Graphic Packaging Holding Company (NYSE: GPK) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports full-year results; it does not provide a clear standalone fourth-quarter financial summary. The company manufactures paperboard and paperboard consumer packaging, serving food, beverage, foodservice and other markets.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $9.428 billion | $9.440 billion | Down 0.1% |
| Income from operations | $1.174 billion | $906 million | Up 30% |
| Net income | $723 million | $522 million | Up 39% |
| Diluted EPS | $2.34 | $1.69 | Up 38% |
| Operating margin | 12.5% | 9.6% | Improved |
| Net cash from operations | $1.144 billion | $1.090 billion | Up $54 million |
Sales were nearly flat: higher pricing, new products, Bell and favorable currency partly offset lower organic and open-market volumes. Core packaging volumes fell in several categories, including beverage, cereal, dry and frozen foods, dairy and healthcare; foodservice, tissue and beauty volumes increased. Operating income benefited from pricing and productivity savings, partly offset by inflation, lower volumes, maintenance downtime, foreign exchange and exit-related costs. Net interest expense rose to $239 million from $197 million, reflecting higher rates and debt balances.
Cash flow and investment: Investing cash use was $1.025 billion, including $804 million of capital spending and approximately $361 million for the Tama and Bell acquisitions. Financing cash use was $106 million. A simple operating-cash-flow less cash capital-spending measure was approximately $340 million; this is not a company-reported free-cash-flow measure.
Liquidity and debt: Cash was $162 million at year-end; current assets were $2.845 billion and current liabilities $2.589 billion. Outstanding debt principal was $5.396 billion, including $739 million due in 2024. The company reported $1.3 billion available under revolving credit facilities. About 20% of debt was floating-rate. It complied with its leverage and interest-coverage covenants: 2.58x against a maximum below 4.25x, and 7.96x against a minimum of 3.00x.
Material changes and significant items
- Income from operations rose despite almost unchanged sales, with pricing and cost savings outweighing volume pressure and inflation. Costs increased $175 million year over year, including $96 million for labor and benefits and $73 million in other costs, net.
- Capital investment increased to $804 million paid, mainly for the approximately $1 billion Waco, Texas recycled-paperboard facility. Total 2023 capital investments were reported as $885 million, including amounts not yet paid.
- The company acquired Bell for $264 million and Tama for approximately $100 million; Tama was subsequently closed. Bell contributed only a partial year of results. The company also closed or announced closures of manufacturing and packaging facilities, decommissioned the Kalamazoo K3 machine, and discontinued the Texarkana capacity project.
- The Russian operations sale closed November 30, 2023. Consideration was $62 million, primarily a long-term vendor loan; a $48 million valuation allowance was recorded against that receivable. The company had recorded cumulative impairment losses of $106 million associated with the divestiture.
- Shareholders received $123 million in dividends; the company repurchased $54 million of stock. At year-end, $565 million remained available under repurchase authorizations.
Outlook, risks and contingencies
- 2024 outlook: Capital investment of approximately $950 million; depreciation and amortization expense of $590–$610 million; pension contributions of $10–$20 million. The filing does not provide a specific 2024 revenue or earnings forecast. Management expects operating cash flow and available facilities to fund requirements for at least the next 12 months, subject to business and market conditions.
- Subsequent event: On February 20, 2024, the company agreed to sell the Augusta, Georgia paperboard facility for approximately $700 million cash. Closing was expected in the second quarter of 2024, subject to approvals and other conditions.
- Operating and market risks: Raw-material, energy, labor and transportation cost volatility; limited ability to pass through costs; packaging substitution and competition; changing consumer demand; facility disruptions, labor actions and cyber incidents; and international currency and geopolitical risks.
- Debt and compliance: Debt service, floating-rate exposure, refinancing needs and credit-agreement restrictions could constrain capital allocation. Environmental regulation and remediation may increase costs. Environmental and ordinary-course legal matters are described as not expected to have a material adverse effect, though some future costs cannot be estimated with certainty.
- Other future charges: The company expects further costs for announced facility closures and Waco start-up. It also expects $5–$10 million of additional costs to dismantle the Kalamazoo K3 machine through 2024.
Important facts for investors to verify
- Whether pricing, productivity gains and new products can sustain higher operating profitability as volumes and customer demand evolve.
- Progress, cost and expected returns for the Waco facility and the timing and savings from announced closures and network consolidation.
- Execution and proceeds of the Augusta sale, including closing conditions and the planned use of the approximately $700 million cash consideration.
- Ability to refinance or repay 2024 maturities and manage floating-rate debt while funding capital spending, dividends and repurchases.
- Recoverability of the $62 million Russia-sale vendor loan, given the $48 million allowance and restrictions on currency transfers.
- Exposure to additional environmental compliance costs, including estimated environmental capital spending of $134 million in 2024 and $33 million in 2025.