Good day, everyone, and welcome to the Graphic Packaging Holding Company fourth quarter and full year 2025 conference call. At this time, all participants are placed on a listen-only mode. We will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Mark Connelly. Sir, the floor is yours.

Good morning. We have with us today Robbert Rietbroek, President and Chief Executive Officer; and Chuck Lischer, Senior Vice President and Interim Chief Financial Officer. During this call, we will reference our fourth quarter and full year 2025 earnings presentation available through this webcast and on our website at www.graphicpkg.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. 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 Robbert.

Thank you, Mark. Good morning, everyone, and thank you for joining us today. Before we review our results, I would like to take a few minutes to introduce myself and share my perspective on the opportunities I see for Graphic Packaging and to discuss my initial observations and key focus areas as we adjust our strategy to drive value for shareholders. I've spent more than 25 years leading global consumer brands and businesses, including leading a Fortune 500 division and serving as a public company CEO. I've lived and worked across North America, Europe, South America and Australia. Over that time, I've held leadership roles at Procter & Gamble, PepsiCo, Kimberly-Clark and Primo Brands, where I gained experience operating complex businesses with global manufacturing and supply chains and building consumer brands at scale. In several of these roles, I've been a customer of Graphic Packaging, and my teams work closely with the Graphic Packaging team to design winning packaging solutions. Throughout my career, packaging design and procurement has been a major part of my work. I worked directly with brand teams and retail customers in creating winning packaging, including design and technical specifications, sustainability and manufacturing requirements and performance needs. Notably, I worked on 3 innovative packaging solutions that went on to receive patent protection. Packaging is a critical part of the consumer experience, and I am aware of how packaging influences consumer purchasing decisions at the shelf and how consumers interact with packaging at home. I understand how important packaging is to our customers across the consumer packaged goods, quick service restaurants and retail industries. And I'm acutely aware of the challenges and opportunities our customers face in a world of GLP-1, MAHA and the evolution of private label. I've also seen firsthand the exceptional quality of our packaging…

Thank you, Robbert. Turning to Slide 13. I will begin with a summary of our fourth quarter and full year financial results. In the fourth quarter, net sales were $2.1 billion, basically flat year-over-year, driven by volumes and pricing, which were both down slightly less than 1%, more than offset by a $40 million foreign exchange benefit. Adjusted EBITDA for the quarter was $311 million. As discussed in earlier quarters, the pressure on adjusted EBITDA reflects a combination of unusual competitive pricing and softer packaging volumes, which together reduced adjusted EBITDA by approximately $40 million versus the year ago quarter. Commodity and other operating cost inflation were in a similar range, along with the negative performance as a result of the production curtailment decisions we made during the quarter to manage inventory. Foreign exchange was an $8 million tailwind. For the full year, net sales were $8.6 billion, down approximately 2%. Augusta divestiture accounted for $150 million of the $190 million decrease. Price was an approximately 1% headwind and volumes were basically flat, while FX was a $57 million tailwind. For the full year, adjusted EBITDA was approximately $1.4 billion. Price and volume were a combined $174 million headwind and net performance of $59 million was not enough to offset commodity input and operating cost inflation of approximately $150 million. That performance was lower than normal as a result of production curtailment decisions we made primarily in the fourth quarter. The Augusta divestiture reduced adjusted EBITDA by $30 million and foreign exchange was a $13 million tailwind. Adjusted EPS for the full year was $1.80, and we ended the year with a net leverage of 3.8x, reflecting the headwinds to EBITDA, investments at Waco and our decision to repurchase more than 2% of shares outstanding during 2025. Slide 14 lays…

Thank you, Chuck. Graphic Packaging is a strong company with a world-class asset base, deep customer relationships and leading positions across attractive end markets. Our mid- to long-term shareholder value creation plan is clear. We will enhance profitability by optimizing our cost structure and driving greater operational efficiency. We will generate significant free cash flow through our actions to reduce inventory and reduce capital spending. We will focus on disciplined organic growth and deliver exceptional customer service. We will reduce debt on our path to investment grade and return capital to shareholders through our dividend and opportunistic stock repurchase. And after a thorough review, we will work to optimize our resources to ensure they are focused where we can create the greatest value for our shareholders. With that, operator, let's open it up for questions.

