Graphic Packaging Holding Company — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the filing does not provide standalone fourth-quarter results. Graphic Packaging makes fiber-based consumer packaging, including paperboard, cartons and foodservice products, through Paperboard Mills, Americas Paperboard Packaging and Europe Paperboard Packaging segments.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $9.440 billion | $7.156 billion | Up 32% |
| Income from operations | $906 million | $407 million | Up 123% |
| Net income attributable to Graphic Packaging | $522 million | $204 million | Up 156% |
| Diluted EPS | $1.69 | $0.68 | Up $1.01 |
| Operating margin | 9.6% | 5.7% | Improved |
| Net cash from operating activities | $1.090 billion | $609 million | Up $481 million |
| Capital spending paid | $549 million | $802 million | Down $253 million |
Sales growth reflected $1.088 billion from the 2021 Americraft and AR Packaging acquisitions, higher prices and organic volume gains, partly offset by unfavorable foreign exchange. Reported income from operations benefited from pricing, volumes, acquisitions, product mix and the Kalamazoo CRB machine; inflation, foreign exchange, higher incentives and depreciation and amortization partly offset these gains. Costs increased $710 million year over year, including $598 million of commodity inflation. Interest expense rose to $197 million from $123 million, reflecting higher debt balances and interest rates. The effective tax rate was 27.2%, versus 25.7% in 2021.
Segments and balance sheet
- Americas Paperboard Packaging: Sales of $6.015 billion and operating income of $800 million, versus $4.996 billion and $456 million in 2021.
- Europe Paperboard Packaging: Sales of $1.973 billion and operating income of $59 million, versus $992 million and $82 million. The 2022 result included $96 million of Russian-business impairment charges.
- Paperboard Mills: Sales of $1.290 billion and operating income of $45 million, versus $1.007 billion and an operating loss of $10 million.
- At year-end, cash was $150 million, total assets were $10.328 billion, and current liabilities were $1.933 billion. The current ratio was approximately 1.40, compared with 1.22 in 2021.
- Aggregate principal debt was $5.283 billion; about 32% was subject to variable rates. Revolving-credit availability was $1.432 billion. The company reported compliance with debt covenants: leverage ratio 3.04 against a maximum below 5.00, and interest coverage 8.44 against a minimum of 3.00.
Material changes, outlook and risks
- Operating cash flow rose to $1.090 billion. Investing activities used $435 million, compared with $2.392 billion in 2021, when the company paid for Americraft and AR Packaging. Financing activities used $666 million, including redemption of $250 million of 2022 notes, $92 million of dividends and $28 million of share repurchases.
- Management expects 2023 capital investment of 7%–8% of sales, depreciation and amortization (including pension amortization) of approximately $570 million, and pension contributions of $15–$25 million. The filing gives no specific 2023 sales or earnings guidance.
- The company closed its Battle Creek CRB mill and Norwalk carton facility in 2022, and classified its two Russian carton plants as held for sale. It recorded $96 million in impairment charges and expected the sale to close within six months of year-end. Russian operations represented approximately 1% of sales and 1% of EBITDA in 2022.
- After year-end, the company acquired Tama Paperboard for approximately $100 million and announced a planned approximately $1 billion CRB mill investment in Waco, Texas, expected to begin construction in Q1 2023 and operate in Q1 2026.
- Key risks include raw-material, energy, labor and transportation inflation; constraints on passing costs through to customers; competition and substitution by other packaging materials; demand and consumer-preference changes; operational disruptions, labor actions and cyber incidents; foreign-exchange exposure; and debt and interest-rate exposure. Environmental compliance and potential remediation costs are also risks. Management stated liquidity should cover expected needs for at least the next 12 months, while noting this depends on operating and market conditions.
- The board increased the quarterly dividend 33%, to $0.10 per share. The filing reports audited financial statements and effective internal control over financial reporting; the auditor identified goodwill impairment assessments for the Foodservice and Europe reporting units as a critical audit matter.
Important facts for investors to verify
- How much of sales and operating-income growth was organic, acquisition-driven or price-related, and whether the 2022 pricing and volume gains persist.
- Whether commodity and other cost inflation moderates, and whether pricing and productivity gains continue to offset it.
- Progress and final proceeds from the Russian divestiture, including any further impairment or foreign-currency effects.
- Debt repayment, refinancing and interest-rate sensitivity, especially variable-rate debt and upcoming maturities; confirm covenant headroom as conditions change.
- Execution, timing, cost and expected returns for the Tama acquisition and the planned Waco mill, alongside the 2023 capital-spending outlook.
- Cash-flow quality and working-capital movements, including the company’s receivables-sale and customer supply-chain-financing programs.