Good afternoon, everyone, and thanks for joining. I'm Anthony Pettinari. I'm a packaging analyst here at Citi. We're very pleased to welcome Steve Scherger, CFO of Graphic Packaging. Melanie Skijus is joining him, VP of IR. And I think, you know, we'd like to keep it interactive, so if folks have questions, please, you know, jump in and ask. But maybe, Steve, I'll kick it off. And you know, you recently provided some detail on kind of expectations for 4Q, maybe volume growth. I'm just wondering if you could talk a little bit about current market conditions, and if you're seeing kind of categories or end markets that are, you know, outperforming or underperforming. Yeah. Thanks, Anthony. Thanks for having us, and appreciate everybody taking a little bit of time here this afternoon. Yeah, relative to what we talked about at the end of our third quarter call, fourth quarter's playing out really as we've expected. We continue to see good, strong growth in our food service business as our innovations continue to roll out, as well as really just the drive-through continuing to win relative to the consumer who's on the go. Traditional food beverage consumer, pretty consistent with what we've seen. I think more importantly, as we kinda navigate through the fourth quarter and into 2024, as we've talked, really the keys for us from an organic growth perspective, as we kind of march out of 2023 and into 2024, kind of fall into three categories. Our innovation engine continues to be very successful. This year will drive about $200 million of top-line growth, or about 200 basis points from new-to-the-market products. We expect to repeat that again next year, so it sets a good baseline for organic sales growth. Next year, we should see some positive from easier comps associated with a little bit of the destocking that existed. For us, we're a business that really our customers don't build inventory for our business, so the destocking for us was not as substantial as some other businesses, probably plus or minus 4%. As you kind of look out, you know, the two quarters this year, Q2, Q3, where the majority of that played out for our business. And so those two things, two of the three are pretty clear. I think the thing obviously that we're monitoring closely is the buoyancy of the consumer and how our customers engage with us as consumers to return towards a little more normalized growth into 2024. There's certainly lots of evidence and conversation that CPGs expect to return to organic growth. Some evidence of it, but, obviously, as we sit here in October, November, we'll take a pretty conservative approach around that. But good confidence that we will return to organic sales growth next year, driven by the confidence in those first two items. Right. Then we'll probably see a little variability depending upon the pace with which our customers, the CPGs, actually pursue volume growth with us as consumers. Right. Just to kind of circle back on a couple of those. On destocking, understanding that you're not maybe as impacted by destocking as some packaging peers, can you kind of remind us the timeline of when destocking is kind of run its course or...? Yeah, for us, because it was a little more limited and we kinda went back and looked at it quarter by quarter, 2022, 2023, you know, for us, the majority of this really played itself out Q2, Q3. So maybe a little bit of it into Q4, but generally for us, we're now into what we believe are more stable patterns. Now, overall, volume at the consumer level has been under a little bit of pressure as the prices have moved up so materially for the end consumer, and that's kind of played out in our... as we were just talking about, kind of that price volume trade-off that our customers have been electing to manage. But for the most part, the actual destocking for us feels like it's behind us, which is good 'cause it gives us a little more of a normalized line of sight. It feels to us that our customers are carrying a more balanced amount of inventory, modest as it is, but a more balanced amount, as they exit out of 2023 and head into 2024. Right. Great. And so, you know, moving from destocking to innovation, you talked about the $200 million. Can you talk about, you know, what, what these products are? Yeah. You know, what- Yeah, no, the great thing about the products for us is that they're in all of our lives around this room. So at some point here, probably over the next day or two, you'll interact with one of our products. Thank you for that cup right there. That cup there, that's good. But you know, in essence, a lot of what we're doing is really just in our day-to-day lives. So our innovation is literally about, you know, the cup that was in a foam cup that's now, you know, in a fiber-based cup. And so Chick-fil-A, a great example of a potential major conversion out of foam cups into recyclable, renewable, fiber-based cups. The Nissin noodles, ramen noodles announcement that we had with our third quarter, a move that's been historically in a, in an alternative package, now in our fiber-based solution. Globally, the move away from resin-based or plastic-based packaging for your beverage packaging. So think about all the cans that are packaged,six packs, 12 packs, et cetera,. Globally, they're just fundamentally moving to fiber-based solutions. And so those big categories of, of beverage, beverage packaging, moving to the secondary