[Operator Instructions] Your first question is coming from Matt Roberts from Raymond James.

Chuck, Robbert, welcome, and congratulations on the role. So when you joined, Robbert, the Board noted your strong CPG background and the timing, of course, coincided with Vision 2030. Those numbers are revised today. So ultimately, as you embark on that 90-day review or look to your longer-term targets alike, what makes your approach different than what has come before at Graphic Packaging? Would you say it's more operationally focused to reach free cash flow projections? Or are commercial efforts more of a priority to ensure you're able to reach flat volumes in 2026?

Thanks, Matt. Thank you for welcoming me. Yes, I do want to just recap a bit of my background. I did spend about 30 years in consumer brands as a customer of Graphic, not only in North America, but also in Europe, South America and Australia. So I bring a bit of a global perspective on the business, and I worked at Procter & Gamble, Kimberly-Clark, PepsiCo and Primo. I have a background with complex businesses with global manufacturing and supply chains and I have a lot of experience in packaging, design, procurement and some prior experience, as you know, on tissue and towel manufacturing and brand the Millicent tissue towel mill in Australia when I was running Kimberly-Clark, Australia and New Zealand. With regards to the approach, I plan to focus on cost reduction, productivity, operational excellence, we want to make sure we deliver a really good experience to our customers. I've had a number of calls with key customers over the last couple of weeks, including yesterday, I spoke to 2 customers. These are customers across food service, beverages and food, grocery, and they really need us to help them restore growth, and therefore, we need to stay very close to that. I'll bring a more disciplined approach to CapEx going forward and a focus on free cash flow generation to create value for our shareholders. So with regards to customer centricity, I do believe in a market-backed approach and really partnering with our customers. We'll do a bit of a review of our manufacturing footprint to understand where we can consolidate and drive productivity. We do have to define where we have the right to win, where we have competitive advantages and focus the resources behind the core. We have to define what that core is. We have a lot of businesses that around the world in different geographies that we have to understand better. And we'll do a selective, very selective review of the portfolio. And of course, the mills are where the money is made. We will make sure that the mills and manufacturing facilities stay state-of-the-art and are fully utilized.

A very helpful Robbert. Look forward to working with you and seeing the progress there. For my follow-up, if I can ask about the inventory reduction. I think it was from 15% of sales to -- from 20% to 15%. I think that number implies about 200,000 tons. How are you able to balance that much coming out while Waco continues to ramp? And given that inventory curtailment is a onetime benefit in '26 and then cash and the incentive comp also hits in '27, what other elements are needed to bridge to that $700 million figure again in 2027?

Yes. Just let me clarify the inventory reduction program. It will primarily focus on recycled, bleached and cup stock. We're also reducing some finished goods inventory where demand fell short of expectations. And in the bleached paperboard system, production and demand are a good balance. It's just really the inventory that's too high. And I want to emphasize that our customer service is a priority and will not be disrupted by inventory reduction actions. Let me pass it to Chuck for some of the financial details.

Yes. Matt, this is Chuck. So on the bridge to the $700 million, as you pointed out, a lot going on in cash flow and EBITDA when we provided the detailed bridges that we did. But before I talk all the way about post 2027, I want to just reiterate the confidence in 2026. We outlined the levers there. We see those levers and have the confidence that we'll be able to pull those levers to hit the $700 million to $800 million range in 2026. 2027 will continue to benefit from the tax benefits and there'll be additional inventory reduction. And then post 2027, there are really some negatives and positives that happen. Some of the items that come -- that happen in 2026 are, of course, nonrecurring. But for example, as the tax benefits end, then we have interest rates that are reducing. And as Robbert pointed out earlier, we're going to be continuing to push on CapEx and other items in addition to normal EBITDA growth. So we can take you through the details more of that offline.

Your next question is coming from Ghansham Panjabi from Baird.

