Graphics Packaging (NYSE:PKG) Holding Company (NYSE:GPK) reported its Q3 2023 earnings, indicating a 4% decline in net sales but a 9% increase in adjusted EBITDA and a 10% rise in adjusted EPS. The company attributes the decrease in sales to a cautious consumer environment and normalized inventory levels but anticipates a return to net organic sales growth in 2024. Graphics Packaging also announced a sustainability partnership with Nissan (OTC:NSANY) Foods and reaffirmed its 2023 full-year guidance.
Key takeaways from the call:
- Net sales declined 4% year-over-year to $2.3 billion in Q3 2023 due to fluctuations in consumer purchasing behavior and retailer inventory adjustments.
- Adjusted EBITDA grew 9% to $482 million, and adjusted EPS increased 10% to $0.74, indicating strong profitability.
- The company maintains robust global liquidity, standing at nearly $1.2 billion.
- A partnership was announced with Nissan Foods to provide a sustainable fiber-based packaging alternative to foam for its Cup Noodles product.
- Graphics Packaging is progressing in its CRB system transformation, focusing on producing high-quality coated recycled paperboard.
- The company's 2032 carbon reduction goals have been approved by the science-based targets initiative.
Despite the challenging consumer environment, Graphics Packaging reported strong profitability, with adjusted EBITDA growing 9% to $482 million and adjusted EBITDA margins expanding by 250 basis points to 20.5%. Adjusted EPS also grew 10% to $0.74. The company's global liquidity remains strong at nearly $1.2 billion.
The company's diverse portfolio of end markets and customers contributed to their top-line performance, with sales in the food service markets growing 8% while sales for the food, beverage, and consumer markets decreased 6%.
Graphics Packaging's integration rates have improved, with paperwork integration into their consumer packaging business at 79%, an increase of 500 basis points from the prior year. The company reaffirmed their full-year guidance for 2023, with the midpoints of adjusted EBITDA and adjusted EPS remaining fundamentally unchanged.
In terms of macroeconomic factors, the company mentioned that labor benefits and inflation are higher than normal this year but are expected to return to normal levels. They also mentioned that pricing is related to current market prices, with $80 on SBS and $20 on another product. The company is committed to operating within a narrow range of EBITDA margins, aiming for 20% in 2024.
The company also discussed the permanent shutdown of their K3 machine and their plans to keep their remaining mills and assets running until their Waco facility is operational. They stated that they need the tons to service their business on the CRB side.
The company expects a return to organic sales growth in 2024. In terms of financials, there will be similar incentive compensation year-over-year, and the working capital will see some use of cash. The company's leverage is expected to end the year at the lower end of its range. The call concluded with the announcement of an investor event in February 2023.
InvestingPro Insights
According to InvestingPro data, Graphics Packaging Holding Company (NYSE:GPK) has an adjusted market cap of $6600M and a P/E Ratio of 9.46 as of Q2 2023. The company's revenue for the last twelve months as of Q2 2023 stands at $9667M, marking a 15.45% growth. The gross profit for the same period was $2100M, representing a gross profit margin of 21.72%.
InvestingPro Tips highlight that GPK has a perfect Piotroski Score of 9, indicating a strong financial health. Furthermore, the management has been aggressively buying back shares, which often signals confidence in the company's future. Lastly, the company yields a high return on invested capital, suggesting efficient use of its resources.
For more comprehensive insights and tips, consider exploring the InvestingPro platform, which provides an extensive list of 13 additional tips for GPK.
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