Graphic Packaging Holding Company, a leading provider of packaging solutions to food, beverage, foodservice, and consumer products companies, reported Net Income for fourth quarter 2018 of $47.5 million, or $0.15 per share, based upon 306.8 million weighted average diluted shares.  This compares to fourth quarter 2017 Net Income of $173.9 million, or $0.56 per share, based on 311.2 million weighted average diluted shares.

Fourth quarter 2018 Net Income was negatively impacted by a net $21.9 million of special charges and credits, primarily charges associated with the outage at our Augusta, GA, SBS paperboard mill, that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table. When adjusting for these items, Adjusted Net Income for the fourth quarter of 2018 was $69.4 million, or $0.23 per diluted share. This compares to Adjusted Net Income for the fourth quarter of 2017 of $52.8 million, or $0.17 per diluted share.

For the full year 2018, Net Income was $221.1 million, or $0.71 per share, based upon 310.1 million weighted average diluted shares.  This compares to 2017 Net Income of $300.2 million, or $0.96 per share, based on 311.9 million weighted average diluted shares.

Full year 2018 Net Income was negatively impacted by a net $30.2 million of special charges and credits that are detailed in the attached Reconciliation of Non-GAAP Financial Measures table.  When adjusting for these items, Adjusted Net Income for full year 2018 was $251.3 million, or $0.81 per diluted share. This compares to Adjusted Net Income for the full year of 2017 of $196.7 million, or $0.63 per diluted share.

"We are very encouraged by the progress we made in 2018, creating a market leading, highly integrated packaging company well positioned for ongoing profitable growth in all three paperboard substrates. Our momentum heading into 2019 is accelerating. Specifically, the successful integration of the SBS mill and foodservice assets and resulting strong synergies realization, profitability improvement for the CRB and CUK mill and global converting assets in the face of significant commodity input cost inflation, and successful execution of three strategic capital expenditure projects," said President and CEO Michael Doss. "In addition, we also completed the strategic PFP and Letica Foodservice acquisitions while returning $230 million of capital to shareholders in 2018 via dividends and share repurchases, including $119 million in share repurchases completed in the fourth quarter."

"Fourth quarter Adjusted EBITDA of $248 million was up $56 million year over year. The SBS mill and foodservice assets, including the recent Letica acquisition, generated $56 million of Adjusted EBITDA. We are driving improved profitability across these new assets by successfully executing on our synergy and integration plans. The pricing to commodity input cost relationship for the CRB and CUK mill and global converting assets was $8 million positive during the quarter and $14 million positive in the second half of 2018. We successfully executed the planned and extensive 41 day outage at our Augusta, GA, SBS paperboard mill, and have started up a new folding carton facility in Monroe, LA. The Monroe facility will be one of the most productive and flexible folding carton facilities in the world. The new facility will replace our existing converting and warehouse infrastructure in the region and is expected to drive $30 million in annual cost efficiencies by 2021."

"Pricing improved during the quarter reflecting the benefits of recent pricing initiatives. Importantly, we successfully implemented a third open market price increase this year for our CRB paperboard during the quarter. We expect the successful price increases we executed across our CRB, CUK, and SBS paperboard grades over the course of 2018 will support strong pricing momentum in 2019. While we continue to expect significant commodity input cost inflation, we are well positioned to generate improved profitability in 2019 driven by our pricing, new product development, and productivity initiatives."

Share Repurchase Program

The Board of Directors has approved a new $500 million share repurchase program. The $500 million authorization allows for the repurchase of shares from time to time through open market purchases, privately negotiated transactions and Rule 10b5-1 plans in accordance with applicable securities laws. "We will continue to repurchase our shares opportunistically when the shares are trading below our estimate of intrinsic value and the returns of share repurchases compare favorably to other capital allocation alternatives," said President and CEO Michael Doss.

Operating Results

Net Sales

Net Sales increased 36% to $1,507.7 million in the fourth quarter of 2018, compared to $1,109.9 million in the prior year period.  The $397.8 million increase was driven by $362.8 million of revenue from the SBS mill and foodservice assets including the Letica acquisition, $21.5 million of improved volume/mix related primarily to acquisitions, and $21.8 million of higher pricing. These benefits were partially offset by $8.3 million of unfavorable foreign exchange.

