Stephen Scherger: I’ll start. Yes. I’ll start and then Mike can add on. I think to your first part of your question, we don’t see any dissynergies with the sale of the asset. What we’ll have is a little bit of a transition because our internal needs, our packaging needs we were running between 2 facilities, and we’ll migrate those to Texarkana. So there’s a little bit of transition, but not anything on the dissynergies front. And there are no retained liabilities. I think that was probably just a normal boilerplate statement. There’s nothing that we’re retaining that is of any substance at all. So it’s actually quite clean in terms of the transaction, the mill — paperboard facility stands on its own quite nicely. It’s got an outstanding team.
and that team is in place and very committed to the success of that facility. So there’s nothing there dissynergy wise or retained liabilities that would be impactful for us. We’ll just be managing through a little bit of transition here in 2024 relative to really servicing our capabilities and our needs that we have at the Texarkana facility to create packaging.
Michael Doss: And really the way I’d answer the second part of your question, which is a really good probing question in terms of how we think about that from a strategy standpoint is ultimately, this is consistent with our view. Our view is that recycled products in particular, are going to be at the heart of the most attractive part of the paperboard packaging market. And so the result was we made the investment in Kalamazoo and then we couldn’t even see some of the things that we’ve got in Waco before we made the K2 investment. So as we take that as a follow-on, our ability to continue to ramp up like our Rainier grade, you heard Maggie talk about, which competes with the very best premium SBS grades that are out there. It puts us in a situation where we’re not doing those kind of trade-offs.
That’s where we’re going to spend our time. We’ll always convert some SBS. It’s important. It’s a good grade. We’ll make some of it ourselves in Texarkana. And where we need more, we can always go to the open market and buy it because people are continuing to invest in that market. You’ve got a North American producer that’s building some, there’s a European producer that’s discussed about bringing another mill online. So we like how that positions us. And what you don’t want to do with a new grade of paperboard like Rainier start to cannibalize what you’re already doing. So this really fits us well, and it’s consistent with our overall strategy around driving long-term customer investments that help them drive the innovation as well as higher ROICs and more consistent cash flow.
Stephen Scherger: And I think, Mike, to the point you’re making, too, the Texarkana facility is a phenomenal manufacturing facility for making the cup — raw materials that we need to really support what is going to be a long growth trajectory for our foodservice business, so cups, bowls, trays, and that’s the right raw material for that. Texarkana does that exceptionally well and has a long growth trajectory of the ability to make that raw material, that paperboard to support our growth trajectory for foodservice.
Melanie Skijus: Okay. I’ve got one more. This is from an international investor. As you increase your focus on end markets as a driver of your top line performance, will you be able also to get a better measurement of customer inventories for each of the end markets and as your growth should be much more aligned with your customers? Is that a correct statement?
Michael Doss: Yes. So I’m going to hit that first and then you can add on, on that. When you’re — look, we work with our customers all the time to try to get the best insights that they’ve got around what their overall demand profiles going to be. But there are times that, quite frankly, they don’t necessarily know. I mean, things shift kind of quickly here, and they want to be able to be responsive to their end-use consumer. And so that was that flex capacity that I talked about that we’ve got to make sure that we have something we learned as we kind of came through COVID. Our customers need us to be able to do that. I love the question, though, because ultimately, the closer we get to the customer here, the deeper we have, the more integrated we are into their business, and there are some cases where our overall demand planning models are actually connected now, and you’ll see us do more of that in the future where we’re closer to they sell one, we make one.
It is ultimately something that we strive to achieve. And you probably want to add on that one.
Maggie Bidlingmaier: Yes. I think you said it really well there. I think coming out of COVID, a lot of companies, just like Mike was talking about ours are looking at how robust their supply chains are. So one of the good outcomes that we have is in working even closer with our customers is that we are getting better visibility in terms of some of the aspects of their supply chain. And we would expect that to continue to evolve. I mean that’s really a goal that we have with our top customers so that we can have a much tighter, there’s efficiency, obviously, for both companies and being able to do that. So we feel good about that over time.