packages that, that we and others produce. Pepsi and Coca-Cola have both announced that they'll be migrating to fiber-based packaging across their platform of, of can packaging, primarily, and other categories in Canada and the U.S. So it creates a good runway for steady and consistent organic growth.... On the food side, we're playing a much more substantial role around the perimeter of the store, so packaging for, meats, cheeses, deli, foods, fruits, vegetables, where our fiber-based solutions are replacing other alternative plastic, other resin, solutions, some foam-based solutions. So what's great about the portfolio of solutions is it is just that. These are small, medium, and large, Chick-fil-A being on the larger side. But a lot of these are, you know, $10, $20, $30 million dollar kind of singles that accumulate up into the portfolio of 200 basis points or so of growth that we've got line of sight to here in 2023 and 2024. And the portfolio is good. Yeah. And we'll talk about that probably, separately, but the portfolio of actual projects remains robust. And that's good for us as well as we take kind of a multi-year view to the ability to grow organically. I don't know. I mean, we started to hear a lot about plastic substitution four or five years ago. We obviously had the pandemic, and now you could argue we're in a period of just a lot of consumer stress with inflation for the consumer. Yeah. How has plastic substitution... I mean, did it slow... did these initiatives, did it slow down during the pandemic? Has it slowed down with, you know, inflation-stressed consumers? Has it sped up? Like, how would you... has it... Yeah, I'm just curious. Yeah, I think it, on balance, it's actually stayed very steady. I would say in the true heart of the pandemic, when we were in a real, you know, shutdown, there were definitely projects that were paused when everyone was in either a stay-at-home or, you know, kind of the real heat of the battle that was taking place globally. But broadly speaking, our project pipeline, as I just mentioned, it stayed very robust. And a couple of times today, we were chatting that our conversion, so the conversion from a foam cup to a paper cup or from a six-pack that was in a plastic ring to a fiber-based. On a relative basis, they are more modest investments for our customers to make. They're not changing out entire lines of their packaging solutions and the how it's packaged. These are secondary packaging-type solutions. So they tend to be what I would characterize as a good win for our customers. It helps address their commitments to recycling, it helps address their commitment to greenhouse gas reduction, it helps commitments that they're making to reducing, their impact on the planet more circular. Which is good because, you know, we're participating in areas where they can make the call. Yeah. The actual increased cost on a relative basis, 'cause it typically is slightly more expensive, is also relatively modest. They're not making a large-scale investment that's gonna require a wholesale, wholesale change to the value of the product. Right. So for the consumer, the impact to the package on the shelf would be pennies? It's yeah, pennies measured in one or two, and as such, it tends to be absorbed inside of the natural inflation or the natural pricing. It doesn't tend to stand alone or require a standalone move in order to for our customers, through the consumer, to support the investment. Right. Right. Can you talk a little bit about 2024? And, you know, obviously not giving guidance, but in terms of understanding some of the bridge items, price costs- You bet ... volumes, M&A, that we should think about. Yeah, on following our Q3 call, we started, like you said, to provide. It's not guidance, but a little bit of kind of what are the guardrails, if you will, around as we look out towards 2024. 2023 has been a very successful year, relative to our execution. We've been matching supply and demand well. Margins, EBITDA margins will have improved, you know, up into that 19%-20% range, which is where we've targeted them to be, to generate the kind of modestly above cost of capital returns that allow us to invest back in the business. And if we look at the metrics that we'll be executing against, that'll give us some line of sight into 2024, we've got a little bit of price cost negativity right now. We put it in kind of the $80 million category, a little bit of a price erosion on a couple of our paperboard substrates, mostly driven by the SBS folding carton side, which we can talk about separately. But we expect that to be offset by a return to organic sales growth that we earn on $30 million-$40 million or so. The Bell acquisition is just an outstanding converter, well-capitalized. We've got about $20 million of acquired EBITDA that'll roll into next year, about $10 million of it this year, and another $10 million in synergy capture. So those two will do a nice job of offsetting the price cost environment. Then given that we expect to return to some modest organic sales growth, less market-related downtime, drive good productivity through the company, we'll earn on that in our productivity, which should be in the $100 million range, ±, which will offset labor benefits inflation. So we were putting some guardrails around the 2024 that looks a fair amount like 2023, which on a relative basis, will be quite an achievement, given that