Um, so I had a question about the the increase in terms of the increase in capital spending from 700 to 850. So That impacts free cash flow in 26. I'm just trying to understand kind of the flow through because it looks like you trimmed the 26 free cash flow number and then Is that just completely sort of one time in nature? And then 27, you're kind of stepping up from a lower base? Or just can you help us understand how that sort of flows through and impacts cash from you know, 25, 26, 27?

Uh, good morning.

Increase in capital spending from 700 to 850 so that impacts free cash flow in 26. I'm just trying to understand kind of the flow through because it looks like you trimmed, the 26 free cash flow number

and then is that is that just completely sort of 1 time in nature and then 27. You're kind of stepping up from a lower base or just can you help us understand how that sort of flows through and impacts cash from you know, 252627?

Stephen Scherger: Yeah, Anthony and Steve, I'll take that. 2025, as we articulated, CapEx $850 million, a combination of cash taxes, working capital down $150 million. That's driven by some benefits from the recent tax legislation, about $50 million and a decrease in working capital as we've significantly reduced working capital.

Stephen Scherger: So for 2025, no change in our free cash flow and as such no change in our expectations for year end leverage. In 2026, what we've done is we've updated 2026 cash flow for our expectations of where the leap off point is for this year's EBITDA. And so that's got 2025 EBITDA at the point of 1.5. Our assumption, obviously, is that will grow next year. And then the cash to run the company in 2026 is very consistent with what we've shared previously. Total cash for CapEx interest taxes, working capital will be between $750 and $850 million.

Yeah, Anthony, and Steve. I I'll take that uh, in 2025, as we articulated capex, 850 million, the combination of cash taxes, working capital down 150 million dollars. That's driven by some benefits from the recent tax legislation, about 50 million and a decrease in working capital as we've significantly reduced working capital. So for 2025, no, change in our free cash flow and as such no change, uh, in our expectations for year-end leverage in 2026. What we've done is we've updated 2026 cash flow for our expectations of where the leap off point is for this, year's evop. And so that's got 2025 Eva at the midpoint of 15.

Stephen Scherger: And that'll have CapEx at 5% of sales. So think about that as in the mid $400 million range. And then the remaining items in the mid $300 million range. So that's kind of the path to the updated $700 to $800 million of free cash flow in next year.

Anthony Pettinari: So we took this opportunity to update it for this year's CapEx, this year's cash flow consistency, and then updating it for 2026 cash flow, free cash flow expectations. Got it, got it. That's that's very helpful.

Our assumption obviously is that it'll grow next year and then the cash to run. The company in 2026 is very consistent. With what we've shared previously, total cash for capex, interest taxes, working capital will be between 750 and 850 million uh, and that'll have capex at 5% of sales. So think about that as in the mid 400 million dollar range and then the remaining items in the mid 300, 300 million dollar range. So, that's kind of the path to the updated. 700 to 800 million dollars of free cash flow in next year. So we took this opportunity to update it. Uh, for this year's capex, this year's cash flow consistency and then updating it for 2026 is Cash Flow. Free Cash Flow expectations.

Anthony Pettinari: And then maybe just one follow up in terms of you referenced maybe some higher permitting costs, insurance costs, maybe labor around Waco.

Michael Doss: Was that something that was sort of inflating over the course of the year? Or were there some aspect of the project where you saw kind of a big step up in that estimate, maybe during the quarter, just trying to understand, you know, what's driving those costs?

Michael Doss: If it's maybe a bunch of little things or something that changed with the Anthony, it's Mike. Yeah, look, it's a couple of things. I appreciate the question. First, labor costs, specifically electricians, as you can appreciate, we've got about 600 electricians working to finish up the project here as we speak, on the final phases of it. That portion of the labor came in a little higher than what we expected. That's really a function of the fact, as you're well aware, there's a real boom on data centers and other construction that's been up by the cost of that labor.

Got it, got it. That's that's very helpful. Um, and then maybe just 1, follow-up in terms of you referenced maybe some higher permitting, costs Insurance costs, maybe labor around Waco. Was that something? That was sort of inflating over the course of the year or were there. Some aspect of the project where you saw kind of a, a big step up in that estimate maybe during the quarter, just trying to understand, you know what's driving those costs? If it's maybe a bunch of little things or or something that changed with the project,

Michael Doss: So we had to deal with that. I think if you take a step back and look at it over a two and a half year period, we started with a greenfield. And of course, we had the engineering done on certain aspects from Kalamazoo, we built the same machine hall, there were other elements that were different, because we didn't have certain things like powerhouse, wastewater treatment, those types of things, we had to build them. And that comes with what we had initial permits, and insurance understanding. And some of that stuff evolved over the course of construction, you try to deal with those as they come in.

Michael Doss: In some cases, there was rework that was required on things that we had already done in order to get the final permitting, as I alluded to in my prepared remarks, and all of it was inflationary. And so ultimately, you kind of put it together, we pushed out 150 million, we talked about today, if you add up where we're over on that project, it's around 20% from our original commitments that we made, you know, about two and a half years ago. And what I'll tell you, is that I'm more encouraged than ever around our ability to, you know, really deliver on the returns of that project capabilities are going to be fantastic, both in terms of quality and cost.

Stephanie, it's Mike, yeah, look, um, it's a couple of things. I appreciate the question first, labor cost specifically electricians and as you can appreciate, we've got about 600 electricians working to finish up the uh, the project here as we speak or in the final phases of it. Uh, that portion of the labor came in a little higher than what we expected. That's really a function of the fact. Uh, as you're well aware, uh there's a real boom on data centers and other construction. Uh, that's bid up by the cost of that labor so we had to deal with that. Um, I think if you take a step back and look at it over a 2 and a half year period, we started with a green field. Uh and of course we had the engineering done on certain aspects from Kalamazoo. We built the same machine Hall. There are other elements that were different because we did didn't have certain things like, uh, the PowerHouse wastewater treatment, those types of things, we had to build them. And that comes with what we had initial permits, uh, and insurance understanding. And some of that stuff evolved over the course of construction. You try to deal with those as they come in.

Uh, in some cases there were some rework that was required on things that we had already done in order to get the, the final permitting as I alluded to, in my prepared remarks and all of it was inflationary. And so, ultimately, you kind of put it together, we pushed out the 150 million. We talked about today if you add up where we're over on that project, it's around 20% from our original, um, uh, you know, commitments that we made uh, you know, about 2 and a half years ago. And what I'll tell you um is that I'm more encouraged and

Michael Doss: When you put Kalamazoo and Waco together, the replacement costs of both of those assets are substantially above what we paid for now, if someone was replicated, so it really creates a bit of a mode around that business. No one likes, you know, a cost overrun, we take those things seriously. And obviously, we try to deal with them, as you've seen us do here by managing other aspects of our business to make sure we deliver our free cash flow. But we had to get the project done, we'll have it done here, it's going to start up on time.

Anthony Pettinari: And I'm really excited about bringing Waco to life here in the fourth quarter. Okay, that's very helpful.

Free cash flow. Um, but we had to get the project done. We will have it done here, it's going to start up on time. Um and I'm really excited about uh uh waiting vehicle to life here in the fourth quarter.

Unknown Executive: I'll turn it over.

Okay, that that's very helpful. I'll turn it over.

George Staphos: Your next question is coming from George Staphos with Bank of America. Please put your question. Your line is live. Thanks very much, everyone. Good morning. Thanks for the details. I guess, as we look out nearer term in terms of margin, and the implied, as we're doing the math, 19% margin or so for the second half of this year.

Your next question is coming from George staf with bank.

Your line is live.

Stephen Scherger: Mike and Steve, can you talk to us about, you know, maybe not to the penny, but what some of the building blocks are there that give you confidence that you can get there?

Stephen Scherger: And, you know, what's sustainable into 26 and beyond, and how to follow on related to the intermediate term growth outlook for EBITDA?

Thanks very much everyone. Good morning. Thanks for the details. Um I guess the as we look out nearer term in terms of margin and the implied as we were doing the math 19% margin or so for the second half of this year. Mike and Steve can you talk to us about you know, maybe not to the penny but with some of the building blocks are there that give you confidence that you can get there and you know, what sustainable into 26 and beyond that, how to follow on related to the intermediate term growth outlook for for ebita.

