Graphic Packaging Holding Company Reports Fourth Quarter and Full Year 2020 Results

2020 Highlights
- Vision 2025 goals on track following execution of strategic investments, development of new, sustainable fiber-based packaging solutions and the successful pivot to net organic sales growth.
- Showcased corporate responsibility and long-standing commitment to sustainability in environmental, social and governance (ESG) report highlighting progress in sustainability across all facets of operations.
- Net Sales were $6,560 million versus $6,160 million in the prior year.
- Net Organic Sales increased 5% in the fourth quarter and 4% for the full year 2020 versus the prior year periods.
- Net Income was $167 million versus $207 million in the prior year.
- Earnings per Diluted Share were $0.60 versus $0.70 in the prior year.
- Adjusted Earnings per Diluted Share were $1.12 versus $0.87 in the prior year.
- Adjusted EBITDA was $1,070 million versus $1,030 million in the prior year.
- Global liquidity was $1,717 million at year end.
- Returned $918 million to stakeholders through dividends, distributions, partnership redemptions and share repurchases.

Graphic Packaging Holding Company (NYSE: GPK), (the "Company" or "Graphic Packaging"), a leading provider of sustainable packaging solutions to food, beverage, foodservice, and other consumer products companies, reported Net Income for fourth quarter 2020 of $64.2 million, or $0.24 per share, based on 270.3 million weighted average diluted shares. This compares to fourth quarter 2019 Net Income of $33.0 million, or $0.11 per share, based on 291.7 million weighted average diluted shares.

Fourth quarter 2020 Net Income was impacted by a net $12.3 million of special charges, that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these charges, Adjusted Net Income for the fourth quarter of 2020 was $76.5 million, or $0.28 per diluted share. This compares to fourth quarter 2019 Adjusted Net Income of $67.0 million, or $0.23 per diluted share.

For the full year 2020, Net Income was $167.3 million, or $0.60 per share, based on 279.6 million weighted average diluted shares. This compares to 2019 Net Income of $206.8 million, or $0.70 per share, based on 294.8 million weighted average diluted shares.

Full year 2020 Net Income was impacted by a net $144.7 million of special charges that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these items, Adjusted Net Income for full year 2020 was $312.0 million, or $1.12 per diluted share. This compares to Adjusted Net Income for the full year of 2019 of $255.7 million, or $0.87 per diluted share.

Michael Doss (photo), the Company's President and CEO said, "Net organic sales growth of 4% in 2020 confirms our fiber-based packaging solutions are winning in the growing markets where we are focused. Our strong 2020 results and the momentum we have entering 2021 are consistent with our Vision 2025 goals. We are partnering with customers to elevate their brands in the marketplace, while supporting both customer and our own sustainability goals. The strategic investments we are making position us for continued growth and cost leadership in the industry and will allow us to further accelerate our product innovation capabilities. We expect to generate 100 to 200 basis points of sustainability supported net organic sales growth in 2021 and deliver net productivity improvements to drive continued EBITDA growth during the coming year."

Doss continued, "We are also announcing today that we plan to start up our new CRB machine in Kalamazoo, Michigan ahead of schedule in the fourth quarter of 2021. Separately, we will be making a strategic $100 million investment at our Texarkana, Texas SBS mill to add CUK production capability to an existing machine to meet growing demand for our paperboard packaging solutions." He added, "I am grateful for the dedication of our employees who continue to go above and beyond to fulfill our responsibility as an essential supplier to the vital food, beverage, consumer and foodservice markets. We are delivering on our promise to continue learning and improving from the events in 2020, and we are answering the call from today's consumer for safe, hygienic and more sustainable packaging solutions."

Operating Results
Net Sales
Net Sales increased 8.7% to $1,652.1 million in the fourth quarter of 2020, compared to $1,519.8 million in the prior year period. The $132.3 million increase was driven by $134.2 million of favorable volume/mix, partially offset by $11.1 million in pricing and $9.1 million of unfavorable foreign exchange.

Net Sales increased 6.5% to $6,559.9 million for the full year 2020, compared to $6,160.1 million in the prior year. The $399.8 million increase was driven by $408.0 million of improved volume/mix from organic growth and acquisitions. These benefits were partially offset by $1.2 million in pricing and $7.0 million of unfavorable foreign exchange.

EBITDA
EBITDA for the fourth quarter of 2020 was $250.5 million, an increase of $44.9 million from the fourth quarter of 2019. After adjusting both periods for charges associated with business combinations, pension plan settlement charges and other special charges, Adjusted EBITDA increased $6.0 million to $264.8 million in the fourth quarter of 2020 from $258.8 million in the fourth quarter of 2019. When comparing against the prior year quarter, Adjusted EBITDA in the fourth quarter of 2020 was positively impacted by $9.4 million in favorable volume/mix, $24.9 million in improved net operating performance and $3.6 million of favorable foreign exchange. These benefits were partially offset by $11.1 million of pricing, $8.0 million of commodity input cost inflation (primarily secondary fiber and freight) and $12.8 million of other inflation (primarily labor and benefits).

EBITDA for the full year 2020 was $854.2 million, a decrease of $97.8 million from the full year 2019. After adjusting both periods for charges associated with business combinations, pension plan settlement charges and other special charges, Adjusted EBITDA increased 3.9% to $1,069.8 million in the full year 2020 from $1,029.9 million in the full year 2019. When comparing against the prior year, Adjusted EBITDA in 2020 was positively impacted by $29.6 million of favorable volume/mix, $22.4 million of commodity deflation (primarily wood and energy) and $41.5 million of improved net operating performance. These benefits were partially offset by $1.2 million in pricing and $52.4 million in other inflation (primarily labor and benefits).

Other Results
Net Cash Provided by Operating Activities was $845.6 million for the full year 2020, compared to $665.8 million for the full year 2019. Adjusting for GAAP guidelines related to the classification of certain cash receipts and payments associated with our receivables securitization and sale programs and the cash payments associated with special charges, Adjusted Net Cash Provided by Operating Activities was $990.8 million for the full year 2020, compared to $880.4 million for the full year 2019. Adjusted Cash Flow for the full year 2020 was $344.5 million, compared to $527.5 million for the full year 2019.

Total Debt (Long-Term, Short-Term and Current Portion) decreased $47.3 million during the fourth quarter of 2020 to $3,666.6 million compared to the third quarter of 2020. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased $170.8 million during the fourth quarter of 2020 to $3,487.6 million compared to the third quarter of 2020. The Company's year-end Net Leverage Ratio was 3.26 times Adjusted EBITDA compared to 2.64 times at the end of 2019.

At December 31, 2020, the Company had available liquidity of $1,716.8 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $32.4 million in the fourth quarter of 2020, down compared to the $34.2 million reported in the fourth quarter of 2019. For full year 2020, net interest expense was $128.8 million compared to $140.6 million in 2019.

Capital expenditures for the fourth quarter of 2020 were $220.6 million compared to $123.0 million in the fourth quarter of 2019. For full year 2020, capital expenditures were $646.3 million compared to $352.9 million in 2019, largely due to the strategic investment in a new coated recycled board (CRB) paper machine in Kalamazoo, Michigan.

Fourth quarter 2020 Income Tax Expense was $20.4 million, compared to a $15.4 million expense in the fourth quarter of 2019. Full year 2020 Income Tax Expense was $41.6 million compared to a full year 2019 Income Tax Expense of $76.3 million, as a result of tax planning initiatives and non-recurring 2019 adjustments.