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Graphic Packaging Holding Company (NYSE:GPK)
Q2 2021 Earnings Call
Jul 27, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the Graphic Packaging Holding Company's Second Quarter 2021 Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Ms. Melanie Skijus, VP of Investor Relations. Please go ahead.

Melanie Skijus -- Vice President of Investor Relations

Good morning and welcome to Graphic Packaging Holding Company's Conference Call to discuss our Second Quarter 2021 results. Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO. To help you follow along with today's call, we will be referencing our second quarter earnings presentation, which can be accessed through the webcast, via self-directed slides, and also on the Investors section of our website at www.graphicpkg.com. I would like to remind everyone that statements of our expectations, plans, estimates and beliefs regarding future performance and events constitute forward-looking statements. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company's present expectation. Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made, and the company undertakes no obligation to update such statements, except as required by law.

Mike, I'll now turn the call over to you.

Michael P. Doss -- President and Chief Executive Officer

Thank you, Melanie. Good morning to everyone joining us on the call and the webcast this morning. I'm excited to discuss quarterly results with you today and the positive developments that we are driving in our pursuing Vision 2025. We are delivering for customers and providing packaging solutions that are resonating with consumers in the marketplace. New innovative packaging introductions continue as our teams expand the new product pipeline and fuel our organic growth strategy. We are executing strategic M&A with transactions that are strengthening our capabilities, expanding our geographic reach and positioning us in growing markets and importantly, we are delivering on our commitments to stockholders. Notably these swiftly address the heightened inflationary environment with multiple price initiatives in the quarter that will play out in the second half of 2021 and 2022 in order to limit the impact of the current price cost dislocation and ensure is short-lived. Turning to second quarter highlights on Slide 3. We delivered a meaningful 5% net organic sales growth in the quarter across all our markets. We continue to see significant demand for more sustainable packaging solutions. Our focus on innovation and our design for the environmental approach, which is an integral part of our new product development process are providing continued opportunities to satisfy this demand. We are ahead of our 100 to 200 basis point organic sales growth goal for the first half of 2021, expect to be at or above the high end of that range for the full-year. Adjusted EBITDA in the second quarter was $248 million. Importantly, EBITDA was positively impacted by $15 million of improved volume mix related to net organic sales growth and $36 million of favorable net performance. Our teams did an excellent job of navigating the challenging operating environment to meet customer demand and deliver sales growth. The solid execution was however offset by $67 million of accelerated inflation across the broad basket of commodities. We address the inflationary environment head on during the quarter successfully implementing multiple pricing initiatives. This included Paperboard price increases across all 3 substrates as well as positive modification of other business terms. One example is our move to shift freight recovery and contracts where we are responsible for product delivery costs to 4 openers per year. A second example is the date specific implementation of price increases for paperboard purchases in the open market, replacing the linkage of price increases to industry trade obligations. We committed to stockholders that we would shorten the time period for price to offset commodity input cost inflation and we demonstrated commitment in the second quarter. We have changed the pricing dynamics in our business since the last period of dislocation between 2016 and 2018 and this will be on full display as we progress through the second half of 2021. I will talk more about this shortly. While navigating the challenges supply chain environment, our teams worked tirelessly to meet strong customer demand. Our foodservice business increased sales by 22% year-over-year as consumer mobility picked up well food, beverage and consumer sales improved a healthy 4% year-over-year. I'm excited to see the growing global interest for fiber-based consumer packaging solutions. Growth in fiber-based packaging is now being realized as we projected at our Investor Day in September of 2019. Since that time, we've continue to position the company to meet increased demand through our ongoing investments in our leading paperboard platform, our teams and through strategic acquisitions. In May, we announced the acquisition of payer packaging and more recently, we successfully completed the acquisition Americraft Carton. These transactions are aligned with our growth ambitions and have us on a path to achieving our Vision 2025 goals.