Michael Doss: There’s a question in the back.
Unidentified Analyst: It’s Will Miller, Greenlight. Going back to what Steve just mentioned on cup versus carton. I think you could put a finer point on where your mix sits post Augusta, maybe spend a minute on how those 2 markets are different. I think the intuition is that the cup side is a little more attractive, but…
Michael Doss: Well, yes, I think, look, if you look at Augusta, I mean, both mills are roughly the same size. [indiscernible] $20 because — I’ve said it twice. You noticed that I have to change too. I’m not using that word. And we have paperboard manufacturing facilities. But — they’re both about the same size, roughly 600,000 tons. If you look at the Texarkana facility, it actually is indexed about 400,000 tons of cup stock and then the balance, of course, coated. So it fits us perfectly with what we’re doing. And as Steve said, and we’ve talked about publicly is our pivot is we would prefer to run more comp out of that facility, and we’ll either make Rainier for the grades that need that kind of premium paperboard and Maggie showed you the kind of end-use markets that we’re really targeting for that.
Or if we need to buy some of paperboard on the market, we can do that. And as we’ve demonstrated in Europe, we can get really good ROICs by doing that. We’re one of the largest purchasers of paperboard in the world. We buy it well. We know who to source it from. And ultimately, we benefit and being able to do that. So we’ve got a lot of great options, I guess, is the punch line.
Stephen Scherger: Does that answer your question, Will?
Unidentified Analyst: I guess I’m sort of more wondering about the actual market structures of the customers for cup stock versus carton, sort of supply demand. If there’s — if it’s a more attractive market to be selling into less competitive, so on and so forth? Or if it’s not, if that’s the wrong thought.
Michael Doss: There’s less people that make it for sure. It’s a complicated grade because one of the things you got to be able to do is make the brim around the top, and that requires some real knowledge of material science and the type of furnish you use in that whole process. And in the case of our business, it’s a highly integrated model. Almost 95% of all that material goes through our own cup plants, which again gives me the ire that I talked about earlier around the third-party scoring a market like that when we know exactly where all that material is going. So most of it is coming to ourselves. So it’s a very attractive market and one that’s growing, as I talked about in my answer to George in terms of overall demand. Every quarter, over the last 3 years, we’ve shown growth in our foodservice business, including the one we’re in now.
Melanie Skijus: I’ve got one more, and then I think we’re going to end with George. The last question coming in remotely is from Mark Weintraub of Seaport. He — referring to Slide 65, which is the arrow slide, and this is good just for us to confirm this. He’s talking about the sales performance by market is very helpful, thank you. But it seems to be dollar sales driven rather than net organic sales. First of all, is that right? And going forward, does it make sense to drive the analysis using dollar sales or net organic sales.
Stephen Scherger: Yes. Thanks for that, Mark. And it will be dollar sales, but what we’ll do is, of course, describe what’s happening inside of those. So we’ll raise it up to dollar sales. But where it’s material and appropriate, we’re actually looking forward to kind of talking about what are we seeing a layer now? Or what are we seeing volumetrically? What are we seeing on value pricing. So we’ll talk about those things when we describe what’s happening with those arrows, but it’s a really important pivot. I appreciate him asking that question. It will be dollar sales, but we won’t lose the ability to speak about what’s happening with the company organically and we will. I mean you can count on us. We’ll know exactly where we’re at.
We’ll talk about it appropriately, particularly when it has an impact on the business. And so we’ll definitely be prepared to do so. We’ll definitely share our innovation sales on a quarterly basis. So we’ll talk very specifically about how we’re doing against that 2%, and we track that very methodically, literally month-to-month. And so it will be dollar sales, but we won’t lose the ability to articulate what’s happening underneath that, where it’s appropriate and balanced in terms of sharing it.