Stephen Scherger: Hey, George and Steve, I'll take that. And maybe just do it this way kind of first half, second half, first half, even 700 million dollars, midpoint of second half $800 million. The margins, as you described, a couple of components, one, are pricing while around $50 million negative in the first half be closer to 25 million in the second half. So that's a $25 million first half, second half pickup. And then really the majority of it, probably $60 million is that combination of less planned maintenance downtime, Q2 is very high for planned maintenance, and less market related downtime as we took over 50,000 tons of inventory out of the company in the first half that doesn't need to be repeated in the second half.

Hey George, it's Steve. I I'll take that and maybe just do it this way. Kind of first half second half uh first half even to 700 million dollars. Midpoint of second half 800 million dollars of the margins. As you described a couple of components 1 uh our pricing while around $50 million negative in the first half would be closer to 25 million in the second half. So that's a 25 million dollar, first half second half pickup and then really the majority of it, probably 6.

Stephen Scherger: So two major components to the $100 million price and performance being 25 and 60, cumulatively, the remaining 15 million is a cross section of some other inflation effects. So relatively modest.

Stephen Scherger: So that's really the first half, second half conversation. And we're very pleased with our inventory reduction efforts through, you know, from December year through through June, there'll be more inventory coming out of the company naturally in the second half of the year with the Middletown closure. But the economic impact of that is relatively modest as we sell aggressively out of inventory.

Stephen Scherger: Okay, very good. I appreciate that, Steve. It's just maybe factually, if you can cover it as part of the answer to the question, I didn't see really the inventory move that much 1Q to 2Q. So I'm assuming you're holding some extra as you, you know, basically, the fleet of machines is changing, you've got Middletown coming out, you've got Waco coming up, I'm assuming that's a little bit of buffer. And then as we think out more to 26 and 27, obviously, we have the Waco EBITDA pickup. But can you again, maybe not to the penny, but help us bridge to what you think some of the more important EBITDA pickups will be next year.

50 billion is that combination of less planned maintenance downtime Q2 is very high for plan maintenance and less uh Market related downtime as we took over 50,000, tons of inventory. Out of the company uh, in the first half, that doesn't need to be repeated in the second half. So 2 major components to the 100 million price uh and performance being 25 and 60, cumulatively the remaining 15 million is a cross-section of some other inflation, FX items so relatively modest. So that's really the first half, second half conversation and we're very pleased with our inventory, reduction efforts, uh through, you know, from December year through through June, they'll be more inventory. Coming out of the company naturally in the second half of the year with the Middletown closure. But the economic impact of that is relatively modest As We Sell aggressively uh out of inventory.

Okay, very good. Uh, appreciate that, Steve. It's just maybe factual if you can cover it as part of the answer to the question. I didn't see really the inventory move that much from Q1 to Q2. So I'm assuming you're holding some extra as you, you know, basically the fleet of machines is changing. You've got Middletown coming out, you've got Waco coming, coming. I'm assuming that's a little bit of buffer. And then as we think out more to 2026 and 2027, obviously we have the Waco Evita pickup. But can you, again, maybe not to the penny, but, uh, help?

Stephen Scherger: And thereafter, I'm assuming volume is a big one. But if you can give us additional color, that'd be great.

George Staphos: Thanks, and good luck in the quarter.

Help us bridge to what you think. Some of the more important EBITDA pickups will be, uh, next year and thereafter. I'm assuming volume is a big one, but if you can give us additional color, that would be great. Thanks, and good luck in the quarter.

Stephen Scherger: Yeah, George, I'll start and then Mike can add some color into next year. On the balance sheet, you're absolutely correct. The actual inventory numbers are not down. Our inventory volume down 50,000 tons are roughly 12%. Very material, that's very important. It's offset by FX, George, the actual balance sheet in terms of how it gets layered is an FX issue. So volumetrically down 12% on inventory offset by FX. And I appreciate you raising that because it's, it's important.

Yeah, George. I'll start and then Mike and uh add some color into next year on the balance sheet, you're absolutely correct. The actual inventory numbers are not down. Uh, our inventory volume down, 50,000 tons or roughly 12%, very material that's very important, it's offset my FX George, the actual balance sheet in terms of how it gets

Michael Doss: As we look to 2026, the algorithm we have for the company, we would expect to be on display in 2026. Importantly, our Waco expectations for 2026 remain at $80 million. And then obviously, our overall performance will hinge upon some levels of modest volume growth. But the 80 million on Waco next year remains our expectation for 2026.

Michael Doss: I think Michael may add a couple of things around the business. Yeah, George, I think look, the catalyst as Steve outlined in 26 and 27 is bringing Waco to life 80 and 80, as you well know. It's a really good question, your follow on there around the confidence in our algorithm around low single digit growth rate after a disappointing 2024, to be fair, and a first half of 2025 that we played to a draw. You know, we've driven our innovation, you see that we had $61 million of innovation this quarter was eaten up by the fact that our customers volumes continue to go down.

Layered is an fx issue. So volumetrically down 12% on inventory, offset by, um, FX and I appreciate you raising that because it's, it's important, as we look to 2026 the algorithm, we have for the company we would expect to, uh, be on display in 2026. Importantly our Waco expectations for 2026, uh, remain in 80 million dollars. And then obviously, uh, or overall performance will hinge upon at some levels of modest volume growth but the 80 million on Waco next year remains our expectation for 20206. I think, Mike, you may add a couple of things around the business. Yeah, George I think look the catalyst is Steve outline in 26 and 27 is bringing Waco to life 80 and 80 as you well know, it's a really good question. Your follow on there around, you know, the confidence and and our algorithm

Michael Doss: We're in a highly unusual time. I mean, food prices are very high and consumers are struggling both here and in Europe. And ultimately, the macro uncertainty is something that we have to deal with, and particularly as consumer confidence declines. So as we look out into 26 and 27, we know our customers are working various strategies to continue to deal with this. Of course, their stocks aren't working either. When their volumes go down, you've seen a fair amount of discussion by customers. Some are buying one another, some are breaking themselves up. Others are changing leadership. So there's a fair amount of things that are happening as they look to kind of deal with those things.

Michael Doss: And we believe over time, over the medium term, for sure that that stuff gets worked out, it needs to get worked out. And we're there to help. We're going to help our customers work through those formulation changes and how they work on the promotional activity. But a big part of our algorithm is getting to that low single digit growth. And our vision 2030, as you know, as demonstrated here, it's not linear, but we believe that's still the right model for us over time. That's how we're thinking about it.

And ultimately, um, you know, the macro uncertainty is is something that we have to deal with and particularly as consumer confidence declined. So, as we look out, um, into 26 and 27, we know our customers are working very strategies to continue to deal with this. Of course, their stocks aren't working either when their volume is go down. Uh you've seen a fair amount of discussion by customer Summit are buying 1, another, some are breaking themselves up, you know, others are changing leadership. So there's a fair amount of things that are happening as they look to kind of deal with those things and, and we believe over time, um, you know, that over the medium term, for sure, that that stuff gets worked out, it needs to get worked out, um, and we're there to help you, we're going to help our customers, you know, work through those formulation changes and how they work on the promotional activity. Uh, but a big part of, you know, our Al algorithm is getting to that low single digit growth um and our vision 2030 as you know as demonstrated here. It's not linear but we believe that's still the right model, you know, for us over time

That's how we're thinking about it.

George Staphos: Okay, thank you very much.

John Dunigan: I'll turn it over. Your next question is coming from Phil Ng with Jefferies. Please pose your question. Your line is live.

Okay, thank you very much. I'll turn it over.

Your next question is coming from Phil Ing with Jeffrey's. Please close your question. Your line is live.

John Dunigan: Morning, Mike, Steve, this is actually John on for Phil, appreciate all the details here. I wanted to actually look a little further out the 2027 guide for free cash flow. You guys maintain 900 to a billion dollars. applies at the midpoints, like a plus 200 type of improvement.

Good morning, Mike Steve. This is actually John on for Phil. I appreciate all the details here. I wanted to actually look a little further out at the 2027 guidance for free cash flow. You guys maintain $900 million to $1 billion, so that implies that the midpoint is around $950 million.

Stephen Scherger: I know you said volumes are expected to recover to more normalized levels, but it just seems like a big jump. Can you just help us bridge that expectation out in 2027 and beyond?

Type of improvement. Is I know you said volumes are, um, expected to recover to more normalized levels, but it just seems like a big jump. Can you just help us Bridge?

Um, that expectation out in 2027 and Beyond.

