Matthew Roberts: Matt Roberts with Raymond James. I’ll echo everybody else, all the hard work that went into the presentation as well as over the past 6 to 7 years that have really changed the business. That being said, another question on price, but really the value-added price actions that you’ve pinpointed. You’ve done a very good job holding on to margin over the past couple of years via price mechanisms. And then the February price increase seemed like it was due to certain raw material cost changes in certain substrates. So how exactly is the value-add price implementation different? I mean, are there ways we can quantify things like innovation or supply chain dependability or consumer insights that Maggie brought up or is it something that your customers are now more inelastic because of more innovative products.
Michael Doss: No, I wouldn’t say they’re inelastic. I mean, again, it’s a competitive market. It’s packaging. But what I would say is that there’s a general appreciation, particularly by our largest customers around the need for security of supply. The need for innovation and the need to help them accomplish their sustainability goals. I hope when you see that waterfall up there, I mean, you know Graphic’s DNA, we measure everything. And so being able to put that in, and the context around no, this is real, we’re actually going to reduce this down, and you saw the Scope 3. Michelle had that on there. We need our suppliers to do the same thing. Guess who we are for most of our customers where that bar. And so the fact we bring those things is really valuable to them.
And they understand that. Like I said, we expect them to buy well, but they’re willing to compensate us for those types of things that we do. And if we do start to see input cost inflation in the market. And I know that was a question we had over here from Mark earlier, we’ll take price. And that’s — our track record is really good at doing that. Look at what we did in ’22, look at what we did in ’23. So I think we’ve demonstrated an ability to do that, but it also comes back to making sure we’re getting paid for the value we provide our customers and have an equal sharing on that. So it’s a number of things.
Matthew Roberts: Certainly. I appreciate that. My second question, Maggie, I want to ask you, in your remarks, you said that innovative products, the goal is to not have any switchover cost, correct? Have them work on the exact same machinery. Is there a certain percentage where it does not work. And in those cases, I mean how do those conversations go? I imagine there’s a lot of incremental investment, the machines have a certain lifespan themselves. So what percent is that? And how are customers receptive to it?
Maggie Bidlingmaier: Yes. No, it’s a really good question. It’s very — I think the percentage is evolving because I’m thinking about a lot of projects that are in queue right now. But if I were to do a range, maybe 30% to 50% could go higher in certain of those innovation platforms. But I think it’s obviously something we continue to try to hit the mark on our ability to do that. The Nissin Cup was a great example. Our ability to commercialize that quickly, we could get on to their filling lines and do that pretty seamlessly. And so we’re going to continue to focus on doing that. There’s obviously different machine capabilities that we’re trying to develop to help make that as efficient as possible when it is required. We also partner with co-packers who can help leverage that.
So they may make an investment and they might be supplying to multiple different customers. So we’re really trying to utilize that as a leverage point. So we’re getting creative around that. And honest — and at the end of the day, if the value proposition is there and if it’s regulation and there’s other things that they have to drive where it’s bringing better performance on shelf for their — at retail to help drive top line performance, those could overcome a lot of those investment costs.
Unidentified Company Representative: If I may just ask one comment on the — that’s one of the reasons why we are getting a lot of traction on PaperSeal shape because somehow we are matching what [indiscernible] is and the volume on [indiscernible] are, it’s extremely large. And the sealing technology at the end is the same. And that’s why we are getting traction because in terms of CapEx for those people, they use technology that they are having. And we are just replacing base [indiscernible] by a PaperSeal shape, which has nearly the same capabilities in terms of sealing. And that’s why on that specific, we are getting a high level of traction in Europe.
Gabe Hajde: Gabe Hajde, Wells Fargo. As per usual, you guys provide good detail. A question about becoming a packaging solutions provider. And I know it’s been a journey that you guys kind of initiated, let’s call it, 5 to 6, 7 years ago, almost like packaging as a service, if you will. But the question is, the last 3 years were pretty conducive to maybe transition to a value-based pricing methodology or strategy versus historically how business have been conducted. So the question is, how would you instruct us to think about some — again, I know you’re not — it’s tough in a format like this to give us specifics, but to think about, how frequently there are openers for contracts or how long those may have run to maybe think about go forward as opposed to just sort of the simple algorithm of 2% translates to 5% to 10%.
Michael Doss: Yes. So I think, look, Gabe, we’ve got a certain percentage of our portfolio that’s up for contract renewal every year. It’s almost like clockwork. Some years are a little heavier than others. But for the most part, I’d say it’s 20%, 25% that is constantly rolling through. So it’s not like that ever stopped during that process. But what I was trying to do in my prepared remarks is really kind of paint a picture for where we were kind of bid ask, which is really the market we were in versus where we are now, which is a much more holistic supply position we have with our customers, deeper relationships with customers because it’s needed for them to accomplish their goals as the world has gotten more enthralled with regulation, and it’s been harder to reach customers.
We have solutions that will help them do that. So it’s really not so much that we’re just trying to, hey, look, we’re changing all the vernacular because we want to and that’s why Vision 2025 doesn’t really even apply right now in many ways because it’s — some of those targets aren’t ambitious enough and it’s not aligned with how we run the company. That algorithm, well simple in nature, is really hard to do. But if you can do it year in and year out, and that’s why we put the stake in the ground today, it’s incredible value creating. And that’s what we want you to take away from. That’s the commitment we’re making today. And that means we have to manage a whole bunch of those little industry things that you’re talking about, price cost, what the volumes do, how did this happen over here.
All of that gets encompassed in there. And we think it’s a better way to talk about what we’re doing. And that’s why we want to make that shift to talk more about the markets because that’s really what will drive the overall performance of the company over the long term.
Melanie Skijus: I’ll go again. This is another one from Mark Weintraub for Steve again.