many, many folks have run into some pretty substantial headwind during this period of time. As such, working hard to operate the company, really in a pretty narrow band of, of margins, so that we can be very consistent in growing organically, earning, you know, above cost capital returns that operate net 19%-20% EBITDA margin level, which allows us to invest back in the business, to support our growth, and certainly generates strong cash flow to invest in things like we're doing, with the Waco CRB mill. Just to dig deeper on a few of those. Can you talk a little bit about, like, current cost trends? I mean, it seems like OCC is up, maybe natural gas is down. Yeah. Like, where do we stand on cost exiting the year? ... Yeah, as we talked on the call, as we came out of, really, in the last month, and looked at it, fast-forwarded a month, the net is that we have very little net commodity input cost inflation flowing through the business right now on a mark-to-market basis into 2024. That being said, every day is a new day, and we've seen a little bit of movement up on OCC, oil down a little bit, logistics costs are tending to be down a little. Our wood costs, similar to slightly down. So the net of all that is very little movement. Obviously, we all know at any time you can have a weather-related disruption or something that causes something to move. OCC has been ticking up a bit, and it's something we're, as you've watched us over the last several years, we monitor very closely just to make sure that our pricing decisions offset the realities of any inflationary environment that could materialize. But currently today, very, very stable- Yep ... as we kinda look into 2024 on a mark-to-market basis. Can you talk a little bit about the pricing in the four grades that you participate in, in boxboard, sort of what you've seen year-to-date, and the drivers that... Specifically in SBS folding carton? Yeah, let's touch on all, all four of them, and all very consistent with what we've been conveying. If you start with CRB, where we've made a very substantial investment, obviously, with the K2 investment, the world's lowest cost and highest quality CRB, it is really performing as we expected it to. We've now successfully closed 480,000 tons of higher cost CRB. We added 550 of the world's lowest cost and highest quality. And so overall, the demand for that is very high. The interest in the new Rainier grade, which is very high quality and can be a substitute for what had historically been SBS grades, for things like healthcare and pharma packages, as examples, is really going very well. The interest level, very high for growth of that platform, and it's performing well. We're running very full, you know, operating rates and backlogs, moving back into more traditional levels, low 90s on the operating rate side. SBS or CUK, the beverage packaging paperboard that provides packaging, as we were talking earlier, primarily on the beverage side, think frozen foods, those kind of categories. There, too, a good global growth trajectory. So there, too, demand good. Strong fundamentals there are very solid. As we talked earlier, we were actually buying some CUK-type equivalent around the world when supply chains were a bit disrupted. We've now internalized that and running it, you know, as our own, driving our integration rates on the beverage side. SBS cup... And by the way, on those two that we just mentioned, there's been very minor movement, $20, you know, on where have been roughly would have been $400+ dollar increases over the last several, several years. So very good stability. And on SBS cup stock, which supports the cup business we have, the growth that's happening there, drive-through, Chick-fil-A, Nissin, and others, there, too, we're running very full on SBS cup. You touched on it. The one area where there has been some price pressure is on SBS folding carton grade, so one on both sides, SBS. And that is the one substrate that produces packaging that actually is the least integrated, least consolidated, most global, and it's where there's been a fair amount of capacity in and out, so a fair amount of supply/demand. It's also, when we talked a moment ago, kind of our de stock on 90+% of the company, ±4%. If you're just in the business of making a raw material- Yeah ... that D stock was significantly higher, could be + 20%, +25%. So it's a very small percentage of our business, but it has impacted others, and that's one that's still kind of playing out. So that big de stock, we're managing our demand, you know, our capacity to demand, just literally ton for ton. But that's where you're seeing a fair amount of downtime, fair amount of action to manage through what is the sale of an open market, open market paperboard. Yeah. That's really where the destocking is more of substance. Yeah. That one is working itself out here, kinda through year-end into next. Can you just remind us what your integration rate is and maybe the targets that you've put out there? And then I guess a related question, you know, your boxboard grades with some of the plastic substitution, it seems like a great growth opportunity. What prevents others from just entering this market? Or, you know, you've seen some announcements about capacity maybe in 2025, 2026 plus. Yeah. Yeah, yeah. No, well, just as a reminder, today, 80% of all the paperboard that we produce, we turn into a package that we, as