Stephen Scherger: Yeah, John and Steve, what we really did with our long term pre cash flow expectations is we dialed in 2026 a bit, as we just described a couple moments ago, seven to 800 million. And as Mike just described, as our algorithm for low, mid and high single digit sales EBITDA and EPS growth plays itself out over the next several years, along with a second $80 million of EBITDA improvement in 2027 from Waco gives us the opportunity for cash flows to continue to grow from the 700, 700 to 800 million range into that 900 plus range towards the billion that we originally targeted.

Yeah, John

But we really did, uh, with our long.

Stephen Scherger: And so as Mike said, it's not linear, we've worked through some consumer and inflation realities here at 2425.

Stephen Scherger: But our confidence in the long term algorithm for the company remains intact, and it's not moving off of our 2027 and beyond pre cash flow expectations. Okay, and just to kind of follow up on that a little bit, Mike, I know you just said you're still expecting the 160 million from Waco, but does volume need to recover to get that full 160 over the next couple of years? Or is this is this mostly coming from lower costs and such things of still flat volumes into, you know, some of the actual Yeah, there's a portion of it, John, that obviously comes from shutting down our smaller higher cost facilities, as you've seen us do with Middletown.

Term free cash flow expectations as we dialed in 2026 a bit, as we just described a couple of moments ago: $700 million to $800 million. And as Mike just described, our algorithm for low, mid, and high single-digit sales and EPS growth plays itself out over the next several years. Along with the second $80 million of EBITDA improvement in 2027 from Waco, this gives us the opportunity for cash flows to continue to grow from the $700 million to $800 million range into that $900 million-plus range towards the $1 billion that we originally targeted. And so, as Mike said, it's not linear. We've worked through some consumer and inflation realities here in 2024 and 2025, but our confidence in the long-term growth remains strong.

Term algorithm for the company uh remains intact and it's not moving off of our 2027 and Beyond free cash flow expectations.

Okay. And just to kind of follow up on that a little bit and like I know you just said you're still expecting the 160 million from Waco but does volume need to recover to get that full 160 over the next couple of years or um, is this is this mostly coming from lower costs and such means of still flat volumes in into, uh, you know, some of the Outlook at least

Michael Doss: Of course, he's saying it falls in that bucket as well. I'll remind you, there's also been, you know, two other mills for a total of 370,000 tons, you know, that have come out in the last 90 days, Middletown being part of that and, and two additional mills on top of that. So, there is probably growth of around 200,000 tons, as you kind of look in the outlying years, 27 and 28, as we ramp that facility up, and we expect to grow, as we just talked about, and we're going to need that paperboard, you know, in order to, you know, that low cost high quality paperboard that we'll be making in order to fund that growth and, you know, take care of customers.

Yeah. There's a portion of it, John, that obviously comes from shutting down our smaller, higher-cost facilities, as you've seen us do with Middletown, of course. He's saying just Falls falls in that bucket as well. I'll remind you, there's also been, you know, two other bills for a total of 370,000 tons.

Michael Doss: So, the answer is yes, there's a portion of it that's fixed, you know, just a reduction and then a portion of it that's growth, but our confidence level in the 80 and 80 is high, and that's why we asked you to model it that way.

You know that have come out in the last 90 days um it'll Town being part of that and and 2 additional Mills on top of that. So there is probably growth of around 200,000 tons. Uh as you kind of look in the outline years 27 and 28 as we ramped that facility up. Um, and we expect to, you know, grow um, as uh, as we just talked about and we're going to need that paperwork. Uh, you know, in order to uh you know at low cost high quality paper board that will be making uh, in order to fund that growth or and and uh, you know, take care of customers. So, um, the answer is yes, there's a portion of it that's fixed. Uh, you know, just the reduction and then a portion of it that's growth, but

But, uh, our confidence level in the 80 and 80 is high, and that's why we asked you to model it that way.

John Dunigan: We appreciate the details.

Unknown Executive: I'll turn it over.

Gabrial Hajde: Thanks.

Appreciate the details. I'll turn it over. Thanks.

Stephen Scherger: Your next question is coming from Gabrial Hajde with Wells Fargo. Please put your question, your line is Mike, Steve, Mark, good morning. Point of clarification on something you said, Steve, on I guess I'll call it underabsorbed fixed overhead. You talked about reducing inventories by 50,000 in the quarter. Excuse me, but it costs you $60 million, which implies sort of $1,100 or so a ton of underabsorbed fixed overhead. It seems like a big number. Is there anything else going on there that we should be mindful of when we think about that?

Your next question is coming from. Gabriel hate with Wells. Fargo, please post your question in your line is live.

Mic. Steve, Mark. Good morning.

um,

Point of clarification on something you said Steve on, I guess I'll call it under absorption overhead. Um you talked about reducing inventories by 50,000 in the quarter

Overhead. It seems like a big number. Is there anything else going on there that we should be mindful of um, when we think about that,

Stephen Scherger: Yeah, Gabe and Steve.

Stephen Scherger: As a reminder, Q2 is our largest planned maintenance downtime quarter. So when you're doing a first half, second half, we pick up 20 or 30 million of the 60 just from less planned maintenance downtime. The first half, second half, and less marker-related drive-out inventory, first half to second half. So thanks for raising that. I wouldn't want that to be confusing. Okay. No, thank you.

Yeah, Gabe. It's Steve. As a reminder, Q2 is our largest plan of maintenance downtime quarter. So when you're doing a first half, second half, we pick up $20 or $30 million of the $60 million, just from less planned maintenance downtime. The remainder is from the actions that we took to take the 50,000 tons out, so it's not $60 million as I think you're potentially implying. It's a combination of less planned maintenance downtime, first half to second half, and less market-related to drive out inventory from the first half to the second half. So thanks for raising that; I wouldn't want that to be confusing.

Michael Doss: Maybe two quick follow-ups. One, the maintenance this year is at a relatively normalized number when you kind of look out in a 26, 27. And then related, well, separately, I should say, on the beverage end market, I know it's difficult to understand exactly what your customers are holding in terms of inventory, but they did promote pretty heavily in the first half. Is it your view that they're sitting on comfortable levels of inventory, maybe a little less than they need or more than they need as they go into the back half?

Michael Doss: Thank you.

Okay, no, thank you. Um, maybe 2, quick follow-ups, 1. The the maintenance this year, is that a relatively normalized number. When you kind of look out, um, in the 2627 and then related, well, separately, I should say, on the beverage End Market, I know, it's difficult to understand exactly what your customers are holding in terms of inventory. Um, but they didn't promote pretty heavily in the first half. Is it your view that they're, um, getting uncomfortable levels of inventory? Maybe a little less than the need or more than they need as they go into the back half. Thank you. And good luck.

Stephen Scherger: Yeah, I'll take the first one and Mike can discuss the second. We don't expect any of substance planned maintenance downtime differences 25 to 26. So that will play itself out relatively normalized. Obviously, we do not expect to repeat the market related inventory correction downtime that we took if you look at it on a year over year basis.

Michael Doss: In regards to the beverage season, Dave, you know, we actually have seen a very solid beverage season, both in Europe and in North America. North America, it's a little bit of function of the mix of customers that we're serving. For us, it makes us our volume, obviously, you know, quite good. This year, relative to what customers are holding and warehouses and the retail, we don't have a lot of insight into that. I can tell you, we're busy. We're steady. The demand is strong. We've gotten no indications from them that it's going to back off before the normal occurrence, which is, you know, in the Northern Hemisphere is from, you know, basically from Memorial Day to Labor Day.

Yeah, Dave, I'll take the first 1 and Mike and uh discuss the second. We don't expect any of substance planned maintenance downtime differences, 25 to 26. So that will play itself out relatively normalized. Obviously, we do not expect to repeat, uh, the market related inventory correction, uh, downtime that we took, if you look at it on a year-over-year basis, in regards to the beverage season game, you know, uh, we actually seen a very solid beverage season both in Europe and in North America, and North America. It's a little bit of function of the mix of customers that were serving. Um, you know, for us, it makes us our volume, obviously, you know, quite good, uh, this year relative to what customers are holding and warehouses in the retail. It's we don't have a lot of insight into that. We, I can tell you, we're busy, uh, we're steady. The demand is strong, we've got no indications from them. Um, that, uh, it's kind of, you know, back off before

or the normal occurrence, which is, you know, in the northern hemisphere is from, uh, you know, late basically from Memorial Day to Labor Day.

Michael Doss: Thank you.

Thank you.