On Slide 4, let me recap the compelling strategic rationale there packaging combination and provide an update on timing. The transaction brings together 2 highly innovative workforces serving diverse a complementary customer sets. The acquisition expands our global scale and strengthens our presence in Europe, which is driving the world and a push toward a more circular economy. We see significant opportunities to expand and grow with global customers as the premier fiber based consumer packaging leader, we are encouraged that the regulatory approval processes are proceeding as expected and anticipated close by the end of the year. Recognizing the impact to leverage from the announced day, our Packaging transaction. It is important to reiterate that we are fully committed to utilizing our significant cash flow generation to reduce leverage back to our targeted 2.5 to 3 times range. We intend to be back to targeted levels within 24 months following the close of the acquisition. Turning to Slide five. Innovation and new product development continue across our 3 growth platforms as we rollout packaging solutions designed to address retailer and producer calls for fiber-based packaging alternatives. Last quarter, I discussed the rapid acceptance we are seeing for our PaperSeal line the food trade Packaging in Europe and Australia and the excitement over the new Punnet tray line introduced from [Indecipherable] snacking size vegetables. Last week, we introduced a new product line OptiCycle to grow in our foodservice markets. Our OptiCycle line includes an innovative non-polyethylene coating alternative to traditional PE and PLA coated products. On Slide six, you can see the details of this latest innovation in the foodservice packaging. OptiCycle uses a water-based coating instead of polyethylene. The foodservice cup and containers feature should require less coating material versus traditional options and are designed to be more easily recyclable. When we pull 98% of the fiber, can be recovered and used to make other recycled products. We continue to push forward with our sustainability journey and OptiCycle fits squarely with our ESG commitment to decrease our LDPE usage by 40% by 2025. With this non-PE packaging solution, we are providing a new option for customers to evaluate as they pursue their own sustainability goals and meet the needs of today's consumer. We expect the line to be commercialized in North America in the next few months. As we enter the second half of 2021, I'm pleased with the path we are on. Employees have produced exceptional results and demonstrated commitment to customers as an essential supplier. We have rolled out new product innovations provided outstanding customer service and captured additional demand. In addition, in support of our investments for growth and expansion. We have prudently and effectively raised in deploying capital. If you now turn to slide seven and eight, I will provide thoughts on our positioning within the packaging industry and how we are demonstrating leadership through our initiatives and delivering on our commitments. We continue to differentiate ourselves by the investments we are making in our paperboard infrastructure. On Slide eight, you will see details of our transformational Kalamazoo recycled paperboard investment. This project is a pivotal case in point. We expect our new world-class coated recycled board machine to be producing paperboard in a few short months. With it, we will serve existing and new customers, delivering the highest quality product in the marketplace at the lowest cost to produce. Furthermore, the investment provides environmental and sustainability benefits through the reduction of greenhouse gases, purchased energy and water usage in the paperboard production process. We remain confident in $100 million of incremental EBITDA for this investment once it's fully implemented and expect to capture the first $50 million of additional EBITDA in 2022. Another area where we are redefining leadership in the industry is through our solid track record of execution and integration of strategic acquisitions. The announced acquisitions we have touched on today and our capabilities position us and new growing markets and allow us to further integrate our paperboard platform. Vertical integration is a strategic priority, and we expect meaningful increases in our integration rate in the quarters ahead. As we grow organically internalize more paperboard from recent acquisitions and unwind existing supply agreement. Our vertically integrated model price increase operating efficiencies that benefit both stakeholders and customers. The final point I will make on Slide seven is something I noted earlier, I would like to spend a bit more time discussing with you today. Over the past couple of years, we have successfully implemented numerous pricing model revisions that are now flowing through the business during this time of accelerated inflation. Realization of our pricing initiatives will be on full display over the next 2 quarters and then into 2022. This is the primary reason we expect to generate significantly stronger EBITDA in the second half of the year. Moving to slide 9. I will talk through material price cost spread of recovery that we expect will occur in the second half of the year and in the 2022. The on the left hand of the slide reflects the heightened inflationary environment we experienced in the first half of 2021 and our expectations for inflation during the second half. The right hand of the slide shows pricing that has been successfully implemented and recognized and it's flowing through our contracts over the coming 6 months. We expect approximately $120 million of pricing in the second half of 2021, which is intended to address the negative price cost spread experienced in the first half of 2021. The recovery occurring in just 6 months clearly demonstrates more constructive pricing dynamics inherent in our model. Implemented and recognized pricing will yield a cumulative $400 million over the 2021 and 2022 time horizon, as we actively address commodity input cost inflation. Overall, we are confident in the actions we are taking to address inflationary headwinds and more broadly, we remain confident in the fundamental drivers of our business and our ability to capitalize on the opportunities ahead. Simply put, we are running a different race. We are executing for customers driving our growth strategy forward and strategically positioning the company to capture global demand opportunities in the fiber based consumer packaging. We are on track to achieve our Vision 2025 growth goals.