Best wishes to the 2 of you in your respective roles. Robbert, maybe just to start off with you, just given your background at the CPG level and your unique lens, if you will, how do you think this pricing dynamic situation in paperboard in the U.S. will play out for the industry over the next couple of years? What can you do internally to sort of navigate through this period? Because presumably, customers will be pretty opportunistic as it relates to substitution, et cetera, just given the change in the pricing dynamics.

Yes. Thanks, Ghansham. The 2 grades that matter most to us are recycled and unbleached. And both of those markets are in good balance. You know that we are very highly integrated as a company. And our smallest business is bleached paperboard, which is oversupplied with substantial new capacity that's coming to the market, and the demand outlook is trending down. So at the current prices, we don't believe that bleached paperboard producers are earning a good return on capital. As I said, we have very high integration in our bleached business. So our margins tend to be higher, but are still a little bit below cost of capital. I think the bleach and the bleach markets are less integrated. So the economics are a little tougher and the overcapacity is impacting the markets. And so that's where I am on that. Chuck, any thoughts from you?

Yes. I think you saw that in the AFA data that came out end of last week that I think you can see recycled and unbleached is generally aligned to demand and bleached, I think the weakness that you see there is consistent with what Robbert talked about. So I think it's all as Robbert laid out.

Okay. And then Robbert, as you kind of step back a bit, obviously, a lot going on this year and next and so on. But if you look at the company's EBITDA margin profile, 2023, 19.9% as your slide deck lays out, obviously, a huge deterioration that you're projecting over that time period through 2026. Is there anything structurally having changed in the industry that you cannot get back to the sort of high teens EBITDA margin threshold? Or was 2023 just a unique situation?

We think that over the long run, we will be restoring our EBITDA margin to the higher teens level as a result of restored demand and cost management productivity. So we're pretty confident that we will be managing that back towards that original Vision 2030 level, but it's too early to tell exactly where that's going to head.

Your next question is coming from Arun Viswanathan from RBC Capital Markets.

Great. And I guess I'll add my congratulations on the new roles as well. Yes. I guess just kind of going along a similar line of questioning, maybe we could get your perspective and insight on what you're hearing from your customers. Specifically, are they talking about SKU rationalization, changing packaging strategy? How are you -- what are you hearing on how they're dealing with MAHA and maybe other changes to consumer behavior. Obviously, we've seen some relatively lower volumes on the food side and foodservice. And are you hearing any kind of customer response to address that?

Yes. Thanks, Arun. We do have very extensive conversations with our customers across food, beverage, grocery, various other industries and food service. With regards to consumer packaged goods, customers are really highly focused on cost right now and driving rationalization in the number of packaging executions to reduce downtime and changeovers in the manufacturing process. So there is a need for simplification to drive better basically COGS for their cost of goods and our packaging complexity is part of that. So the more we can simplify our assortment, whether that's a specific execution in the beverage industry or food industry, the better. They also continue to focus on share of shelf and share of SKU because they want to gain volume share at retail. And a lot of the CPG companies and some of them that I've spoken to are reviewing their pack price architecture at the right price points with smaller portions and lower consumer price points. The other trend we see is that there's a lot of private label embracing innovation quickly, and they continue to gain momentum even in some categories that were historically insulated from private label growth. And customers, they really want packaging solutions now that reduce material usage, that improve palletization, simplify the number of formats and complexity, but they also want very high-quality graphics that improve shelf appeal. So they are not willing to compromise on the winning at the shelf, winning at the first moment of truth. There is another big trend, which is it starts in Europe, but it's coming to the U.S., which is the single-use plastic reduction. That continues to be front and center of discussions with the large global players, the reduction of plastic in the U.S. specifically reduction of foam to improve the sustainability profile of our customers. With regards to food service, affordability has really created a challenge for the quick service restaurants, and they need to innovate and stay competitive, both in food and beverage and meal solutions. So they want to hit high price points, and they want to make sure that they are competitive across the board. Marketing and thematic promotions continue to be important. That's where we come in with our thematic packaging and our ability to react quickly to their orders. So we're starting to see some improvements with recent large-scale promotions. And I think the foodservice opportunity is substantial and plastic and foam placement will continue. So on Europe specifically, innovation is now a key driver there because of the regulatory changes against plastic. In North America, we're seeing that more and more consumers for paper cups over plastic and foam.