Matt Roberts: Your next question is coming from Matt Roberts with Raymond James. Please pose your question. Your line is. Hey, Mike, Steve, Mark, good morning. Um, on the second half volumes, the first half was up 1%. And so flattened by second half down slightly. So you have a slightly harder comp. But when you spoke in mid June, I believe you said the quarter two key was going to be a flat came in a bit better than that. So maybe some additional color on what you saw exiting June and what you've seen to date here in July.

Your next question is coming from Matt Roberts with Raymond James. Please post your question; your line is live.

Hey Mike, Steve, Mark, uh, good morning. Um, just on the second half volumes: the first half was up 1%, and so flat implies second half down slightly, and so you have the slightly harder comp. But when you spoke in mid-June, I believe you said the Q2 was going to be at flat; it came in a bit better than that. So maybe some additional color on what you saw exiting June and what you've seen to date here in July.

Michael Doss: Yeah, so I'll take that one, Matt. I think from that standpoint, it's, it's a pretty small number. Europe was up, you know, 2% and in our North American business, or America's business was basically flat in a quarter that was off minus one and two one. So we were encouraged to see that, you know, July started off, you know, consistent with the guide that we put out, you know, we see beverages solid and foods a bit mixed, as Steve talked about, some categories are up, some are down. I, I would characterize it just there's still a lot of uncertainty.

Michael Doss: I mean, our customers are struggling, you see their reports, and there'll be a number of them that release over the next week and a half or so, you know, we expect to see volumes that, you know, are down year on year, we're outperforming that with what we're doing, you know, by playing into a draw, which is really what we have to do, our innovation, as I mentioned earlier, to a previous question, we're on track for our 2% this year, we're encouraged by that. But, you know, relative to try to, you know, completely call the second half of this year, it's very difficult for us to do that right now, because we don't have a ton of insights, customers, they're telling us that they're going to promote, they told us that last year, we're being very cautious, as you know, because we build inventory last year, to accommodate that promotional activity, and then we had to burn it off in the first, you know, six months of this year.

Yeah, so I I'll take that 1 Matt. I think from that standpoint, it's it's a pretty small number Europe was up. Uh um, you know, 2% in, in our North American business, or America's business was basically flat in the quarter, that was off from minus 1 and q1. So we were encouraged to see that, um, you know, July started off, uh, you know, consistent with the guy that we put out. Um, you know, we see beverages is solid and, uh, you know, includes a bit mixed to Steve talked about some categories are up somewhere down. Um, I, I would characterize it just there's still a lot of uncertainty. I mean, our customers are struggling, um, you see their, uh, reports and, and there'll be a number of them that release over the next week and a half or so you know we expect to see volumes that uh you know are down. You're on Year we're up performing that with what we're doing uh you know by plan to do a draw which is uh you know really what we have to do our innovation.

As I mentioned earlier, to a previous question, we're on track for our 2% this year. We're encouraged by that. But, you know,

Michael Doss: So that's where our focus is. But I just want to underline, you know, that word again, uncertainty here in the second half. And so we're going to be a little cautious in terms of how we're trying to call volumes at a very precise.

That's where our focus is. Um, but I just want to underline, you know, that word again on certainty here in the second half. And so we're going to be a little cautious in terms of, you know, how we're trying to call volumes at a very precise level.

Matt Roberts: Understandable. Thanks, Mike. Appreciate that color.

Matt Roberts: Um, maybe if I could ask on price, when I think about the price changes. So, you know, the beverage demand has remained strong, and I believe we lapped price decrease in February 24. Open market exposure is now de minimis. But I think, Steve, I think you said price in second half is down 25 million.

Understandable. Thanks Mike appreciate that color. Um, maybe if I could ask on on price when I think about the price changes. So, you know, the beverage demand has remained strong and I I believe we lack.

Stephen Scherger: What do you need to see to get that to flatter or given tightness in certain substrates, would another run at a list price increase be warranted? And then just a point of clarification, Steve, I think you said that lower cash taxes in 25 was a 50 million benefit from the big beautiful bill. Is there any list in 2026 that you've quantified and are saying there certainly could be some nuances and when projects are put in place and what qualifies? So if you just help me understand that a little bit better.

Stephen Scherger: Thank you all for taking the question. Matt, thanks. There's a couple of them there. I'm going to answer the first one in regards to price. Of course, you can appreciate I can't talk about forward pricing options or optionality and things that we would do or wouldn't do, but I can talk about current market conditions. You know, if you look at recycled paperboard and unbleached paperboard, they've been a really good balance for the past several years. Pricing has been pretty stable. And that's certainly in contrast to bleached paperboard. You know, and we've taken some actions to address, you know, the inventories, as you've heard Steve talk about, took out 50,000 tons here in our second quarter.

The price decrease in February 24, open market exposures now diminish. Um, but I think Steve, I think you said price in second half is down 25 million. What do you need to see to get that to flatter or given tight tightness in certain substrates would another run at a at a list price, increase be warranted. And then just a, a point of clarification, uh, Steve, I think you said that lower cash taxes in 25 was at 50 million benefit from the big beautiful bill. Um, is there any lift in 2026 that you've Quantified and understanding they're C? They could be some nuances and, and when projects are put in place and and what qualifies. So if you just help me understand that a little bit better, thank you all for taking the questions.

Man, thanks. There's a couple of them there. I'm going to answer the first one, uh, in regards to the price. Of course, you can appreciate I can't talk about floor pricing options or optionality and things that we would do or wouldn't do. But I can talk about current market conditions. You know, if you look at recycled paperboard and unleashed paperboard, they've been a really good balance for the past several years.

Michael Doss: We're going to continue to be very focused on managing our supply and demand, making sure we have the paperboard to take care of customers with no more than we need. Very disciplined in that regard. And I've already mentioned 370,000 tons that have come out of the CRB and the unbleached paperboard side. I think if you look at the APD8 data, the American Forest and Paper Association data that I'm sure you did, that came out last Friday, there's some interesting, you know, things to take away there. I mean, if you look at the recycled and the unbleached, those are the two grades where we're a major player.

Michael Doss: You know, if you think about where we're going to be post-WACO, 80% of our production is going to be in those two grades of paper. We're a minor player on the bleach side. Primarily, we focus on CUP, as you know, and you mentioned that in your question. Production was down 3% in the second quarter. There's shutdowns that we talked about. The shipments were up 1%. Year-to-date, production was down 2.5%. Shipments were down 1%. So inventory is down 20% in the corner, which is a good thing, and 30% year-to-date. And backlogs are up. That's a healthy operating environment for both those grades.

Pricing has been pretty stable and that's certainly in contrast with each paper board. Um, you know, and we've taken some actions to address, you know, the inventories as you've heard. Steve talked about, talked about 50,000 tons here in our second quarter, we're going to continue to be very focused on managing our supply and demand. Making sure we have the paper board to take care of customers with no more than we need, uh, very disciplined in that regard. Um, and I've already mentioned the 370,000 tons that have come out of the crb and the unbleached uh, paper boards side. I think if you look at the A&P to 8 data uh the American Force and paper Association data that, I'm sure you did that came out last Friday. There's some interesting, uh, you know, things to take away their, I mean, if you look at the Recycled and the unbleached, those are the 2 grades where we're a major player. You know, if you think about where we're going to be post Waco, 80% of our production is going to be in those 2 grades of paper. We're a minor player on the bleach side. Primarily we focus on cup as you know. Um, and you you

Michael Doss: And that really contrasts what's going on in bleach paper, where we are a minor player. If you look at that same data, production was up 5% in the second quarter. Shipments fell 5%. Year-to-date, production is up 2%. Shipments fell 2.5%. So inventories are up 8% in the quarter and 20% year-over-year, which means backlogs are down. So it's really kind of a tale of two cities there, relative to what the grades are doing. And certainly, we're not immune to the impact of that paperboard coming online. The supply and demand dynamics I'm talking about with bleach versus two grades, we are well invested in.

mentioned that your question production was down 3% in the second quarter owing to, uh, some of those, uh, you know, shutdowns that we talked about. The shipments were up 1% year to date. Production was down 0.5%. Shipments were down 1%. So inventory is down 20% in the quarter, which is a good thing, and 30% year to date. Backlogs are up. That's a healthy operating environment for both those grades and that really contrasts to what's going on in Bleach PaperPort, where we are a minor player if you look at that same deal.

