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Text: Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO.
Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission.
I'm pleased to report a solid start to 2021 in what can be described as a truly unique operating environment.
We continue to deliver organic sales growth, capturing new real opportunities in growing markets with our innovative fiber-based packaging solutions.
Global adoption of paperboard multipacks and KeelClip packaging solutions through beverages Paperboard trades, including our new PaperSeal and ProducePack lines for food packaging and Integra fluids, a ship and own container package for omnichannel commerce, all are examples of products that are driving our results.
We remain encouraged by the traction we are seeing from our innovative packaging solutions with existing and new customers in growing markets around the world.
Aligned with Vision 2025 and supported by our history of successful acquisitions, we are announcing today our intent to acquire Americraft Carton.
The proposed transaction will provide benefits to our customers, employees and stakeholders.
I will provide additional details on this development shortly.
Turning to Slide three.
Let me update you on a high-level financial and operational highlights for the quarter.
Growth continued in the first quarter of 2021, with net organic sales increasing 2% year-over-year.
Notably, this follows a very strong first quarter of 2020, where net organic sales growth was 7%.
Over the last 12 months, we've exceeded our targets, delivering 3% net organic sales growth.
Stronger than forecasted sales growth is the result of ongoing conversions to more sustainable fiber-based packaging options across our food, beverage, foodservice and consumer goods markets.
In addition, our business has benefited from increased at-home consumption.
Importantly, we continue to have confidence in our 100 to 200 basis points goal for annual net organic sales growth established with Vision 2025.
Achieving consistent year-over-year organic sales growth is supported by the strengthening global trend to more sustainable packaging alternatives.
As we look out specifically at the year to the anticipated volume from our innovation pipeline, coupled with return to growth in foodservice, we expect 2021 net organic sales growth will be at the high end of our 100 to 200 basis point range.
Adjusted EBITDA in the quarter of $240 million met our expectations before the $29 million of costs we incurred associated with winter storm Uri.
During the quarter, we did see a return of inflation across some of our commodity input cost categories such as logistics, recycled fibers, resins and chemicals.
We are executing multiple price initiatives with our customers to fully recover the current inflationary environment.
Our commitment to price offsetting commodity input costs remains the pillar of our overall value creation model for stakeholders.
Also during the quarter, we made further progress on the Vision 2025 goal of achieving 80% to 90% paperboard integration across our consolidated business.
We exited the first quarter of 2021 at 71%, improving from 70% in the full year of 2020 and 68% in 2019.
We expect to benefit from a meaningful increase in our paperboard integration rate as we start up the new CRB paperboard machine in Kalamazoo later this year while winding down a portion of the existing supply agreements.
In addition, we will drive paperboard integration rate higher as we grow our converting volumes both organically and through acquisitions.
Our partnership with International Paper continue to wind down during the quarter as we acquired another $400 million of minority partnership interest, reducing their interest to 7% from the initial 21% held at the inception of the partnership.
In addition, work on our CRB platform consolidation project in Kalamazoo continues ahead of schedule, with the new K2 machine set to begin paperboard production in the fourth quarter.
Planning related to our more recently announced investment in Texarkana to convert an existing SBS machine to its full capacity capable of also producing CUK is tracking on time and on budget.
This represents a very efficient path to meet increased global demand for CUK and further advances our efforts to closely match supply with areas of strengthening demand.
Continuing the capital allocation discussion, let's move to Slide four, where I will provide an overview of our intent to acquire Americraft Carton.
We have entered into an agreement to acquire Americraft Carton for approximately $280 million.
The company is one of the largest remaining independent converters in North America, with over $200 million in annual sales, operating seven well-capitalized and high-quality converting facilities.
The company has a great reputation with customers, has been in business for over 100 years and generates approximately $30 million of annual EBITDA.
We see 300 basis points of paperboard integration opportunity across all three substrates and expect an additional $10 million of synergies over 24 months following the close.
The transaction is expected to close in the next few months.
Turning now to Slide five and a discussion of innovation and new product development.
We have discussed with you in past calls the significant ongoing conversions to paperboard solutions we are seeing in our beverage and foodservice markets.
An additional area of expansion for us is into food categories around the printer of the grocery store.