Stephen Scherger: He didn’t like the first answer.
Melanie Skijus: Is the anticipated impact of reinvesting excess free cash flow captured in the Vision 2020 — Vision 2030 base financial model growth expectations? Or is the impact potentially accretive?
Michael Doss: Can you read that question again please.
Stephen Scherger: Yes. Say that again.
Melanie Skijus: Is the anticipated impact of reinvesting excess free cash flow captured in the Vision 2030 base financial model growth expectations? Is it in the growth expectations? Or is the impact potentially accretive to what we laid out earlier?
Stephen Scherger: I think the way I would talk about that, if you kind of look at how we shared it with you today, is the base model of low, mid and high single digits results in and ability of the business to generate very substantial cash flow. And what we shared is that, that actually allows us to allocate capital in such a way that potentially says put cash in to drive innovation even faster, more capabilities and have the flywheel spin even faster if we see those opportunities or increase the dividend because we have every opportunity to do so through the cash flow or repurchase the shares where it makes sense to do because it’s the best way to provide return to shareholders. So I think the way we’d articulate that is the base model does a great job of indicating that we believe — as Mike said, it’s not an easy thing to do, but we believe that we can actually generate low, mid and high.
And if there’s opportunity to invest faster back in the business, capabilities, grow faster organically, we’ll absolutely do that. But we’ll hold it up against the other capabilities to return value to shareholders, dividend, shares, low debt. So I think it’s really — that’s how you think about the model. And I guess — I know Mark is not here, ask me if that addressed his question or anything you’d add.
Michael Doss: No, maybe I just might add the really good response there. Steve made a couple of points in his prepared remarks that I just want to put a little emphasis on. He talked about 5% of sales is CapEx and 2% being a robust amount for kind of maintaining those assets. These are well-invested assets. We look at what we’ve done over the last 7 years. We’re proud of our package converting facilities and our paperboard manufacturing facilities. And if you think about it, Kalamazoo and Waco will be brand new. So that’s a pretty long tail as you kind of wind that forward. So that difference between the 2 and the 5 is substantial in terms of the things that we can invest back in the business. So as we grow on the foodservice side, Maggie needs cup plants to kind of fill out that geographic piece, that’s all in that 5% that we’ve rolled out there.
What Michelle talked about, the decarbonization, those 3 big projects that you put out there, that’s in the 5%. So the cash flow that Steve kind of outlined on the ARC, I guess it was, which is pretty darn impressive. I mean it anticipates those investments and the things that we need to do to continue to deliver on those things for our customers. And so you asked about how we’re positioned against other competitors. It’s not just our paperboard packaging peers. It’s really all consumer packaging companies, and we love the relative competitive positioning that we’re in right now.
John Dunigan: John Dunigan at Jefferies here. If I understood Mark’s question, maybe I can just ask it a little bit differently. The CAGRs that you’re expecting with the Vision 2030, maybe is it more back-end weighted given all the projects you have now where you see more of the growth coming in that ’26, ’27, ’28 time frame after Waco is already up? Or do you think that you can achieve some of these EBITDA growth with the project still in the investment stage now? Is this growth potential mid-single digits and high single digits here in the next couple of years with everything you have going on.
Michael Doss: Sure. Yes. So again, the way to think about it, excellent question is, look, we’ve got Waco that’s going to come to life here, ended ’25 into ’26 and on. So there’s $160 million of EBITDA we committed to that will be there, that will drive some additional sales growth. The Rainier piece of that’s accretive on top of that. But look, we’re committed to growing our volumes each and every year, and that starts in ’24, and we gave you some insight into how we’re thinking about it and why our confidence is there that we’ll be able to do that. and we see that as accelerating and continuing to be accretive over that entire 7-year planning horizon. And our track record, as I talked you through, is solid for being able to do that.
Stephen Scherger: Yes, it’s definitely not a back-end loaded scenario at all.
Michael Doss: And I think the only thing that’s back-end loaded is a little bit of the cash flow because we’re still in the investment phase. But if you adjust for ’25 and ’26, you kind of saw that ramp up to $1 billion of free cash flow a year in those outlying years, and that’s why.
Melanie Skijus: Okay. I have another question from the remote audience. So from your remarks — this is from an investor. So from your remarks today, what is your approach with RISI moving forward?
Michael Doss: Look, I think I characterized that in the beginning pretty sharply. I mean it’s not new for Graphic Packaging to not like third-party indexes. We’ve been talking about that for years. And as you can see by our value-based pricing model, we’ve been moving away from third-party indexes for years. So what I’m saying is that we don’t agree with the assessment on foodservice for all the reasons that I’ve outlined here, foodservice cup stock, in particular, and it just strengthens our resolve to continue to move away from third-party indexes that are, in our opinion, historically inaccurate and very nontransparent in terms of how those things are generated and how they’re scored. So I’d just say that’s how I would answer that question.
Gregory Andreopoulos: This is Gregory Andreopoulos from Citi. Thanks for the detail in the presentation. I just had a few points of clarification around the Augusta sale and then a bigger picture question about your substrate mix going forward. So just on Augusta, briefly, do you expect any dissynergies from the sale? I know you mentioned the $1.8 billion pro forma EBITDA number. So any dissynergies there and then any retained liabilities we should be aware of post-sale. And then just kind of bigger picture, the sale would reduce your SBS footprint by about half with my math. And you’ve made investments seemingly focused on CRB over the last 2 years with K2 and now Waco. So the question for me is, do you see an opportunity to move customers from SBS, maybe even CUK to CRB. And what role do you see SBS playing in the long-term 2030 Vision, acknowledging that there is some import competition from FBB now and the market may see some capacity coming online in ’25 plus.
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.