Stephen Scherger: But with graphics inventories on SPS, I can tell you, we're actually down in the quarter. So we're pleased with that. So hopefully that gives you a little bit of context in terms of how we're thinking about the overall market health, what we're seeing, what we're doing to manage our order books. I'll tell you that our order books continue to build, you know, on the grades that we're talking about, and they did over the quarter and they have in July. And Matt, to your second question, embedded in the seven to $800 million of free cash flow in 2026, we do expect to see some positive benefits from the tax legislation.

Data production was up 5% in the second quarter of shipment Itself by percent year to date is up 2%, shipments, Down 2 and a half percent. So inventories are up 8% in the quarter and 20% year-over-year, Which means backlogs are down. Um, so it's really kind of a tale of 2 cities there, uh, relative to what the grades are doing. And certainly we're not immune to the impact of that paper board coming online. Uh, you know, the, uh, the supply and demand Dynamic, and I'm talking about with bleach versus 2 grades, but we are, uh, well invested in. Um, but you know, with Graphics inventories on SPS, where actually, I can tell you, we're actually down in the quarter. Um, so we're we're pleased with that.

Um, so hopefully that gives you a little bit of context in terms of how we're thinking about, you know, the overall market health. What we're seeing and what we're doing to manage our order books. I'll tell you that our order books continue to build, you know, on the grades that we're talking about, and they did over the quarter and they have in July so far.

Stephen Scherger: So as I mentioned, that cumulative impact of interest, cash taxes, working capital, we kind of have in the mid $300 million range next year. And that'll have some benefits from the tax legislation as well. So our line of sight to cash flow next year is actually quite high. And that's why that conviction around the seven to $800 million, and then obviously the ability to deploy that for shareholder value creation, and the inflection of the cash flow into a very material level, which gives us an outstanding optionality for share repurchase activity, debt reduction, that inflection is happening.

And and Matt to your second question uh the embedded in the 7800 million dollars of free cash flow in 2026, we do expect to see some positive benefits from the tax legislation. So, as I mentioned that cumulative impact of Interest, cash taxes, working capital, we kind of have in the mid 3000 million dollar range next year and that'll have some benefits from the tax legislation as well. So, our lineup site,

To cash flow. Next year is actually quite high and that's why that conviction around the 7800 million and then obviously the ability to deploy that for shareholder value creation. Uh and the inflection of the cash flow uh into a very material Level.

Which gives us an outstanding optionality for the.

Stephen Scherger: And our confidence in that is extremely high, and there will be some benefits from the tax legislation embedded.

Is happening and uh, and our confidence in that is extremely high and there will be some benefits from the tax legislation embedded in that.

Unknown Executive: Nicely very detailed.

Unknown Executive: Thank you all very much.

It might seem very detailed. Thank you all very much.

Ghansham Panjabi: Your next question is coming from Ghansham Panjabi with Baird. Please pose your question. Your line is live. Thank you. Good morning, guys. Mike, going back to your comments on, you know, consumer affordability.

Your next question is coming from Ganjam. Punjabi with beard, please put your question. Your line is live.

Ghansham Panjabi: Yeah, what if anything is different as relates to how your customer strategy has changed to counter Elongated period of And I'm just kind of going back to your comment on promotion. you know, activity, etc.

Michael Doss: Is that something that's incremental or is Ghansham, I wish I had a better, more intelligent answer for that question to share with you. I mean, I think the biggest challenge, this has gone on longer than I've historically seen. Our customers have struggled from time to time over my career, and then they retool and they revamp. I think there's changing consumer preferences that are certainly at play. You've got things like GLP-1 that are positives and negatives, you know, that are out there in the marketplace. The our customers at a very unopportunistic time. They're already struggling with consumer affordability, now they need to reformulate.

Thank you. Uh, good morning, guys. Um, Mike, going back to your comments on, you know, consumer affordability, which has been an issue for, you know, basically three years at this point. Um, yeah, what if anything is different as it relates to how your customers' strategy has changed to counter this elongated period of volume weakness? Um, and I'm just kind of going back to your comment on promotional activity, etc. Is that something that's incremental, or is it just sort of seasonal?

Michael Doss: And reformulation almost always means it's more expensive. It does create an opportunity for us, for sure, for a new package sale or a different package sale. So we, as I mentioned earlier, we always want to, you know, help them go through that whole process.

Gotcha. I wish I had a better more intelligent answer for that question to share with you. I mean I I think the biggest challenge this has gone on longer than I've historically seen. Um, our customers have struggled from time to time over my career and then they retool and they revamp. I think there's changing consumer preferences that are are certainly at play. Um you've got things like glp1 that are positives and negatives. Uh, you know, that are out there in the marketplace, the Maha piece of this his our customers at a very un opportunistic time. They're already struggling with consumer affordability. Now they need to reformulate, um, and reformulate.

Michael Doss: I guess, you know, look, as I indicated, I think in my response to George, one of the things that we are encouraged about is we see more urgent on behalf of our customers to look at different things, whether they're buying one another, whether they're splitting themselves up, or they're making managerial changes. These are things that are done to initiate change and to stimulate growth. And so that's what our belief is right now. And as I sit here today, that's why I still have to deal with the uncertainty in the second half, because I want to believe those things all endure benefit.

Almost always means it's more expensive. It does create an opportunity for us, for sure, uh, for a new package sale or a different package sale. So we, as I mentioned earlier, we always want to, you know, help them, you know, through that whole process, I guess, you know, look, I as I indicated, I think, in my response to George 1 of the things that we are encouraged about is we see more urgency.

Michael Doss: But it's been longer than I would have probably been what we've experienced in the past, perhaps I should say it that way. Fair enough.

On behalf of our customers to look at different things. Whether they're buying 1 another, whether it's splitting themselves up or they're making managerial changes, these are things that are done to initiate change and to stimulate growth. And so, um, that's what the our belief is right now. And, uh, as I said here today, that's why I still have to deal with the uncertainty in the second half because I want to believe those things all a nerve benefit, um, but it's been longer than, uh, I would have, uh, you know, probably been what we've experienced in the past. Perhaps I should say it that way.

Stephen Scherger: And then maybe a question for Steve on the revised, you know, 2026 recast. Lower Implied E. But how does that change your view as it relates to prioritizing?

Okay, fair enough. And then maybe a question for Steve on the revised, you know, 2026 free cash flow which obviously is lower implied to you. But how does that change your view as it relates to prioritizing share repurchases versus debt paydown? I think you ended Q2 at 3.7 times on that debt. Thank you.

Stephen Scherger: Yeah, thanks, Ghansham. Our confidence in three and a half times levered at the end of this year is high given the cash flow that we talked about earlier. We did begin the share repurchase activity and given what we believe is the long term value of the enterprise, you should expect to see us to apply the vast majority of our free cash flow to share repurchase keeping in mind that the balance sheet needs to stay in a reasonable place. But being in that three and a half times levered range, while we see incredible value long term relative to the value of the enterprise, you'll see us continue to lean towards share repurchase, you know, certainly into that 2026 time horizon, assuming that the value of the company continues to be as compelling as it is today.

Stephen Scherger: And you saw us begin that process here in 2025. But I think right now, our lean would be towards the share repurchase with that very substantial cash flow. If you take the midpoint of that seven to $800 million, take the dividend out of it, you've got 600 plus million dollars of free cash flow that we can apply to that to those activities. And certainly, I think you're seeing us lean in in one direction right now. Obviously, we'll monitor that relative to debt and debt levels at that affordability, but we have nothing coming due of substance, and we're borrowing money in the mid fours currently 4% range.

Yeah, thanks. Gotcha. Our, our confidence in 3 and a half times levered. At the end of this year is high given the cash flows that we talked about earlier. We did begin the share repurchase activity and given what we believe is the long-term um value of the Enterprise you should expect to see us to apply the vast majority of our free cash flow, uh, to share repurchase keeping in mind that the balance sheet needs to stay in a reasonable place. But being in that 3 and a half times levered range, uh, while we see incredible uh, value long term relative to the value of the Enterprise, uh, you'll see us continue to lean towards share repurchase. Uh, you know, certainly into that 2026 time Horizon. Assuming that the value of the company continues to be as compelling as as it is today and you saw us beginning that process here uh, in 2025. But I think right now our lean would be towards the share. Repurchase with that very substantial cash.

Flow. If you take the midpoint of that 7 to 800 million dollars and take the dividend out of it, you've got 600 plus million dollars of free cash flow that we can apply uh, to that to those activities. And and certainly I think you're seeing us lean in in 1 Direction right now, obviously we'll monitor that relative to debt and debt levels that that affordability but we have nothing coming to a substance and we're borrowing money.

