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Graphic Packaging Holding Company Reports Q2 Results

Tuesday, July 26, 2016

Press release from the issuing company

ATLANTA - Graphic Packaging Holding Company (NYSE: GPK), (the "Company"), a leading provider of packaging solutions to food, beverage and consumer product companies, today reported Net Income for second quarter 2016 of $77.8 million, or $0.24 per share, based upon 322.5 million weighted average diluted shares.  This compares to second quarter 2015 Net Income of $57.6 million, or $0.17 per share, based on 330.9 million weighted average diluted shares.

Second quarter 2016 Net Income was positively impacted by a discrete tax benefit of $22.4 million which was partially offset by $4.7 million (net of a $2.4 million tax benefit) of business combinations and other special charges. When adjusting for these charges, Adjusted Net Income for the second quarter of 2016 was $60.1 million, or $0.19 per diluted share. This compares to second quarter 2015 Adjusted Net Income of $61.3 million or $0.19 per diluted share.

"We delivered second quarter results that met our high expectations," said President and CEO Michael Doss. "Net sales were up 4.4% driven primarily by acquisitions, while volumes in our core business remained stable. Adjusted EBITDA was $195.2 million, up slightly compared to the prior year period of $192.1 million, despite the expected $15 million negative impact from planned downtime taken to upgrade a paperboard machine at our West Monroe facility.  We continue to execute on our operating performance programs across the organization and remain firmly committed to our culture of continuous improvement and cost reduction. We achieved $21.0 million in performance improvements in the quarter, and $37.5 million year-to-date."

"While we remain keenly focused on day to day execution, we had a busy quarter as we successfully completed the paperboard machine upgrade at West Monroe, which supports sales from recent acquisitions and downstream converting efficiencies. We completed the Colorpak transaction and continued to integrate our recent acquisitions. The acquisitions also enabled us to announce the closures of our higher cost Menasha, WI and Piscataway, NJ converting operations, which will occur by year end. These actions are consistent with the key initiatives we are pursuing to drive continued EBITDA growth over the near and medium term."

Operating Results

Net Sales

Net Sales increased 4.4% to $1,103.2 million in the second quarter of 2016, compared to $1,057.1 million in the prior year period.  The $46.1 millionincrease was driven by $60.9 million of improved volume/mix, primarily related to acquisitions.  The net sales increase was partially offset by $8.2 million of unfavorable foreign exchange rates and $6.6 million of lower pricing.

Attached is supplemental data showing Net Tons Sold for the first and second quarters of 2016 and each quarter of 2015.

EBITDA

EBITDA for second quarter of 2016 was $188.1 million, or $1.0 million higher than the second quarter of 2015.  After adjusting both periods for business combinations and other special charges, Adjusted EBITDA increased 1.6% to $195.2 million in the second quarter of 2016 from $192.1 millionin the second quarter of 2015.  When comparing against the prior year quarter, Adjusted EBITDA in the second quarter of 2016 was positively impacted by $21.0 million of improved net operating performance and $4.1 million of favorable volume/mix. These benefits were partially offset by $8.2 million of other inflation (primarily labor and benefits), $7.0 million of unfavorable foreign exchange rates, $6.6 million of lower pricing and $0.2 millionof commodity inflation.

Other Results

Total Debt (Long-Term, Short-Term and Current Portion) decreased $27.1 million during the second quarter of 2016 to $2,287.0 million. Total Net Debt (Total Debt less Cash and Cash Equivalents) increased $9.8 million during the second quarter of 2016 to $2,248.3 million.  At quarter end, the Company's Net Leverage Ratio was unchanged at 2.93 times Adjusted EBITDA compared to the end of the first quarter of 2016.  The slight increase in Total Net Debt in the second quarter of 2016 was driven by capital spending, the Colorpak acquisition, share repurchases and the quarterly dividend payment.

At June 30, 2016, the Company had available global liquidity of $832.0 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $18.2 million in the second quarter of 2016, up slightly when compared to the $17.8 million reported in the second quarter of 2015.

Capital expenditures for the second quarter of 2016 were $83.0 million compared to $66.3 million in the second quarter of 2015.  The increase is primarily the result of investments made in the Company's paperboard mills, including the successful installation of a new press section and headbox on one of the paper machines in West Monroe, LA.

Second quarter 2016 Income Tax Expense was $10.1 million compared to $35.1 million in the second quarter of 2015. The effective tax rate for the six months ended June 30, 2016 is significantly lower than the statutory rate due to an agreement executed with the Internal Revenue Service.  As a result of this agreement, the Company will amend its 2011 and 2012 U.S. federal and state tax returns and utilize previously expired net operating loss carryforwards.  The Company recorded a discrete tax benefit during the quarter of $22.4 million as a reduction in its net long-term deferred tax liability.

Please note that a tabular reconciliation of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Total Net Debt and Net Leverage Ratio is attached to this release.

 

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