Graphic Packaging (GPK -2.85%), a leading producer of sustainable consumer packaging for food, beverage, and other markets, released its second quarter results on July 29, 2025. The most notable news was that both GAAP revenue and non-GAAP earnings per share beat Wall Street expectations. GAAP revenue reached $2,204 million versus an expected $2,161.5 million, and adjusted EPS (non-GAAP) was $0.42, surpassing the $0.40 estimate. Despite these modest beats, both profits and margins dropped steeply from a year ago due to cost inflation and weaker pricing. Management described the quarter as “modestly better than expected” in terms of volume, but near-term financial metrics revealed pressures. The quarter’s headline results reflected a business navigating ongoing end-market and cost headwinds, though management maintained its full-year financial guidance for fiscal 2025.
| Metric | Q2 2025 | Q2 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.42 | $0.40 | $0.60 | (30.0%) |
| Revenue (GAAP) | $2,204 million | $2,161.5 million | $2,237 million | (1.5%) |
| Adjusted EBITDA | $336 million | $402 million | (16.4%) | |
| Adjusted EBITDA Margin | 15.3 % | 18.0 % | (2.7 pp) | |
| Net Income (GAAP) | $104 million | $190 million | (45.3%) |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Business Overview and Strategic Drivers
Graphic Packaging delivers paperboard packaging products primarily for food, beverage, foodservice, and other consumer goods markets. It supplies major brands and quick-service restaurants with folding cartons, beverage carriers, and sustainable packaging made from renewable or recycled materials.
The company's recent focus has been on sustainable innovation, cost management, and optimizing its manufacturing footprint. Key success drivers include introducing new eco-friendly packaging solutions, maintaining competitive relationships with large brand owners, and managing input costs. Graphic Packaging’s ability to innovate while meeting regulatory standards is central to its strategy, especially as environmental concerns shape consumer and legislative demands.
Second Quarter Performance: Data and Drivers
Revenue (GAAP) edged higher than expected, but the business still saw a modest decline from the prior year period, mainly attributable to the divestiture of its Augusta, Georgia bleached paperboard facility and reduced open market sales volume. The $40 million revenue headwind from divestitures and a $5 million related EBITDA impact were partially offset by a $20 million foreign exchange benefit to revenue, an $11 million foreign exchange benefit to EBITDA, and a small gain in packaging volume. The company reported a 1% increase in packaging volume, helped by promotional activity among customers.
Adjusted earnings per share fell 30% from the same period in 2024, landing at $0.42. This drop was driven by a combination of factors: a $23 million decline from lower average pricing, $26 million in labor and benefits inflation, and $10 million in broader input cost inflation. The company also faced about $13 million in net negative performance as efforts to reduce inventory led to production inefficiencies that offset the small volume gain.
Adjusted EBITDA, a commonly used profitability metric that strips out special items, dropped 16.4% compared to Q2 2024, accompanied by a margin squeeze of 2.7 percentage points. This margin contraction reflected input cost pressures and was exacerbated by the lag between rising costs and implementing price increases. While the company initiated a $40 per ton price increase for recycled and unbleached paperboard in May 2025, management indicated these measures would not bring price and cost parity until late 2025 or early 2026, with only modest benefits expected in the second half of the year.
Free cash flow and operating cash generation also declined. For the first half of 2025, net cash provided by operating activities (GAAP) was $93 million, down from $164 million in the same period of 2024. Capital expenditures remained high at $228 million, primarily due to ongoing investment in the new Waco, Texas recycled paperboard facility scheduled to start up in late 2025. The company’s net leverage ratio (non-GAAP) climbed to 3.7 times, surpassing the year-end target of below 3.5 times. This rise reflects the combination of lower earnings and higher capital spending as construction on Waco progresses.
Sustainability, Innovation, and Product Initiatives
Sustainability and innovation remain central to Graphic Packaging’s approach. The period saw $61 million in 'innovation sales growth,' representing new sales generated from recently commercialized packaging solutions. These include recycled-content folding cartons and plastic replacement options, such as the proprietary EnviroClip Beam for PET (polyethylene terephthalate) bottle multipacks. Management reported that these innovation sales continue to outpace broader markets and align with the goal of having new products represent at least 2% of total annual sales in 2025.
The ongoing Waco facility investment is a keystone of the company’s drive for more sustainable packaging, using recycled materials at high volumes. Management reaffirmed that the Waco project remains on schedule for a fourth-quarter 2025 start and is expected to deliver $80 million in additional annual EBITDA in both 2026 and 2027. Other rationalization activities, such as closing older plants in Middletown, Ohio and East Angus, Canada, are expected to streamline operations and cut fixed costs once new capacity is operational.
Regulatory and environmental progress included the addition of paper cups to the Recycled Materials Association’s accepted recycling specifications, which could support further adoption of fiber-based packaging. The company continues to invest in research and development, pursuing reductions in greenhouse gas emissions and greater use of renewable energy in its processes. Environmental compliance remains a material capital commitment, with $65 million spent in 2024 and further investments planned for wastewater treatment and regulatory requirements.
The company’s competitive position is reinforced by deep relationships with consumer staples clients, including global beverage and quick service restaurant giants. Strategic acquisitions, including Tama Paperboard and Bell Incorporated, are intended to broaden market presence, while the Augusta divestiture and ongoing plant upgrades are intended to help manage capacity and costs.
Balance Sheet, Dividends, and Capital Returns
Graphic Packaging’s balance sheet reflected increased leverage, with net debt rising to $5,739 million, up from $5,052 million at the end of Q4 2024. Capital spending remained elevated, driven by facility investments, though it is expected to taper following Waco’s completion. The business returned $177 million to shareholders in the first half of 2025, including $111 million via share repurchases (about 5.0 million shares, or 1.6% of total shares) and $33 million in regular dividends per quarter for Q1 and Q2. No change to the dividend was announced for this period.
Management described maintaining a net leverage ratio below 3.5x by year-end 2025 as a priority and emphasized a long-term plan to return “substantial cash” to investors through continued dividends and share repurchases. The company set a new $1.5 billion share repurchase authorization in Q1, citing confidence in future cash flow as the Waco facility ramps up and capital spending winds down.
Outlook and What to Watch
Looking forward, management reaffirmed its full-year 2025 guidance. It now anticipates net sales between $8.4 billion and $8.6 billion, adjusted EBITDA in a range of $1.45 billion to $1.55 billion, and adjusted EPS of $1.90 to $2.20 for the full year. Capital expenditure guidance rose to about $850 million for the full year, owing to final project costs at the Waco site, though overall free cash flow expectations remain unchanged. Management expects cost recovery from recent price increases to begin late in 2025 and continue into 2026.
Investors should monitor trends in packaging volumes, the pace and success of the Waco facility start-up, and the ability to offset input cost inflation with price increases. The business environment remains fragile: management flagged ongoing uncertainty in consumer demand, as well as persistent pressure from labor and materials costs. The company continues to target lower net leverage and expects to reach investment-grade credit status over time. Continued progress on innovation and sustainability, along with execution on plant optimization, will remain central to the company's longer-term success.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