consumers, interact with. So that's the packaging company that we are, and it's well over 90%+ of our sales is all about making the package, the actual product, that we as consumers interact with. Our integration rate around 80% today. Our goals have been to move towards 90. There's kind of three paths to get to 90. Obviously, growing organically is critical. So that 200 + or - 200 basis points a year of organic growth that we've done over the last four years, continuing with that. Every year, you inch your integration rates up from that. Very targeted, high-returning, tuck-under acquisitions like Bell. Bell will drive 300 basis points of integration just with the integration of that business. That's a good example. And then a little bit of it is also just what is our participation in the open market relative to sales in the open market, and we just continue to step that back with a targeted set of customers. And those are the things that drive us up, you know, towards that goal of 90% over the next couple of years. You touched on it, industry kind of supply demand from a capacity perspective. Very limited activity happening on CRB, nothing that's floating around, nothing in CUK, nothing on the SBS cup side. There's been some ins and outs on the SBS folding carton and FBB side. Canton Mill, with the fact of Evergreen closed, so took a fair amount, I think 500,000-600,000 tons of SBS out of a 5 million ton market. A little bit coming on with Sappi and their investment up in Maine. Husum with Metsä will have a little bit of capacity, some of which could be targeted this direction. But the net of all those, reasonably modest in terms of actual capacity coming into this market. And then there was the possibility of a pretty substantial investment with Billerud that was announced a couple of years ago. I remember it well, over the Christmas holiday. And it too, I think, has kinda found its way towards either elimination or a very long pause. Yeah. And so that investment, the potential for that, I think, is certainly not anywhere in the near term. So broadly speaking, the actual supply-demand dynamic in terms of the making of the raw material is quite in balance overall. We just gotta work through this little bit of the ins and outs of the destocking, because the organic growth from an industry and from ourselves, you know, that we're actually experiencing, allows for, you know, just to leverage the capabilities of the infrastructure quite well. I don't know if there are any questions from the audience, but- I think one thing, the Waco project you touched on- Yeah. Can you talk a little bit about the benefits? But also, you know, you had a big CapEx project with Kalamazoo, you had one in Waco kinda currently. Are there other kind of big dollar needs or opportunities, either in the mill system or downstream? Like, how should we think about that over the next few years? Yeah, the good news is no. There won't be. There does not need to be, you know, any of that scale type investments. This was a truly unique opportunity to completely recapitalize the coated recycled paperboard infrastructure from a making the raw material perspective. And when done, we'll have six very high quality, low cost paperboard mills making all of those four substrates I described earlier. And the net increased capacity across this 4 million tons ends up being a couple hundred thousand tons. And what's fantastic about the CRB that we're now producing is it actually can support the growth of the whole. And that's really important because we have no needs or desire to increase capacity of, you know, SBS or CUK. The growth is happening in CRB, and the quality is so high that it can actually support the growth of the network as we kinda manage, movement between and among those substrates. It's a big deal because it allows us then to fully leverage this well, well-capitalized infrastructure to support our packaging growth, that 100 basis points-200 basis points a year. Right. And you touched on Europe. You have a kind of a larger European footprint than a lot of packaging peers with the AR acquisition. Wondering if you could talk about that acquisition, and then talk about Europe, I guess, in terms of your footprint there, what the consumer is doing there, maybe with fiber in a way that we're not doing maybe yet, and kind of market conditions? Yeah. No, it's a good, good overview of of our platform, kind of the Pan-European platform, about a $2 billion top line for us. We're purely a converter, so we only make the packages there. We, we buy paperboard from the major producers throughout the region, and then we send some CUK paperboard to ourselves. So we're fundamentally a converter. It's a pretty fragmented market still at the converting level. We probably got, you know, 15% market share across that portfolio of countries that we're involved with, plus or minus. And so still a lot of fragmentation there, and we've been driving some consolidation. A few others have been doing a little bit of the, of the same. No need or aspirations to become involved in the paperboard making in Europe, you know, for the foreseeable future from our perspective, just given that dynamic is, you know, pretty competitive and well-capitalized, and has the participants in it, who tend to not run integrated packaging platforms. Overall, the innovation side of our platform there is actually running at strong speed, very high