With that, I will now turn the call over to Steve.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Thanks, Mike, and good morning. Moving to Slide 10, focused on key financial highlights in the second quarter of 2021, net sales increased 8% from the prior year to $1.7 million driven by 5% net organic sales growth. Adjusted EBITDA declined from the prior year due to the accelerated inflationary environment. Importantly, we are known organic volume growth, which positively impacted EBITDA performance by $15 million and we generated, of a favorable $36 million in net performance. I'd like just discussed, we have implemented multiple pricing initiatives to offset the current inflationary environment and we expect our adjusted EBITDA dollars and margins will improve in the second half of 2021 and 2022, all consistent with our Vision 2025 financial goals. Additional financial and market detail can be found on slide 11. AF&PA industry operating rates increased sequentially with SBS and CRB at 95% and 98% respectively at the end of the second quarter. Our CUK operating rate was over 95%, reflective of the continued strong demand environment. AF&PA Second quarter data also reflected continued declines and industry inventory levels with balances at multi-year logs, backlogs increased from the previous quarter and all three substrates we're an 8 plus weeks at quarter end.

On Slide 12 and 13, you will see our year-over-year revenue and EBITDA waterfalls. Net sales increased $126 million very solid 8% in the second quarter of 2021. Strong growth was driven by $76 million of higher volume mix resulting from 5% organic sales growth of $14 million in pricing and $36 million of favorable foreign exchange. Adjusted EBITDA decreased $12 million to $248 million in the second quarter versus the prior year period. Adjusted EBITDA benefited from $14 million in price $15 million in volume mix, $36 million in improved net productivity and $4 million from favorable foreign exchange. Adjusted EBITDA was unfavorably impacted by $67 million of commodity input cost inflation and $14 million of labor benefits and other inflation. We ended the quarter with net leverage of 3.7 times. As we previously shared, leverage is currently above our long-term target of 2.5 to 3 times as we execute on critical investments to achieve our Vision 2025 goals. We have clear line of sight to the cash flow generation required to drive leverage down to our targeted levels of 2.5 to 3 times within 24 months following the close of the AR Packaging transaction. We have a substantial total liquidity with $1.9 billion available as of the end of the second quarter. In July, we raised approximately $530 million to support our acquisition activity at very effective interest rates below 2%, $250 million was raised in a 7-year floating rate term loan from the farm credit system in a similar structure to the farm credit loan we raised earlier this year. In addition, we raised Euro based debt when the EUR210 million delayed-draw term loan along with a EUR25 million increase in our European line of credit. We funded the farm credit loan last week. While we anticipate drawing the euro term loan in connection with the close of the AR Packaging transaction. Turning now to guidance on slide 14 and 15. We are updating our full-year EBITDA guidance to incorporate recent price actions expected commodity input cost inflation and the close of the Americraft Carton acquisition. 2021 adjusted EBITDA is projected to be in a range of 1.0-8 to $1.2 billion. Components of EBITDA have changed modestly as higher contribution from volume mix and net performance are being offset by the transitory negative price cost spread that occurred in the first half of the year. Notably on Slide 15, you'll see the significant increase in EBITDA, we are projecting in the second half of 2021. Implemented price initiatives are expected to yield a material price cost recovery benefit to EBITDA in the second half of the year in a range of $80 to $120 million compared to the first half. The Americraft acquisition closed on July 1 and is expected to provide an incremental $15 million to the second half adjusted EBITDA. Turning back to the cash flow guidance on slide 14, we anticipate a range of $175 to $225 million for the year. Guidance for capital expenditures in 2021 has been adjusted, modestly higher, as we are experiencing similar inflationary environment from materials and labor as we complete critical capital projects on time in 2021. Interest and working capital components to cash flow have improved related to the attractive refinancing from our debt completed this year at very low interest rates and the positive impact on working capital as we have worked down inventories on stronger demand. As we look through 2022, we remain committed to capital expenditures, returning to a more normalized range of $450 million and look forward to generating significant cash flow as we earn on the investments we've made to materially improve the profitability of the company. For reference, $450 million in capital expenditures, estimated in 2022 includes both the AR Packaging and Americraft acquisitions. Wrapping up my comments on Slide 16 and the conclusion of our successful partnership with International Paper during the quarter. Partnership was foundational to building the highly integrated fiber-based consumer packaging business we are today and it created value for stakeholders. Conclusion of the partnership with IP, return ownership interest of the partnership back to 100%.