We have targeted and are seeing success in new categories as we align our global innovation resources and have established frameworks to execute on the biggest opportunities.
On Slide six, I will provide details on our PaperSeal innovation.
With the launch of the PaperSeal in 2020, we targeted a $1 billion addressable market opportunity to replace foam trays and shrink wrap alternatives commonly found in the grocery store meat departments around the world.
Our PaperSeal packaging innovation offers producers and retailers significantly increased food trade recyclability as well as enhanced branding opportunities.
We have seen traction in Europe, in Australia with the list of retailers, including Aldi, Esda, ECA, Little, Marks & Spencer and Woolworths adopting our packaging for meats and poultry products.
We have tests under way in North America and are on track to be commercial in the region in 2021.
Building on early momentum on PaperSeal, we are executing a product expansion with the launch of PaperSeal Slice and PaperSeal Wedge.
The recyclable barrier line paper packaging format now offers the same ease of use and sustainability benefits for sliced deli meats and cheese categories.
The packaging insures hygienic and shelf-life characteristics that match existing packaging alternatives.
The design allows for enhanced branding and meets the requirements for high-speed food manufacturing lines.
Turning to Slide seven.
We are also targeting and expanding in another category found at the perimeter of the store, produce.
With our ProducePack line, we are offering a variety of fully sustainable shelf-ready solutions for protecting and preserving fresh fruit and vegetables.
ProducePack offers significant branding advantages in an eco-friendly container versus existing alternatives.
The leading Michigan apple distributor, bell harvest, recently switched to ProducePack for its Fuji, Honeycrisp and Gala Apples in response to consumer preference for fiber-based packaging.
With the launch of our new Punnet tray line, we are extending our offerings to new categories like berries and snacking size vegetables.
Our global marketing, sales and innovation and sustainability team members are working clearly that are focused on winning in today's market.
Sustainability is a key part of every new product development discussion and is central to our go-to-market strategies.
We are engaging with external stakeholders to learn more about consumer preferences, product direction and the evolving needs in the market places we move to more environmentally, conscious society.
Providing packaging enhancements for consumers that include 100% recyclability and reduced carbon footprint will be the key to our new product development road map moving forward.
Let me conclude on Slide eight, revisiting my comments made at the end of what was an incredible year 2020.
We are creating value to leadership with our Vision 2025.
Simply put, we are running a different race.
The investments we have made to advance our capabilities, engage employees and optimize our mills and converting infrastructure differentiate us.
We are leaders in sustainability because we've built our business on it.
Our packaging solutions are made primarily from renewable wood fiber from sustainably managed wood baskets in the United States, and the vast majority of our fiber-based packaging can be recycled today.
As a result of prudent capital management and strong cash flow generation, we have invested back into the business and has continued to enhance our service offering to meet global demand and customer preferences, delivering on new product development opportunities with customers and achieving our sustainability-supported growth goals with the proposed acquisition of Americraft, we are positioned to further strengthen our growth outlook, adding customers, adding markets while driving greater paperboard integration.
We are confident in the pipeline in front of us to achieve a 100 to 200 basis of annual net organic sales growth and expect to be at the high end of that range in 2021.
Our ability to help customers reduce their environmental impact and elevate their brands through continued innovation and improvements in packaging is expanding opportunities in drive growth.
Moving to Slide nine, focused on key financial highlights in the first quarter of 2021.
Net sales increased 3% from the prior year to $1.65 billion, driven by 2% net organic sales growth and positions.
Adjusted EBITDA declined from the prior year quarter, primarily related to $29 million in costs associated with winter storm Uri and maintenance downtime.
As a result, adjusted earnings per share were $0.23 as compared to $0.31 in the first quarter of 2020.
Total liquidity remained significant at $1.44 billion.
Additional financial and market detail can be found on Slide 10.
Solid sales performance was driven by continued strength food, beverage and consumer markets, where sales before acquisitions increased 5%.
Partially offsetting this performance was our foodservice business, where sales declined 10% versus the prior year period.
Importantly, foodservice sales improved to flat performance year-over-year in the month of March and are inflecting positive for month-to-date April versus the prior year.