Stephen Scherger: And so we've obviously got a good outcome relative to the value and the cost of our debt.

In the mid fours, currently 4% range. And so we've obviously got a good outcome relative to the value and and the cost of our debt.

Perfect, thank you.

Lewis Merrick: Your next question is coming from Lewis Merrick with BNP Paribas Exsame. Please pose your question. Your line is now open.

Your next question is coming from Lewis. Merrick with BNP paraba exchange, please post your question. Your line is live.

Mark Weintraub: Morning, Mike. Morning, Steve. Thanks for taking the questions. Just one from the I'd just like to get your thoughts on the current competitive environment. So when you're going after new tenders and bits of new business, you know, packaging sales. I noticing any changes in the competitive dynamics out there in the market, perhaps around levels of price Thank you and good luck with Q3. Yeah, Lewis, it's Mike, I think I'll go back to a little bit around as I talked to market conditions there. I mean, what, what I'm sure you took away from my comments is that our solid bleached market here and in North America is oversupplied, as demonstrated by the data that, you know, the AFMPA data that I ran through, so I won't do that again.

Morning, Steve. Thanks for taking my questions. Uh, just one from me. Thanks. Um, I'd just like to get your thoughts on the current competitive environment. So, when you're going after new tenders and bits of new business for your packaging sales.

In the market, perhaps around levels of price, discipline, and whatnot. Thank you, and good luck with Q3.

Michael Doss: You know, when you when you have a situation like that, it creates a competitive environment that's not new for us. We've got the ability to, you know, deal with those situations as demonstrated by the fact that we've outperformed our customers and the overall market. But it's certainly something that is on our radar screen. We're watching that. You know, on the SPS side, a competitor added a big chunk of production or capacity into the market. They're bringing that online as we speak. By way of reminder, again, we're a small too. So ultimately, it's a competitive market.

A little bit around, as I talked to Mark conditions there. I mean what, uh, what I'm sure you took away from my comments, is that our, our solid bleached Market here in in, in North America, is oversupplied is a demonstrated by the, uh, the data, uh, that, uh, you know, the asmpa data that I kind of ran through, so, I won't do that again. Um, you know, when you, when you have a situation like that, uh, it creates a competitive environment, that's not due for us. We've got the ability to, you know, deal with those situations as demonstrated by the fact that we've outperformed our customers and the overall Market. Um, but it's certainly something that, uh, is on our radar screen. We're watching that, um, you know, on the SPs side, uh, a competitor added a, uh, an a, a big chunk of production, our capacity into, uh, the market and they bring, they're bringing that online as we speak.

By way of reminder. Again, we're a small player in that market, um, but nonetheless, that's still something that's got to be absorbed in in ultimately, you know, we're encouraged by the fact, there's new leadership. Uh, and many of the big SPS producers, uh, and also, um, uh, you know, assuming they're going to want to, you know, generate returns for their ownership structures and uh, that'll drive decision making

That ultimately deals with that, we've seen this before it happens. Um, and there's Cycles here that, uh, we've got to work through, but, uh, in the case of graphic, given our size and our focus on on integrated comp and, and a small position on coded bleached that's largely 100% integrated. We'll be sitting on the sidelines watching that play out like, you will over the next, uh, you know, period of time here. So that's a little bit. How we're seeing this Market. Um, might say Europe is uh you know, similar our Innovation is really hitting home and Europe. Uh, disproportionately we continue to see opportunities for Innovation and in some cases, some Cher game there too. So ultimately, um, it's a

Market.

Michael Doss: Thank you very much for that.

Unknown Executive: I'll turn it over.

Thank you very much for that. I'll turn it over.

Mark Weintraub: Your next question is coming from Mark Weintraub with Seaport Research Partners. Please pose your question. Your line is open. Thank you. Steve, first of all, I know you said 700 to 800 on free cash flow for next year.

Stephen Scherger: I'm sorry, could you just repeat again what you said for like CapEx and other, was that 750 or what was the number you gave for that? Yeah, Mark, let me repeat it. The cash in total in 2026 required to, in essence, run the company after EBITDA, CapEx, interest, working capital, pension, cash tax. We would expect to be between $750 and $850 million. to break it into two components. Apex would be roughly $450 million or 5% of sales. and all the other items would accumulate up into the mid $300 million, $350 million.

Your next question is coming from Mark, Winer with C. Port research Partners. Please post your question. Your line is live. Thank you. Um, Steve first of all, I I know you. You said 700 to 800 on free cash flow for next year. I'm sorry. Could you just repeat again, what you said for like, um, capex. And other was that? What was that 750? Or what was the number you gave for that?

Yeah, Mark let me repeat it.

The cash in total in 2026 required to in essence, run the company after he even done, capex, interest working, capital pension cash taxes. We would expect to be between 750 and 850 million.

If you break it into two components,

FX would be roughly 450 million dollars for 5% of sales.

Stephen Scherger: Try not to provide extreme guidance here, but since you asked, it's like those are the components of why we have confidence in the seven to eight hundred million dollars of free cash flow. Perfect.

And all the other items would accumulate up into the mid 300,350 million dollars.

Stephen Scherger: I think there may be a little bit of confusion out there. So, and then if we think about EBITDA, you want to add interest expense back to that, correct? Just structurally, and again, not trying to, recognizing it's early for there to be a specific forecast. But for folks who are trying to work out what EBITDA is, you would then add, you know, your 700 to 800. to your $750 to $850, and then you would add cash interest expense. Just want to clarify that because I think there may be a little confusion.

Trying not to provide extreme guidance here, but since you asked, it's like those are the components of why we have confidence in the $700 million to $800 million of free cash flow next year.

Perfect. I think there may be a little bit of confusion out there. So and then, if we think about ebit, you want to add interest expense back to that, correct, just um, structurally and again, not trying to recognizing its early for there to be a specific forecasts, but for folks who are trying to work out, what ebit that is you would then add, you know, your 700 to 800

Stephen Scherger: No, I don't think you have that right at all, Mark. Let me just do it again. The walk to $700 to $800 million of free cash flow begins. with $1.5 billion of EBITDA this year, growing. Okay, keep it down growth next year. It's going to grow next year. driven by Waco and driven by the improvements in the business. When you have a growing EBITDA next year, and then apply $750 to $850 million of other cash related items below EBITDA. You'll get to a free cash flow range of $700 to $800 million.

To your 750 to 850, and then you would add cash. Um, interest expense just want to clarify that because I think there may be a little confusion. No, I don't. I don't think you have that right at all. Mark uh, let me just do it again.

The walk to 7 to 800 million dollars of free cash flow.

Begins.

With $1.5 billion of revenue this year, growing next.

Okay, Rose next year.

It's going to grow next year.

Driven by Waco and driven by the improvements in the business.

When you have a growing Eve at non-next year.

And then apply 75080050 million dollars of other cash related items below IBA.

You'll get to a need but you'll get to a free cash flow range of 700 to 800 million dollars.

Mark Weintraub: Okay, I think we're talking about different things here, Steve, I'll clarify with you after.

Michael Doss: But so just separately, on now that we have a little bit more visibility on tariffs, perhaps, can we just get some updated thoughts on any implications?

Separately. Um, on now that we have a little bit more uh visibility on tariffs, perhaps uh can we just get some updated thoughts on any implications?

Michael Doss: Hi Mark, it's Mike. So look, the new 15% tariff level is a modest net positive for graphic packaging. A couple of things that I'd call out. First one being, as you know, we export more than 200,000 tons to ourselves in Europe. We don't sell our paperboard in Europe, but we export it to our own converting operations. And this new trade agreement imposes no new costs or limitations on our ability to service our European operations. So we're excited about that. That's a very good outcome for us. The other thing that it does is there's a big focus on reducing what I'll call non-tariff trade barriers between the US and Europe.

Michael Doss: And that's also good news for us, principally around EUDR, which is the EU Deforestation Regulation, which was looking to be very costly. You may recall, we talked about this in the past, that we had a geoposition back where the fiber was harvested within a couple of acres. And very expensive to comply with that, and without a real clear net benefit defined. So we're encouraged about that. The other piece you may want to talk about, and I'll just go there here, is the FBB imports received a fair amount of press over the last couple of years.

