Graphic Packaging(US:GPK)2022-04-26 17:25Financial Performance - Net Sales for Q1 2022 increased by $596 million or 36% to $2,245 million compared to $1,649 million in Q1 2021, driven by acquisitions and higher selling prices [130]. - Income from Operations for Q1 2022 rose by $85 million or 79% to $193 million from $108 million in Q1 2021, attributed to higher pricing and volumes from organic sales growth and acquisitions [130]. - For the three months ended March 31, 2022, total net sales increased to $2,245 million, up from $1,649 million in the same period of 2021, representing a growth of approximately 36% [146]. - The Paperboard Mills segment reported net sales of $296 million in Q1 2022, an increase of 25% from $237 million in Q1 2021 [146]. - Americas Paperboard Packaging net sales rose to $1,422 million in Q1 2022, compared to $1,169 million in Q1 2021, reflecting a growth of 22% [146]. - Europe Paperboard Packaging net sales increased significantly to $486 million in Q1 2022 from $206 million in Q1 2021, marking a growth of 136% [146]. - Income from operations for the total company increased to $193 million in Q1 2022, up from $108 million in Q1 2021, representing an increase of 79% [146]. Cost and Expenses - Commodity inflation costs increased by $176 million in Q1 2022, with significant contributions from external board ($39 million), mill chemicals ($31 million), and secondary fiber ($26 million) [137]. - Interest Expense, Net increased to $42 million in Q1 2022 from $30 million in Q1 2021, primarily due to higher debt balances [138]. - The effective tax rate for Q1 2022 was affected by discrete tax adjustments, resulting in an Income Tax Expense of $46 million on Income before Income Taxes of $153 million [139]. - Net cash provided by operating activities decreased to $18 million in Q1 2022 from $53 million in Q1 2021, primarily due to higher working capital balances [154]. - Net cash used in investing activities increased to $195 million in Q1 2022, compared to $120 million in Q1 2021, with capital spending rising to $223 million [155]. - Capital investment in Q1 2022 was $125 million, a decrease from $178 million in Q1 2021, primarily for asset upgrades and integration of acquisitions [170]. - Depreciation and amortization expense for 2022 is expected to be approximately $580 million, excluding $5 million of accelerated depreciation related to exit activities [179]. Debt and Liquidity - The Company had an aggregate principal amount of $5,966 million in outstanding debt obligations as of March 31, 2022, which impacts cash flow and financial flexibility [128]. - The company’s liquidity needs are primarily driven by capital expenditures, acquisitions, and debt service, with expectations that cash generated from operations will be adequate to meet these obligations [161]. - As of March 31, 2022, the Company maintained a maximum Consolidated Total Leverage Ratio of 4.37 to 1.00, below the required limit of 5.00 to 1.00 [168]. - The Company reported a minimum Consolidated Interest Expense Ratio of 10.20 to 1.00, significantly above the required minimum of 3.00 to 1.00 [168]. - The company does not expect to be a meaningful U.S. federal cash taxpayer until 2024 due to a taxable loss of $574 million generated in 2021 that can be carried forward indefinitely [141]. Operational Strategy - The Company plans to close the Norwalk, Ohio folding carton facility by the end of May 2022 as part of its operational strategy [130]. - The Company is focusing on cost reduction initiatives and operational improvements to enhance profitability amid margin pressures in the packaging industry [124]. - The Company aims to expand market share and develop innovative, sustainable products to align with consumer-led sustainability trends [121]. - The Company has not made new investments in Russia and is adhering to U.S. and EU sanctions, with minimal impact on net sales and EBITDA from its operations there [123]. Environmental and Market Risk - The Company is subject to environmental investigations and has established reserves for probable liabilities [172]. - There have been no significant developments regarding market risk exposure during the first three months of 2022 [180]. Goodwill and Credit Ratings - Goodwill for the Foodservice and Australia reporting units was $43 million and $15 million, respectively, with fair values exceeding carrying values by 25% and 21% [176]. - The Company’s credit ratings are BB+ from Standard & Poor's and Ba1 from Moody's, both with a stable outlook [169]. - Capitalized interest for Q1 2022 was $4 million, up from $3 million in Q1 2021 [171].