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Consumer packaging solutions provider Graphic Packaging Holding (NYSE:GPK) missed analysts' expectations in Q2 CY2024, with revenue down 6.5% year on year to $2.24 billion. It made a non-GAAP profit of $0.60 per share, down from its profit of $0.66 per share in the same quarter last year.
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Graphic Packaging Holding (GPK) Q2 CY2024 Highlights:
- Revenue: $2.24 billion vs analyst estimates of $2.27 billion (1.3% miss)
- EPS (non-GAAP): $0.60 vs analyst estimates of $0.57 (5.8% beat)
- EBITDA Guidance for the full year is $1.78 billion at the midpoint, in line with analysts' expectations
- Gross Margin (GAAP): 21.5%, up from 21.2% in the same quarter last year
- Free Cash Flow was -$72 million compared to -$328 million in the previous quarter
- Market Capitalization: $8.61 billion
Founded in 1991, Graphic Packaging (NYSE:GPK) is a provider of paper-based packaging solutions for a wide range of products.
Industrial PackagingIndustrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Thankfully, Graphic Packaging Holding's 8.3% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Graphic Packaging Holding's recent history shows its demand slowed as its annualized revenue growth of 4.2% over the last two years is below its five-year trend. We also note many other Industrial Packaging businesses have faced declining sales because of cyclical headwinds. While Graphic Packaging Holding grew slower than we'd like, it did perform better than its peers.
This quarter, Graphic Packaging Holding missed Wall Street's estimates and reported a rather uninspiring 6.5% year-on-year revenue decline, generating $2.24 billion of revenue. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from this quarter.
Operating MarginGraphic Packaging Holding has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 9.6%, higher than the broader industrials sector.
Looking at the trend in its profitability, Graphic Packaging Holding's annual operating margin rose by 4.6 percentage points over the last five years, showing its efficiency has improved.
In Q2, Graphic Packaging Holding generated an operating profit margin of 14.5%, up 3.3 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Graphic Packaging Holding's EPS grew at an astounding 25.2% compounded annual growth rate over the last five years, higher than its 8.3% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Graphic Packaging Holding's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Graphic Packaging Holding's operating margin expanded by 4.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Graphic Packaging Holding, its two-year annual EPS growth of 26% is similar to its five-year trend, implying strong and stable earnings power.
In Q2, Graphic Packaging Holding reported EPS at $0.60, down from $0.66 in the same quarter last year. Despite falling year on year, this print beat analysts' estimates by 5.8%. Over the next 12 months, Wall Street expects Graphic Packaging Holding to grow its earnings. Analysts are projecting its EPS of $2.74 in the last year to climb by 2.9% to $2.82.
Key Takeaways from Graphic Packaging Holding's Q2 ResultsIt was good to see Graphic Packaging Holding beat analysts' EPS expectations this quarter and maintain full year EPS guidance, showing that the company is on track. On the other hand, its revenue unfortunately missed. Overall, this was a mediocre quarter for Graphic Packaging Holding. The stock remained flat at $28.01 immediately following the results.