Thank you for your time this morning. I will now turn the call back to the operator for questions.

Questions and Answers:

Operator

We're ready for questions. [Operator Instructions]. And your first question comes from the line of George Staphos with Bank of America.

George Staphos -- Bank of America -- Analyst

Thanks, operator. Hi, everybody. Good morning, thanks for the details. My 2 questions, the first one is going to be on pricing. So, if we are to look at your current guidance which is $130 million for 21 and the $270 million for 22, just as a frame of reference, should we be comparing this to last quarter is, I think it was $90 million and $200 million and if there any puts and takes in that, we'd appreciate it relatedly Steve and Mike, can you comment on whether there is any pricing action that you've taken that is not in the cumulative $400 million and I don't know if there be a way to quantify that or not?. And then, I had a follow-one.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Good morning, George. It's Steve. Let me just hit on that very specifically, so $400 million in price over the 21-22 time horizon and is entirely based upon known and recognized price actions. So 3 examples. These are recognized pricing for our contract customers that have recognized through 3rd parties. And so, that's clearly recognized in the market. It includes price increases for non-contract customers that we have, which includes the price increases for term changes that we talked about in our remarks. So it is all known it's contractual and it's getting motion. It does not include the remaining price increases that we are pursuing. They range from $50 to $70 across the substrates. That is not in the $400 million and that is representative of probably another $150 million of pricing that we are pursuing, but it is not in the 400. The 400 compares you're correct. For the last time we talked. I think importantly we had about $90 million in price this year in the last time we spoke with the actions that we've been taking, with the acceleration inflation we took, multiple additional price actions since the last time we spoke, and that has resulted in that $40 million check for this year from 90 to 130. So, 400 is known and being executed on an incremental 150 beyond that that we're pursuing. Based upon the unrecognized, yet to be recognized price actions that we have in the marketplace.

George Staphos -- Bank of America -- Analyst

Thanks Steve. And, it kind of a blue-sky question for next year, and I realize it's not 4th quarter you're just reporting second quarter, but considering the way the stock is that, we didn't frankly given all the moving parts would be helpful to think about what guardrails exist for the outlook for next year, what kind of considerations?. What kind of fundamentals would have to be in place for EBITDA, perhaps to reach a 1.4 billion level you're starting at 1.1 this year with guidance, you talked about the pricing that you've already put into place and you have additional on hand we have Kalamazoo coming. We have our packaging presumably closing at the end of the year. What are your biggest considerations and concerned of that being able to hit that type of EBITDA in 22 recognizing that inflation is the biggest wildcard. Thank you, and I'll stop there.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

George, I'll start and then Mike can bring additional color I think you wanted. Well, the components are quite clear running off with the $1.1 billion midpoint. I will continue to earn on our 100 to 200 basis points of organic volume growth. We will continue to be productive at the core, having those 2 things, more than offset commodity input cost inflation. So think about is the traditional $30 to $50 million of improvement from those items offsetting. We then have $50 million of Kalamazoo coming on next year, which we have confidence in and then you have the $200 million of acquisition does that it will come in as well from me, AR packaging assuming successful close late this year, along with the second half and then of course, all of that is in the context of price offsetting commodity input cost inflation, as we've articulated to you today. And so that is, to your point, the critical path toward $1.4 billion plus in terms of EBITDA next year obviously price execution as we've laid out for you is a big part of that comes upon course where inflation goes and will take appropriate price actions to address that. Mike.