This is encouraging and largely as expected, as we see a return to more away-from-home consumption, as vaccinations are rolled out and as we anniversary the beginning of the COVID-19 pandemic.
On Slides 11 and 12, you'll see our year-over-year revenue and EBITDA waterfall.
Net sales increased $50 million in the first quarter of 2021, driven by $33 million of improved volume mix, resulting from a combination of 2% organic sales growth and acquisitions, partially offset by fewer selling days when compared to leap year observed in the prior year quarter as well as $20 million of favorable foreign exchange.
Adjusted EBITDA decreased $55 million to $240 million in the first quarter of 2021.
Adjusted EBITDA benefited from $21 million in improved net productivity and $5 million from favorable foreign exchange.
EBITDA was unfavorably impacted by $3 million of pricing, $2 million of unfavorable volume mix, $34 million of commodity input cost inflation, $13 million of other inflation and $29 million of costs related to winter storm Uri.
Excluding storm-related costs, adjusted EBITDA was $269 million, consistent with our expectations.
As Mike mentioned in his remarks, we experienced higher inflation across certain commodity categories during the first quarter, and we are successfully executing multiple price initiatives to offset inflation.
Back on Slide nine, you will see that industry operating rates remained strong and backlogs are quite elevated across all of our paperboard substrates.
In addition, AF&PA first quarter data reflects declines in industry inventory levels, with balances significantly below historical 5-year average.
AF&PA industry operating rates at the end of Q1 for SBS and CRB were 92% and 94%, respectively.
Our CUK operating rate was over 95%, as we remained in an oversubscribed environment.
Backlog increased from last quarter and were 6-plus weeks in SBS and CRB and 8-plus weeks in CUK at the end of the quarter.
We ended the quarter with net leverage at 3.7 times.
While leverage is above our long-term targeted level of 2.5 times to three times and our 2021 target of three times to 3.5 times, we remain confident in our cash flow generation commitments and increase in expected cash flow generation in 2022.
Referring back to Slide three and highlights in the quarter.
Since the beginning of 2021, we have strengthened our balance sheet, debt maturity and interest rate profiles through very effective borrowing arrangements.
We issued $800 million in two senior secured notes offerings.
What is notable about these transactions are the annual interest rates of the 2024 notes at 0.8% and the 2026 notes at 1.5%.
We also retired $425 million of maturing higher interest rate bonds, with an attractive farm credit system loan.
And earlier this month, we completed an amend and extend to our bank credit facility, which notably extended the maturity date from January 2023 to April 2026 and increased the availability under the domestic revolving line of credit by $400 million.
Our significant liquidity, balance sheet flexibility and strong cash flow generation remains a source of strength of the economy.
We have excellent optionality.
And as Mike detailed for you, we are executing a balanced approach to capital allocation.
Turning now to guidance on Slides 13 and 14.
Underlying demand for our fiber-based packaging solutions remains strong.
As Mike mentioned, we expect 2021 net organic sales growth to be at the high end of our 100 to 200 basis points target range.
We are meeting demand, introducing new products and growing organically.
We remain steadfastly focused on achieving the growth goals we established in Vision 2025.
We are executing multiple price initiatives to offset commodity input cost inflation.
We continue to expect that our volume mix and net performance will be in line with our original expectations for the year, as we earn on organic sales growth at the high end of our expectations and execute performance countermeasures to offset winter storm Uri related costs.
While some components of adjusted EBITDA have changed given the operating environment we are managing, our full year adjusted EBITDA guidance range of $1.09 billion to $1.15 billion provided at the beginning of 2021 remains unchanged due to the numerous pricing, volume and productivity initiatives we are committed to successfully executing throughout the remainder of the year.
All of which will result in stronger adjusted EBITDA performance in the second half of 2021.
As such, there's also no change to our full year cash flow guidance range.

user
q1 adjusted earnings per share $0.23.
q1 sales rose 3 percent to $1.649 billion.
intends to acquire americraft carton, inc. for approximately $280 million.
graphic packaging holding - transaction with americraft carton includes seven well-capitalized converting facilities, team of employees.
graphic packaging - proposed acquisition of americraft carton is expected to add about $200 million in sales, $30 million in adjusted ebitda upon completion.

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