No more. It's Mike. So look, the new 15% tariff. Level is a modest net positive for Graphic Packaging. Um a couple of things that I'd call out the first 1 being as you know, we explored more than 200,000 tons, to ourselves in Europe. We don't sell up our paper board Europe, but we explored it to our own converting operations and this new Trade Agreement imposes. No new cost of limitations on our ability to service our European operations. So we're excited about that. That's a very good outcome for us. The other thing that it does, um is there's a big focus on reducing what I'll call non-tariff trade barriers between the US and Europe and that's also good news for us. Principally around EU. Dr. Is the dud forced patient or regulation, um, which was looking to be very costly and you may recall, we talked about this in the past that uh we had a Geo position back to where the fiber was harvested within a couple of Acres. Um, and uh, very expensive to comply with that. And without a real clear net benefit to find. So we're in

Michael Doss: By way of reminder, that's roughly 500,000 tons on a 10 million ton market. So call it 5% total. And those are going to be, our understanding, at least, is those are going to be under the new 15% tariff to be imported into the US. Again, the big benefit of FPB was always the yield advantage on the basis weight, which was anywhere between 10 and 15%. So that yield advantage is going to be eroded by the tariff. And of course, you've seen what's happened to the dollar in terms of devaluation. So you know, currency is a pretty big headwind for that as well.

Encouraged about that, the other piece you may, um, you know, want to talk about, and I'll just go there. Here is, um, you know, the FBB imports. You see, there's a fair amount of, uh, you know, press over the last couple of years. By way of reminder, that's roughly 500,000 tons on a 10 million ton market. So call it 5% total, uh, and those are going to be—our understanding at least is those are going to be under the new 15% tariff, uh, you know, to be imported into the U.S. And...

Michael Doss: So I know there was a lot of concern around investors and analysts around those imports. You know, when you take a step back and think about it from a customer standpoint, you've got those headwinds. You're also still 5,000 miles away from, you know, your customer versus, you know, local supply, which is usually a couple hours away by truck. So from a complication standpoint and a risk standpoint, that probably benefits those people that are making that material, including to a small degree, graphic packaging. So hopefully that gives you a little color, at least at how we're looking at it.

Michael Doss: Super. Appreciate it.

Again, the big benefit of fpb was always the yield advantage on the basis weight, uh, which was anywhere between 10 and 15%. So that yield Advantage, uh, is going to be eroded by the Tariff. Uh, and of course you've seen what's happened to the dollar uh, in terms of devaluation. So, uh, you know, currency is a pretty big headwind for that, as well. So, um, I know there was a lot of concern around investors and analysts around those Imports. Um, you know, when you take a step back and think about it from a customer standpoint, you've got those headwinds. You're also still 5,000 miles away from, uh, uh, you know, your customer versus, you know, local Supply, which is usually a couple hours away by truck. Uh, so from a complication standpoint and a risk standpoint, uh, that probably benefits. Those people that are are making that material, including to a small degree, Graphic Packaging. So, hopefully that gives you a little color at least at how, how we're looking at it.

Super, appreciate it.

Anuja Shah: Your next question is coming from Anuja Shah with UBS. Please pose your question. Your line is.

Anuja Shah: Hi, good morning, everyone. You mentioned in the prepared comments, and of course, we've read in the news, that one or two of your customers are going through some strategic transactions. Can you talk about what's happened in the past when customers go through an acquisition or a transaction like this? Do you see a temporary dip in promotions or investment? And when the transaction is done, do you have to requalify with a new owner? Just a little color on what happens in these cases, please.

Your next question is coming from Anuja Shah with UBS. Please post your question. Your line is live.

Hi, good morning, everyone.

Um, you mentioned in the prepared comments, and of course, we've read in the news that one or two of your customers are going through some strategic transactions.

Can you talk about what's happened in the past when customers go through an acquisition or a transaction like this? Do, do you see a temporary dip in promotions or investment? And

Michael Doss: Oh, just Mike, thank you for the question. I mean, look, it's not new for consolidation to occur with our customers. We've dealt with it, you know, in and out through the years. We don't usually have to requalify that would be highly unusual. There is usually a bidding process or we can recontracting process that takes place early on. And for that acquisition, as you would expect it to be relative to, you know, strategic sourcing and spending that your customers would want to be able to do. We go through those all the time, participate in those routinely.

Um, when the transaction is done, do you have to requalify with the new owner? Just a little color on what happens in these cases, please.

Michael Doss: So, you know, don't expect any real issues with that.

Exposure. It's Mike. Thank you for the question. I mean, look, it's not a new for a consolidation to occur with our customers. We've dealt with it, you know, in and out through the years. Uh, we don't usually have to re-qualify that would be highly unusual. Um, there is, uh, usually a uh, um, you know, dating process or wreck recontracting process that takes place early on after that acquisition, as you would expect it to be relative to uh, um, you know, um, strategic sourcing and spending that, uh, you know, customers would want to be able to do we go through those all the time, participate in those routinely. Uh, so, you know, don't expect any real issues with that.

Anuja Shah: Okay, thanks. And I apologize. Oh, sorry.

Okay, thanks and I apologize.

Anuja Shah: Go ahead, Renosha. Oh, yeah. I just have a quick one. Sorry if I missed this, but you have... ... and I assume it's a health, it doesn't need to be the same. Are you assuming there's a relationship in there? And then I just want to make sure quickly that there's no more impact from Augusta to the rest of the area. and author.

Sorry. Go ahead. Oh yeah, I just had a quick 1. Um sorry if I missed this but you have and I assume as a help the same. Are you there? And then

Stephen Scherger: Oh Jill, we have to apologize. You just broke up with Cliff. I understand the question you were asking. Oh, sorry, can you hear me now? Yeah, can you hear me now? Okay, good. Just thinking through the FX benefit, I assume you're getting an FX benefit on your revenue this year, and better volume guidance. So your revenue is going guidance going up, but then your EBITDA is staying flat. Just wanted to talk about the puts and takes there. I assume more inflation, but anything else in there?

Apologize.

Oh, sorry. Can you hear me? Can you please?

Yeah, can you hear me now?

You're getting an fx benefit on your Revenue, this this year and better volume guidance. So your revenue is going and guidance going up but then your ibida is staying flat. Just wanted to talk about the puts and takes their. I assume more inflation but anything else in there.

Stephen Scherger: Yeah, no, it's Steve. No, you actually said it well, the modest increase in revenue on a flat volume assumption is primarily FX driven, as you mentioned. And then also given overall, no, nothing really new on inflation in terms of incremental inflation, it actually was down a bit in the quarter versus what we saw in Q1. It really goes to what we've chatted about earlier, around just being very assertive on match supply and demand, producing at or below our overall needs and kind of keeping the business just very dialed in relative to this overall relatively uncertain demand environment and running to that.

Stephen Scherger: And so that's what's got us maintaining the midpoint of our of our guide, given that the top line up modestly, that's a bit FX driven as well, like we were chatting earlier, about the impact on the balance.

Yeah, no, it's Steve, but no, you actually, you said it. Well, the modest increase in, uh, in revenue on a flat volume. Uh, assumption is is primarily FX driven as you mentioned, and then also given overall know. Nothing really new on inflation. In terms of uh, incremental inflation. It actually was down a bit in the quarter. Versus what we saw in q1, it really goes to what we've chatted about earlier around just being very assertive on matching supply and demand, uh, producing at or below our overall needs and kind of keeping the business just very dialed in relative to, uh, this overall relatively uncertain demand environment and running to that. And so that's what's got us, maintaining the midpoint of our of our guide given that the top line up modestly. That's a bit FX driven as well. Like, we were chatting earlier about the impact on the balance sheet.

Unknown Executive: Great, thank you. Thank you.

Great. Thank you.

Unknown Executive: And operator, I don't think there's another call that many of our participants have to jump on. So let's take two more questions. Okay, understood.

Thank you an operator. I don't think there's another call that many of our participants have to jump on, so let's take 2 more questions.

Mike Roxland: Your next question is coming from Mike Roxland with Tourist Security. Please pose your question. Your line is live. Yeah, thank you, Mike, Steve, Mark, for taking my questions, squeezing me in here. Hopefully, just two quick ones. Last quarter, you guys mentioned seeing significant input cost inflation, I think you called out about $21 million across energy, chemicals, logistics, and transportation, and then that we should expect that you would incur about $80 million of inflation or input cost inflation in the business this year. You wound up at only being $10 million. Can you help us discern what transpired from the time of your earnings call on May 1st to the end of the quarter, where input cost moderated to the degree it did?

