The $6.8B Company Weaponizing Corporate Guilt About Plastic

Today, I'm looking at Graphic Packaging Holding. They are a paperboard packaging giant that's built a 19% EBITDA margin business making boxes and cups.

Quick hits before we dive in:

• They make the packaging for McDonald's cups, Bud Light multipacks, and basically every CPG brand you know • Stock down ~18% YTD (Q1 2025 EPS came in at $0.51 vs $0.59 expected, triggering a 14.5% single-day drop. $80 million in unexpected inflation (energy, chemicals, logistics)) • Just spent $1.2B on a single factory • Replaced 1 billion plastic packages last year—and charge a premium for it

Three things that caught my attention

1. Customer concentration as a feature, not a bug

Their top customers include Coca-Cola, McDonald's, P&G, and Anheuser-Busch. Conventional wisdom says that's dangerous. But here's the twist—these giants need GPK to hit their ESG targets. When McDonald's promises to eliminate plastic, they become dependent on GPK's innovation pipeline.

2. The $1.2 billion bet on one facility

GPK put $1.2B into a single recycled paperboard facility in Waco, Texas. Expected return? $80M in annual EBITDA. That's a 15-year payback, but it locks in cost advantages for decades. In turn, this has amped up the leverage.

3. Sustainability as pricing power, not marketing

They don't talk about saving the planet. They talk about replacing 1 billion plastic packages. Specific, measurable, and valuable to customers who face regulatory pressure. This is a prime example of riding a powerful secular trend.

With that, I'll see you tomorrow.

Nick

TL;DR

• What: $6.8B paperboard packaging giant helping major brands (McDonald's, Bud Light, P&G) ditch plastic for sustainable alternatives

• Key Insight: Classic "unsexy business with sexy margins" - 19% EBITDA margins from solving boring problems extraordinarily well

• Entrepreneurial Lesson: Sometimes the best businesses focus relentlessly on operational excellence in overlooked industries riding secular trends (sustainability)

• The Moat: Deeply embedded with Fortune 500 customers who need GPK to hit their ESG goals

• The Risk: Consumer demand weakness and $5.2B debt load during massive capex cycle

The 30,000-Foot View

GPK designs and manufactures paperboard packaging for the world's biggest consumer brands - they're the invisible force behind your coffee cup, beer six-pack, and frozen dinner box. The business model is beautifully integrated: make paperboard from recycled materials, convert it into custom packaging, and install the machinery on customer production lines.

Revenue Mix:

• Americas Paperboard Packaging: $6.1B (69%)

• Europe Paperboard Packaging: $1.9B (22%)

• Paperboard Manufacturing: $655M (7%)

• Corporate/Other: $158M (2%)

Key Stats:

• Market Cap: $6.78 billion

• TTM Revenue: ~$8.5 billion

• TTM EBITDA: ~$1.55 billion (19.1% margin)

• Employee Count: 23,000+ globally

Company History

• 1916: Founded as Western Paper Box Company

• 2007: Modern company born from $1.75B merger creating $4.4B revenue giant; IPO as "GPK"

• 2008-2016: CEO David Scheible transforms company—debt drops from 6.8x to manageable levels, EBITDA margins expand 500 basis points

• 2018: Combines with International Paper's consumer packaging for $660M, creating $6B powerhouse

• 2021: Acquires AR Packaging for $1.45B, establishing European leadership

• 2024: Sells Augusta facility for $711M to fund new $1B+ Waco, Texas mega-facility

• 2025: Building recycled paperboard facility while navigating demand headwinds

Show Me the Money

Standout Features:*

• EBITDA margins expanded from 14.8% to 19.1% despite volume headwinds

• $1.2B capex in 2024 for Waco facility targeting $80M annual EBITDA uplift

• Targeting $800M-$1B annual free cash flow post-Waco completion

• $1.8B available for buybacks plus 10% dividend increase

Financial Data

The N.O.O.B. Nine — Competitive Powers

The Nerd Out on Business Nine is made up of Hamliton Helmer's famous "7 Powers" of competitive advantage (Scale Economies, Network Economies, Counter-Positioning, Switching Costs, Branding, Cornered Resource, and Process Power) combined with two of my own (Data Flywheel and Distribution Advantage).

Average Score: 3.6/5 - Strong competitive position built on operational excellence and sustainability leadership.

Memorable Marketing

GPK markets through sustainability leadership and innovation showcases rather than traditional advertising. Key campaigns:

"Better by 2030" (2024): Quantifiable impact messaging—"Replaced 1 billion plastic packages"—resonates with procurement teams under ESG pressure.

KeelClip™ Innovation Showcase: Live demonstrations showing plastic-free beer packaging at 2,000 cans/minute. Anheuser-Busch UK adopted across entire operations after seeing it work.

Fortune's Most Admired: Three consecutive years as #1 in packaging—third-party validation that B2B buyers trust.

Tactical Takeaways:

• Weaponize third-party validation in every presentation

• Make sustainability measurable with concrete metrics

• Demo at production scale to close deals faster

• Name innovations (CleanClose™, PaperSeal®) to create IP moats

AI Uses & Opportunities

Current: Building "Digital Mill of the Future" with predictive maintenance that ships parts before failures. IQ tablet-equipped machinery provides real-time optimization.

Future Cost Cuts: AI demand forecasting could optimize $850M annual capex. Computer vision quality control could slash waste from billions of packages.

Revenue Opportunities: Packaging-as-a-Service with AI-optimized inventory management. Data analytics services leveraging insights from billions of packages to optimize product mix.

Bumps in the Road

• Demand Collapse: 2% volume declines from inflation, private label surge, and GLP-1 drugs disrupting packaged food consumption

• Cost Explosion: $80M in unexpected inflation hitting margins in 2025

• Operational Issues: $30M in Q1 2025 weather-related production disruptions

• Debt Burden: $5.2B debt with 36% at variable rates creates interest sensitivity

• Competition: 450,000 tons of new industry capacity coming online as demand weakens

Your Swipe File

• Consolidation creates margins: Rolling up fragmented industries and optimizing operations can expand EBITDA margins by 500+ basis points. We’ll see if they can claw these gains back after unexpected inflation this year

• Sustainability as strategy: Replacing a billion plastic packages creates pricing power

• Risky capital allocation: $1.2B on a single facility seems like an awfully large bet

• Customer concentration as moat: Having McDonald's and Coca-Cola as customers makes you mission-critical to their ESG goals

• Boring businesses in secular trends: While everyone chases AI, sustainable packaging faces less competition for massive returns