George Staphos: George Staphos, BofA. I wanted to — one of my last questions just piggybacking off of Mark’s question. So along with the arrows and probably percentages or at least ranges in terms of the growth by end market, Will you be giving us revenue every quarter by end market or maybe every year, in other words, or percentages so that if we want to build — you want us to build a [indiscernible] based on revenue by end market, will you give us more tools to be able to do that on a going forward basis? So that’s question number one. Question number two, again, with Rainier, what could that be in terms of an opportunity for you 3 years from now if you want, again, to think about revenue and opportunity. And lastly, our perception, perhaps incorrectly, is the plastic guys who we all love as well are talking a lot about carbon footprint.
And that seems to be the narrative that comes from the plastics industry, not so much recycling rates. The carbon footprint in terms of defending their position and why they’re sustainable. To Maggie and Michelle. Where does paperboard stand in terms of aggregate carbon footprint versus plastics, recognizing it’s dangerous to talk about in aggregate. And where does paperboard particularly stand up well versus plastics in that regard to either of you. Thank you guys and great presentation.
Michael Doss: Thank you, George, why don’t you take the first one.
Stephen Scherger: I’ll do the first one, George. And we’re definitely — we’re working through what you just asked around. And what we’ve provided today is kind of the big buckets, so what percentage of the company falls into each of those categories. We’ll be providing the arrows, what’s happening inside of there. I don’t know that we’ll necessarily get to a spot where every quarter we’re articulating the exact dollar thing because I don’t know that that’s probably not necessary, if you will. But what we will do is articulate to you and to all kind of what’s happening inside of those categories so that you have a sense for, okay, where are we for the quarter? Where are we year-to-date? And you know the baseline. And then, of course, as we work through, I’m sure we’ll reconcile that in a way that provides visibility into, hey, what’s going on inside of food holistically.
So it’s — I appreciate you raising it because this is a new disclosure, and it’s one that we’re looking forward to, we’ll obviously open to feedback on that as well. But we’re looking forward actually to talking about it in a way that allows you to constructively build the model for the company.
Michael Doss: Yes. And look, we’ve got the customer base in there, you’ll look to true that up. So I get the point, it’s a good one, and we’ll give some thought to that and how best to do that. In terms of the other 2 questions, I mean, in terms of Rainier, I’m really excited about that one. As you know, I’m a printer. And when we look at kind of the surface of that particular sheet, and Maggie did a really nice job going through the different markets where we think we can penetrate that. I’m hesitant to give you a tonnage figure because I want to move away from that, but it’s definitely all [indiscernible] to our benefit in terms of package sales. And that is actually one of those substrates that we would seek to sell on the external market because it’s not available from anybody else.
We make it. Others don’t have it. And so it makes sense for us to actually make that available, and we’ll do that kind of going forward here. So I think it’s got a lot of promise. And we’ve already got our first commercial application. You got a dozen or so trials underway. So we’re quite encouraged with what we see. I’ll hit the first part, and then Michelle, I’d like you to kind of respond to this. George, it’s a good point. Everybody is sustainable. Every presentation you go to, they’ve got it out there. I want to know, do they have the detail that we laid out here. We just laid out a very good waterfall with discrete bespoke projects that show you how we’re going to get there, and we told you how we’re going to pay for it within the CapEx that we laid out there.
It’s one thing to say it. It’s another thing to do it. And so from our standpoint, that’s what you can count on us doing. Michelle laid it out really well. And we know exactly what we need to do in order to do it, and it comes with cost of capital type returns. It’s not knock your socks off stuff, but the mere effect, we can decarbonize the way we did, and we can earn cost of capital that’s a pretty great position to be in. And so I think the best way I can answer your question, I don’t know everybody else’s stuff, but I know ours. And I think the more transparent other companies are in terms of the claims that they’re making, actually, I think, shines light on it and I’ll let you as analysts and ultimately, the investors and our customers, the end-use customers actually be able to make those decisions.