Net Sales increased 37% to $6,023.0 million for the full year 2018, compared to $4,403.7 million in the prior year period.  The $1,619.3 million increase was driven by $1,435.1 million of revenue from the SBS mill and foodservice assets including the Letica acquisition, $112.2 million of improved volume/mix related primarily to acquisitions, $52.9 million of higher pricing, and $19.1 million of favorable foreign exchange.

Attached is supplemental data showing Net Tons Sold for each quarter of 2018 and 2017.

EBITDA

EBITDA for the fourth quarter of 2018 was $210.6 million, or $31.5 million higher than the fourth quarter of 2017.  After adjusting both periods for business combinations and other special charges and credits, Adjusted EBITDA increased 29% to $248.1 million in the fourth quarter of 2018 from $192.4 million in the fourth quarter of 2017.  When comparing against the prior year quarter, Adjusted EBITDA in the fourth quarter of 2018 was positively impacted by $56.4 million of Adjusted EBITDA from the SBS mill and foodservice assets including the Letica acquisition and $21.8 million of higher pricing. These benefits were partially offset by $14.0 million of commodity input cost inflation and $6.5 million of other inflation (primarily labor and benefits).

EBITDA for the full year 2018 was $908.1 million, or $228.1 million higher than the full year 2017.  After adjusting both periods for business combinations and other special charges and credits, Adjusted EBITDA increased 36% to $971.0 million in the full year 2018 from $712.2 million in the full year 2017.  When comparing against the prior year, Adjusted EBITDA in 2018 was positively impacted by $232.6 million of Adjusted EBITDA from the SBS mill and foodservice assets including the Letica acquisition, $52.9 million of higher pricing, and $42.4 million of improved net operating performance. These benefits were partially offset by $51.9 million of commodity input cost inflation and $21.7 million of other inflation (primarily labor and benefits).

Other Results

Net Cash Used in Operating Activities was $373.8 million for the full year 2018, compared to $192.5 million during the full year 2017. Adjusting for the new 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 $814.5 million for the full year 2018, compared to $541.4 million for the full year 2017. Adjusted Cash Flow was $468.7 million for the full year 2018, compared to $289.2 million for the full year 2017.

Total Debt (Long-Term, Short-Term and Current Portion) increased $23.8 million during the fourth quarter of 2018 to $2,967.7 million compared to the third quarter 2018. Total Net Debt (Total Debt, net of Cash and Cash Equivalents) decreased $7.0 million during the fourth quarter of 2018 to $2,897.2 million compared to the third quarter of 2018. The Company's year-end 2018 Net Leverage Ratio was 2.98 times Adjusted EBITDA, compared to 3.12 times at the end of 2017.

At December 31, 2018, the Company had available global liquidity of $1,279.6 million, including the undrawn availability under its global revolving credit facilities.

Net Interest Expense was $33.6 million in the fourth quarter of 2018, up compared to the $23.3 million reported in the fourth quarter of 2017, primarily reflecting the $660 million of debt assumed from the combination with the SBS mill and foodservice assets and higher average borrowing rates. Full year 2018 Net Interest Expense was $123.7 million compared to the $89.7 million reported in 2017, primarily reflecting the $660 million of debt assumed from the combination with the SBS mill and foodservice assets and higher average borrowing rates.

Capital expenditures for the fourth quarter of 2018 were $125.2 million compared to $62.3 million in the fourth quarter of 2017. For full year 2018, capital expenditures were $395.2 million compared to $260.1 million in 2017.

Fourth quarter 2018 Income Tax Expense was $13.3 million, compared to a fourth quarter 2017 Income Tax Benefit of $112.6 million, which included a $136.0 million tax benefit related to 2017 tax legislation. Full year 2018 Income Tax Expense was $54.7 million compared to a full year 2017 Income Tax Benefit of $45.5 million, which included the $136.0 million tax benefit recorded in the fourth quarter of 2017.