speed, because of the real commitment at the consumer level to recycling, to doing, you know, what's better for the planet. There's a good fundamental belief that fiber-based, made from, you know, well-managed forests and then being recaptured and recycled. Recycling rates there are very high relative to all other substrates, and so recovery is good. And as such, it's a good market at the consumer level of wanting the product. So we've seen a lot of conversions there, some of which we touched on earlier. And so the innovation growth engine there is good. Consumer is under some pressure, and we've seen that. I mean, you know, the economies are more spotty, kinda country to country, and so there's been definitely some pressure on the consumer. We'll come out of this year, Europe will look a lot like North America holistically, but how we'll get there will be a little bit different, just because of the realities of what's occurring there and some of the disruption that's happening, you know, broadly, with the war and conflicts that are going on in the region. So, but overall, the health of the consumer's appetite for innovation and our solution is very good. The consumer coming under a little bit of pressure, you know, as we know. ... In terms of cash, when as Waco comes down- Yeah. and cash flow steps up, you have, you know, kind of some of these smaller acquisitions like Bell. I guess AR was a larger one. Can you talk about uses of cash, M&A, you know, buybacks, dividend? Yeah, no, it's... We've been active allocators of of cash and, and capital, and, and you said it well. We'll have a significant investment in capital CapEx, here in 2023, 2024, 2025. And so we'll be, you know, up in the 8%-9% of sales level for a couple of years, finish up Waco, invest that $1 billion, get the $160 million of EBITDA improvement from that, starting in 2026. So high confidence in the return on, on that investment. But we're also looking forward to CapEx normalizing in 2026. We think 5% of sales or roughly $500 million is a good place to be, to run a very well-capitalized infrastructure, support the organic sales growth. Then the cash flow generation, assuming margins are retained at the level that we're at, you know, kind of the normal use of cash for interest expense and cash taxes and the like. I mean, you've got a billion-dollar type engine there, in terms of the cash-generating capability, which really provides us with outstanding capital allocation optionality, relative to investing back in the business, like the tuck under M&A that we talked about, a growing dividend as a, you know, long-term option for the business. Obviously, share repurchases are, you know, a part of that. We'd like growing the company as a, as a bias, you know, as you've seen us do for the last seven,eight years. But the optionality around capital allocation is exceptional. Yeah. Yes, we're making a, you know, large investment here that is an important and targeted allocation of capital in the current, current environment, which is why, you know, continuing to manage supply-demand, the pricing environment, the return environment is so critical because we've earned the right to be at this margin level, and we've got to maintain that for me. Now maybe from just a big picture standpoint, I mean, you've had better growth than peers over the last few years. You've had very good profitability and kind of EBITDA margins in the 20% range, you know, versus mid-teens historically. You have this opportunity with plastic substitution. The stock has been trading, you're trading like 6x EBITDA, 6.5x EBITDA. Yeah. You know, what do you think is a misperception, or what do you think investors are missing, or where does the discount come from when we look at the last few years of really excellent performance, and it seems like a lot of opportunities going forward? Yeah. No, I appreciate you asking that, and I think it really is we're running a different race, and we're in that moment as we speak, where we have earned the right to grow organically, invest back in the business, move the margin profile into that, like you said, 19%-20% range. And upholding that from here would actually distinguish the business from what has been kind of the historical norms for more cyclical, more commoditized businesses that have operated, you know, in the space. And through, you know, the consolidation that we've driven, through the innovation that we're driving, the growing organically, we're in that moment where the ability to uphold that into 2024 and beyond, I think, will actually allow for the rerating of multiple back to historic levels. Because currently, there's a natural assumption that you've got to hear and that it won't continue on. And I think 2023 is a very good proof point that, yes, we've gotten there and have upheld it in a pretty disruptive environment. Yeah. And that we can continue to do that in 2024 and beyond. So yes, in, in the moment, you stare at a multiple, and you ask why. I think it's, it's almost entirely driven by just a, you know, a natural skepticism of can you actually break through that- Right ... and uphold these levels of margins consistently? We believe we can. Yeah. That's really what we're obviously very focused on, very focused on doing. Growth is a big enabler for that. Growing organically, innovation, movement to fiber-based, being a packaging company that happens to make our own raw materials, which