I guess just as a quick follow-up, back on to the SBS question. So I understand that it's a very small grade for you. But I guess our perception or my perception is that the oversupply is kind of also pressuring unbleached and maybe customers are getting the option to switch into SBS because there's not much premium there. So, how do you -- do you see that as well? And do you see that kind of oversupply in SBS continuing to weigh on other grades as well? Or is it not really impactful?

It's a well-known fact in the industry, there's overcapacity of bleached. And there is -- it is the most fragmented of the paperboard grades, as you know, and periods like this tend to resolve themselves usually through capacity rationalization, downtime, consolidation. But remember, we primarily sell finished packaging and have a high degree of integration. And we see -- we do see some price pressure on recycled packaging from bleached producers that are looking for volume, but we haven't lost volume. And we have to be competitive with package price, and that can cause a little bit of margin pressure. And we also know that bleached packaging selling at the price of recycled long term is not sustainable. It's more expensive to produce, and it doesn't earn the cost of capital returns. Now we're focused on driving volume where we have the right to win, and we control what we control. So we are focused on cost spending, exceptional customer service. So that's where we are in that.

Your next question is coming from Lewis Merrick from BNP Paribas.

Congratulations on the appointment, Robbert. Maybe just going to the portfolio review comments that you had in the deck and in your statement. Can you just give us a sense or expand on the factors what you would consider as elements which would determine a core or non-core asset in your business today?

Very good question, Lewis. Thank you for the question. Thanks for welcoming. Look, I'm a big believer in the focus on the core as part of any company strategy. When you have a strong growing core, you win. And I think where we may have to provide a bit more perspective on all of the businesses we own around the globe that may or may not be core to the operation. We're looking at an initial review of the business, the portfolio of the operations and our global footprint. And we want to really focus on future growth and value creation and understand where we have the right to win. Let me give you an example of very obvious places which are part of our core. Our North America and Europe food and beverage business is obviously the biggest part of our company. No question that we have to play there. But there may be some smaller businesses that we have an opportunity to review. We want durable competitive advantage, and we want synergies. We want higher integration rates in our -- between our paperboard manufacturing and our conversion factories, converting factories where we make the finish packaging. With regards to looking at everything we do, we're also going to look at zero-based budgeting and particularly at CapEx. It's time to take a fresh look at all we do. We'll take a comprehensive look in the context of what is really a changing market. consumer dynamics are changing. Certain packages are starting to accelerate. Others are starting to decline. Consumption patterns are evolving as well. And so we need to bring those consumer insights back into our company so that we can align our assets to future growth opportunities. Now it's very early days. No decisions have been made, and we'll keep you updated as appropriate.

Have you and the Board had any thoughts as to whether you may look to revisit your dividend policy [indiscernible].

So I think the question -- On dividend, sorry, I didn't catch the first time. So on dividend, as we said in the prepared remarks, our clearest most highest near-term priority is debt paydown. And so we will be focused on debt paydown in the short term. We have not committed to a dividend change this year yet. But over time, we would expect to have growing dividends as we talked about in the prepared remarks and increasing the return to shareholders. But clearly, our near-term priority is to pay down debt given our current leverage ratio.

Your next question is coming from Mark Weintraub from Seaport Research.

Welcome, both. Question, since you did mention that overcapacity in bleached board has been putting downward pressure on finished packaging pricing across your grades. I guess one of the questions I have is that if the trade journals show, for instance, CRB prices were to go down or something like that, if to some extent, it's already been reflected that the pressures in the business because of overcapacity in SBS, do you get hit a second time? Or can you help us understand how the prices we might see in trade publications can affect what you end up realizing on a go-forward basis?