Maggie Bidlingmaier: And consumers.
Michael Doss: And consumers. Thank you. Yes. That’s really a good point, Maggie. Michelle, anything you would add over and above that?
Michelle Fitzpatrick: Yes. So I think what I would say about carbon footprint and when they’re really trying to get at, like the product carbon footprint calculations is — these are our models and the models are only as good as the — how you define the boundaries of the models and the quality of the input data that you put into the models. And with life cycle assessment models, in particular, you have a lot of flexibility in terms of how you define the boundary and the input conditions that you use. And like any model, even statistical models, if you want a desired outcome of your answer, there’s a great way to configure the model to give you the answer that you want. And what’s interesting with the plastic packaging manufacturers is not only are the virgin plastic manufacturers trying to say that their products are better than paper.
They’re also trying to say that their products are better than the bioplastic models. And the bioplastic people are saying that their models are better and their footprint is better than the virgin plastic people. So there’s a lot of misinformation out there. Most of the data that gets published isn’t third-party validated and they don’t provide the details behind their assessment where you can reproduce their analysis and show that they’ve had a really good and thoughtful approach to it. So I think you need to take life cycle assessment models with a grain of salt because there’s a lot of smoke and mirrors going on right now. And that’s an area that we plan to invest in and build our capability and be able to help bring some more clarity and transparency to a lot of the misinformation that’s out there.
Unidentified Company Representative: I just wanted to add one comment because that’s part of the 11th initiative we are having in Europe. And one of that initiative is on [indiscernible] who you provide information and who you disclose information because we have seen a bit everything. What I can just say from a customer experience, at least for the large European multinational company, they are on it. I mean you cannot claim something they are into the detail of all the calculation and they are very advanced underway the assessing. So — because they don’t want to be stuck in something that they are claiming which is not the truth.
Michael Doss: The other thing I’d add, George, to piggyback on those comments, too, is if you think about what we’re doing at our Waco paperboard manufacturing facility, we’ve had a vertical drum pulping system we’re going to install there. We’re going to be able to take up to 15 million paper cups a day. You heard Michelle talk about that. That’s going to be the top wire fiber, which right now today for most people who manufacture that paperboard is sorted office paper, which is going the way like this, right, from an availability standpoint, which means the price is going up like this. So if you’re a consumer and you heard Michelle talk about one of our customers that manufactures that, you want to know that your stuff is actually going back and being reused again.
We’re going to be able to show that within about a 200-mile radius of that mill and the mill we have in Kalamazoo, we’ll have the capability to bring that stuff back, clean it up and put it back into first line packaging again. It’s not downgraded somewhere into a park bench, planking. And I’m not disparaging that. I mean look, that’s important, too. But the consumer, as you talked about, really cares about, hey, can I use this? Do I have a license to feel good about this paper cup I’ve got in my hand. And if they know that, that’s actually happening and you talked about a very learned person who didn’t have that perspective. That actually makes a big difference. That’s incumbent upon people like Graphic Packaging, leaders in consumer packaging to make those kind of investments back in our business so that we can actually say that kind of stuff.
Not that we’re saying someone else needs to do it or the taxpayer needs to do it. We’re going to do that, and we compete in those markets every day for that fiber and our customers are really excited about that. So I think ask for the details because they matter. And you can’t ignore the whole upstream operation because when we lay ours out, we’re looking at it from beginning to end. That’s pretty exciting. Well, listen, it’s been fantastic to be here today at the NYSE. It never gets old for me to be here. It’s our third time, Steve, I think, doing this. We had some new speakers today. I thought they did a great job. Really appreciate everybody’s input. Thank you for coming and for all of you on the web. Thank you for your interest in Graphic Packaging.
It’s exciting time to be a part of the company, and I’m actually more than thrilled to have the opportunity to lead such a fine group of people each and every day. So have a great rest of the day.