is something you'll hear us just talk a lot about- Yeah ... because we've made a seven to eight year journey, you know, to be much less about making a raw material and almost entirely about living in our lives as a, as a packaging company. Right. Right. So the integration rate, the innovation, I mean, I think some people have followed you for a long time, maybe others are new to the story. Yeah. If you had to kind of give them a before and after, you know, 10 years ago versus today, what do you think are the most powerful drivers that, you know, will allow you to hold on to these margins and grow? Yeah, I think, you know, a few things. If you went back to, gosh, 2016, 2017, when Mike and I kind of had the honor of taking on our respective roles, I mean, we were a $4 billion business. We had two substrates, CRB and CUK, and we had 20 customers who, if they got a sniffle, we got pneumonia. Yeah. So we were a very good company, but it was $700 million of EBITDA on $4 billion and, and almost entirely North America. And you fast-forward seven to eight years and 15 acquisitions later, all of the movement into all of the substrates that make our packaging much more global, much more distributed. No customer that's 5% of the company. Much more broad participation, food, beverage, consumer, food service, packaging. Whether it's a branded product or a private label product, we've distributed the company in such a way that we're in your life, no matter how you're living your life, you know, on the go, at home, what you like to eat, we're kind of there. And that seven to eight year journey, I think, is what's created the opportunity to actually earn, you know, earn the value for the products that we make, and earn this level of margin, then sustain it, going forward. And as such, the industry structure is in such a way that it's also conducive to that, assuming that the natural bias towards fiber-based solutions allows us to continue to innovate and grow. Great. Any questions from the group? Yeah, it's a great question, by the way, and it actually is both. We leverage our infrastructure when we can grow organically, so unit costs, if you will, naturally decline because of leveraging the growth. But simultaneously, we operate in good competitive environments. You've got to be a low-cost producer, and so we are every year investing capital as well as just day-to-day blocking and tackling, Lean, Six Sigma, et cetera, to actually lower costs. And so putting capital to work to automate, to take out, low-skilled roles, which are very difficult to attract and retain in this environment. So automating the end of the line is critical for us. Putting monitoring systems in place across our entire converting network that allows us to look into our network of 100 converting facilities and observe how they're performing, so that we can be proactive as we see things that are on the verge of either breaking or in need of maintenance. And so we've been very aggressive in our kinda day-to-day lives, if you will, as from an operating perspective, on actual cost take out. Because we need to drive, you know, $50 million-$100 million a year of real productivity to maintain, you know, the margin profile of the business. Because our. You know, we've got 24,000-25,000 colleagues now, and labor benefit costs don't go down. Yeah, they just don't. And so that's a, you know, an every year headwind in the $100 million range that you've got to overcome with productivity, earning on growth, taking out cost. And so we've, we've got a good long history there. It's kind of at the core of the company, and we've, and we've maintained that, consistent commitment to actual cost takeout, while being more innovative and creating a lot of the solutions we were talking about here today. So thank you. Thanks for that. In terms of the productivity improvements, you know, you took a lot of downtime this year. Yep. Can you talk about the relationship between downtime and productivity, and what that could maybe mean for 2024, if you do see a little bit of growth? Yeah, it's important. This year, if you kind of look inside of our, you know, our P&L, which we share every quarter, we've taken. In In the third quarter, we took 150,000 tons of actual market-related downtime in a system that produces 4 million tons of raw materials, and it's expensive, you know? And inside of this year's P&L, we'll probably have $100 million of actual downtime costs, you know, from literally matching supply and demand, not running our assets full. And it's one of those enablers that as we return to a little more positive organic growth in 2024, that flywheel will spin, because we'll not need to take as much market-related downtime, gives us confidence that our productivity next year can be quite favorable. Because the net of all that this year is probably taking, you know, a $100 million hit. Right. And that's real, that's material inside. Now, it's all in the context of, you know, only making products that you need and running to the demand profile of the company. But yeah, that's one of the positive enablers for, you know, good productivity in 2024. Great. Any last questions? Well, I think we're coming up on time. So Steve, thank you for, you know, thank you for the discussion- Yeah. and, look forward to keeping it Our pleasure ... at the conference. All right. Thanks, everybody. Have a good rest of your afternoon. Good conference.