Yes. Mark, this is Chuck. I'll take that. So as you know, we've been seeking to convert many of our contracts over to a cost model. And so many of our -- have made progress on that. So many of our contracts are no longer tied to published pricing. We do still have some contracts that are tied to published pricing, and our guide does not reflect any unpublished or unannounced changes in pricing.

Okay. And so just a follow-up. So if there are changes, is it modest because of the direct impact, modest because of the adjustments you've made in your contracts? Or any help you can give? And I recognize if you're not comfortable, understood, but figured I'd ask.

Yes. There's several factors. There's timing as to when the price impact would be recognized based on our contracts. And then there's also, of course, offset by the ones that are already on the cost model. And so it's -- there are a lot of moving parts and pieces there to give you the specifics around it.

Okay. And just one other follow-up then on Waco. I know originally, you had outlined some relatively significant start-up costs, I think, $60 million or something like that. Could you just update us how -- what has happened and how you're reporting that? And it seems like you're just putting that in net productivity now. How should I be understanding that?

Yes. So the good news on that, given the start-up -- really strong start-up of Waco that our start-up costs came in below, and we do not expect any longer start-up costs to continue into 2026. So our start-up costs came in around $40 million in 2025, so lower than our original expectation given the strong start-up. Importantly, though, we do put those costs below the line. And so that doesn't roll up into performance. It does roll into the items that are below adjusted EBITDA. And so that information that was provided to you in the previous deck was just information only, but that is something that, of course, impacts cash and came in stronger. And as I said, 0 in 2026.

Okay. And just one clarification. So the Waco start-up costs were excluded from the adjusted EBITDA number you gave us or included?

They were excluded from adjusted EBITDA.

Our next question is coming from Gabe Hajde from Wells Fargo.

Welcome. I had a question about seasonal working capital changes and then obviously, the very concerted efforts to reduce inventory. It seems like a decent amount of that production will hit and the reduced production will hit in the first half. But normally, you consume cash and working capital in the first quarter. And if I look at kind of what you gave us the 40% to 45% of EBITDA earned in the first half, it looks like leverage can, in fact, tick above closer to the mid-4s or higher. Can you talk about that a little bit? And then I have a follow-up.

Yes. I think you've identified all the right trends. Historically, our cash flow is strongest in fourth quarter, and that's how it played out in 2025, and we would expect it to play out that way in 2026 as well. I will say the impact in 2026 should be significantly moderated versus where it was in 2025. If you remember, 2025, the heavy spend on Waco was through the first 3 quarters. And so you would have seen a much more negative impact or a heavier negative impact on free cash flow in 2025 than what we'll see in 2026. So it will more follow the EBITDA, but it is still -- our cash flow has historically and always been back-end weighted as we build for the season through the summer and then harvest that cash in the back.

Okay. And then the 200,000 tons roughly of inventory reduction this year and obviously, you gave us a $1 equivalent. I guess, Chuck, for '27, can you give us a reference point? I think you talked about some moving parts to bridge to the $700 million of free cash flow. But will you still be sort of underproducing next year? And again, I appreciate it -- it depends on demand, but -- and unlocking some inventory? And if so, do you have an order of magnitude as it sits right now?

And we're not giving 2027 guidance now, so I won't give you the number. But you hit on the key factors. I mean we are committed to bringing inventory down to the target ranges that Robbert gave the 15% to 16% target. We would, of course, much prefer that to come out via demand, as you mentioned, than come out via downtime, but we are indeed committed to bringing it out or getting it out.

Thank you. We have reached our allotted time for Q&A. I'll now hand the conference back to Robbert Rietbroek for closing remarks. Please go ahead.

Thank you, operator. I appreciate you joining us on our earnings call today. I'm excited to be here leading this outstanding team that is what is truly a pivotal time for our company. Graphic Packaging serves markets with attractive subsegments, solid secular trends with the best-in-class assets and a highly talented team. We're a global leader in sustainable consumer packaging. And with the actions we're taking, we plan to grow our market share and further strengthen our industry-leading position. While I've had the opportunity to engage with several of you already, I look forward to connecting with others and to providing ongoing updates on the business and our progress against these priorities. Thank you for your interest in Graphic Packaging.

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.