Okay, understood your next question is coming from Mike roxland with true security. Uh please close your question. Your line is live

Uh, yes, thank you. Um, Mike, Steve, Mark, for taking my questions. Excuse me in here. Uh, hopefully, just just two quick ones. Um,

Last question you guys mentioned seeing significant input cost inflation, I think you called out by 21 million dollars across energy chemicals, Logistics and transportation and then that that we should expect that you would incur about 80 million of inflation or input cost inflation in the business this year.

Thank you. You wound up at only being $10 million. Can you help us discern what transpired from the time of your earnings call on May 1st to the end of the quarter, where input costs moderated to the degree that they did?

Stephen Scherger: Yeah, Mike and Steve, you summarized it well, Q1 inflation around 20 million, it did decelerate towards 10 million, really three things from a Q1 to Q2, resin was down, in other words, less inflation of around 3 million OCC, we had some reductions in secondary fiber costs, and then actually logistics, which is we chatted in Q1, we're up quite a bit, actually more normalized. So that was the 20 million moving down towards 10 million from the quarter. So it was across kind of the resin OCC and logistics fronts. The actual inflation for the quarter was a continuation of some year over year inflation, energy, some no chemicals, our fiber based packaging materials, so they corrugated, and that was up a bit, but it was offset by favorability, obviously, in OCC, but we did see a step down on the inflation front, as we kind of went from Q1 into Q2.

Yeah, Mike and Steve and you summarized it well, q1 inflation around 20 million. It did, uh, decelerate towards 10 million, really, 3 things from a q1 to Q2 resin, uh, was down in other words. Less inflation around 3 million OCCC. We, we had some, uh, reductions in secondary fiber costs and then actually Logistics, which is we chatted in, q1, we're up.

Uh, quite a bit actually more normalized. So that was the 20 million moving down towards uh, 10 million from the quarter. So it was a cross kind of the resin OCC and Logistics fronts, uh, the actual inflation, for the quarter, uh, was a continuation of some year-over-year inflation, uh, energy some milk chemicals. Um, our fiber based packaging materials, so think corrugated, and that was all was up a bit, but it was offside. All set by a favorability obviously in OCC. But we did see a step down on the inflation front as we kind of went from q1 into Q2,

Stephen Scherger: Got it.

Stephen Scherger: And then one quick follow up, Steve. You mentioned no change to WACO's projected returns, despite, you know, the higher spending, $350 million called out. Right now, you have $100 million increase in 3Q, bringing total project costs to about $1.25 billion, up from around $1 billion. But why would the project returns remain the same if you're still forecasting WACO's EBITDA to remain flat at $160 million? Yeah, thanks for that, Mike. And I appreciate you raising that. We do our, as Mike said, our long, long term confidence in the returns are actually extremely high. And, and so as we look out beyond 2027, our expectations are that we'll continue to see returns from the investment.

Got it. And then what we could follow up, Steve, just—you mentioned no change to the projected returns despite, you know, the higher spending of $600 million called out this... right now you have a $100 million increase in Q3, being 12 project costs to about $1.25 billion, up from around $1 billion. But why would the project returns remain the same if you're still forecasting rate goes deeper, dots remain flat at $160 million?

Stephen Scherger: So just to maintain some conservatism, 80 million in 26, 80 million in 27. But it's our expectations that as we continue to dial in this phenomenal investment, that the actual cost to produce advantages, and also some things we're seeing in the region, where there's actually been some closures of some recycled facilities in the southern United States, that our OCC costs, the actual cost to fiber the paperboard facility, if you will, are going to be better than expected. So our long term outlook is for returns beyond the 80 and 80. We're just not dialing it in currently, because we're looking out, you know, into the Vision 2030 aspirations, our expectations, this will be at or above our original expectations, because of cost and quality advantages, and input cost advantages.

Yeah, thanks for that. Mike, and I appreciate you raising that. Uh, we do our as Mike said, our long, long term confidence in the returns are actually extremely high and and so as we look out Beyond 2027, our expectations are as we'll continue to see returns from the investment. So uh just to maintain some conservatism 80 million.

Stephen Scherger: So thank you for raising that. Thank you.

Um, and we're just not dialing it in currently because we're looking out, you know, into the vision, 2030 aspirations, our expectations. This will be at our at or above our original expectations because of cost and quality advantages and input cost advantages. So thank you for raising that

Sure, thank you.

Arun Viswanathan: And your next question is coming from Arun Viswanathan with RBC Capital. Please put your question in your line. Thanks for taking my question. Hope you guys are well. So just a couple clarifications on Q2 and the second half guidance. So for Q2, my understanding was the Downtime was about a 30 million hit. So maybe if you could confirm that on EBITDA. And then, as you look into in the second half, on slide 17, you show the typical patterns, overall, your business is strongest in Q3, with a four on those, you know, end markets, and then it drops back down in Q4.

And your next question is coming from Arun, vishwat then with RBC Capital please put your question in your line is live.

Thanks for taking my question. I hope you guys are well, so just a couple clarifications on, uh, Q2 and the second half guidance. So for Q2 my understanding was the, um,

Stephen Scherger: So looking at that 800 million second half EBITDA, you know, is that kind of higher in Q3 and lower in Q4? Or does the Waco startup kind of make them more even? And apologies if you had already covered that. But I know there's been a lot of bridge discussion. But yeah, maybe you can just talk your thoughts there. Thanks.

Downtime was about a 30 million hit. So maybe if you could confirm that on Evita and then and as you look into in the second half on slide 17, you you show the typical patterns, overall, your business is strongest in Q3, um, with a, with a 4 on those, um, you know, end markets and then, it drops back down in Q4. So, uh, looking at that 800 million second half Ava,

um, you know, is that is that kind of higher in Q3 and lower in Q4, uh, or does the the the weight go startup. Kind of make them more even, um, and apologies if, uh, you had already covered that. But, uh, I know there's been a lot of bridge discussion, but, yeah, maybe you can just offer your thoughts there. Thanks.

Stephen Scherger: No, no problem, Arun. You actually said it well. Q3 is typically seasonality wise is a strong quarter. And we would expect that to be the case here as well. And so you'd have modestly stronger EBITDA and margins in Q3 and then a more normalized seasonal step down modestly in Q4. We wouldn't expect to get any benefits from WACO startup in Q4 because as we've talked, we'll be in a startup mode. Those benefits will start to enter positively in 2026. Thanks, everyone.

No, no problem. Maroon that you actually said it. Well, uh, Q3 is typically seasonality-wise a strong quarter, and we would expect that to be, uh, the case here as well. So you'd have modestly stronger, uh, Yvanna and margins in Q3 and then a more normalized seasonal, uh, step down modestly in Q4. We wouldn't expect to get any, uh, benefits from Waco startup in Q4 because, as we've talked, we'll be in a startup mode. Uh, those benefits will start to inert positively in 2026.

Thanks.

Michael Doss: That's all we've got time for. Yes, the Q&A is now closed.

Michael Doss: I would now like to turn the floor back over to management for any closing remarks. Thank you, operator. And thank you for joining us on our call today. The first half of 2025 has been challenging for our CPG and QSR customers. And we are encouraged by the discussions we're having around potential strategies to drive growth and protect market share supporters ahead. While there are a range of near term uncertainties, the outlook for demand for sustainable consumer packaging is strong. At Graphic Packaging, we spent the last eight years building and expanding our innovation and execution capabilities.

Yes, the Q&A is now closed. I would now like to turn the floor back over to management for any closing remarks.

Thank you, operator.

And thank you for joining us on our call today. The first half of 2025 has been challenging for our CPG and QSR customers. We are encouraged by the discussions we are having around potential strategies to drive growth and protect market share, of course, ahead.

Michael Doss: We're exceptionally well positioned to meet our customers changing needs and support their growth strategies while generating substantial pre cash flow. I want to thank our 22,000 employees for their dedication, and our stockholders for their continued confidence in Graphic Packaging. Thank you and good day. Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Well, there are near-term uncertainties; however, the outlook for demand for sustainable consumer packaging is strong at Graphic Packaging. We spent the last eight years building and expanding our innovation and execution capabilities. We are exceptionally well positioned to meet our customers' changing needs and support their growth strategies while generating substantial free cash flow. I want to thank our 22,000 employees for their dedication and our stockholders for their continued confidence in Graphic Packaging. Thank you, and good day.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.