Michael P. Doss -- President and Chief Executive Officer

I think you said it well. Steve, I mean look, George. We're still executing on, as Steve said, another $150 million with the price. And one of the questions. I'm sure we'll give you on the call is if the world stopped today how much of that inflation is carry over into 2022, and that number would be somewhere between $50 and $75 million now. It's like you said, it's the end of July. The last thing, we're going to try to do is predicting inflation for 2022. But that gives you some pretty good guard rails you take a look at in terms of modeling, and I would hope.

George Staphos -- Bank of America -- Analyst

Extremely helpful. Thank you, guys and have a good quarter.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Thank you. Next question operator, please.

Operator

Next question is from the line of Ghansham Panjabi from Baird. Your line is open.

Ghansham Panjabi -- RW Baird -- Senior Research Analyst

Hi, good morning everyone. This is actually Matt Krieger sitting in for Ghansham. How are you doing today?.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Good. How are you.

Ghansham Panjabi -- RW Baird -- Senior Research Analyst

Great, great thanks. So, I guess I just wanted to touch on some of the volume components here. So, can you give us an update on the volume outlook for some of the key end markets across your business just a bit particular emphasis on how the more traditional kind of CPG or consumer type end markets are likely to trend versus the latest and foodservice type outlook? Just to [Indecipherable] helpful.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah. Why don't I just revisit what we saw in the second quarter, because I think it's informative of our outlook here to Matt, but you saw our foodservice rebounded like we expected it worked. It was up 23% the quarter then easy comp for us. As you know, because our, that was the low watermark in 2020 in the second quarter, we are encouraged this year food [Indecipherable] beverage up 4% in the quarter and sort of drove 5% in the second quarter that we just went in. Now, we'll as we kind of wind forward through the rest of the year, we'll see that foods continue to be higher. What it will slow down a little bit is we started to see some recovery, as you know in Q4 last year. On the food and beverage side of the business, we continue to see those pretty strong margins with the context, you should really be looking at us for for growth and we talked about this in the script is 100 to 200 basis points, so buying a true organic growth, we said in 2021 will be at the high end of that range so 2% and that that number looks really good for us. As part of our Vision 2025 and that's how we're kind of looking to run the business as opposed to trying to predict end use markets by category. It's just difficult to do that. So, think about us have positive growth this year will be in that upper end of our 100 to 200 basis points and we are on good track to do that because through the second quarter, you were up 3.2%.

Ghansham Panjabi -- RW Baird -- Senior Research Analyst

Great. That's, that's very helpful and then just switching over to kind of the inflation outlook. Can you break down some of the various components behind the substantial increase in cost inflation expectations for 2021?. And then just kind of following up on that, what are you seeing in terms of customer understanding or willingness to accept your price increases versus some of the prior inflation cycles?. Any update on this there is also helpful.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, Matt. It's Steve. I'll take first, then Mike can bring on the second component, with the customers, but it was very broad based, the $100 million increase in our midpoint of our inflation assumption really was across the big basket of our commodities, with the secondary fiber kind of late as you've seen chemicals, energy, resins, logistics, all really stayed at heightened levels as we kind of exited out of Q1 and into into Q2. As we look at the full year, our assumption is that we'll have continued inflation for the major components, chemical, energy, resin, logistics we are factoring in a little bit of an accelerated inflation around wooden fiber which moved the secondary fiber, which moved a little bit later in the quarter. So, that's how we built the band around the 192 to 230, but it is quite pervasive across the totality of our commodity input cost purchase.

Michael P. Doss -- President and Chief Executive Officer

Then just to build on it, Matt, on your question around customer reaction look there seeing inflation in their business across a wide basket to I mean you've seen some of our customers have announced their results in the last 30 days and they have been pointing to pretty significant inflation. And as you heard Steve talk about here, the vast majority of our pricing is contractually driven. So they know it's coming, and they're planning for it.

Ghansham Panjabi -- RW Baird -- Senior Research Analyst

Great, that's helpful. I'll turn it back over.

Operator

Next question is from the line of Neel Kumar of Morgan Stanley. Your line is now open.

Neel Kumar -- Morgan Stanley -- Wall Street Analyst

Great, thanks for taking my question. I mean think your contract structures, I think in the past to about half of the converting volume having a cost plus structure and the other half tied to the index. I mean is there opportunity to further increase the percent of volumes cost plus just given the amount of inflation in this year?.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Neil, it's Steve. I mean, I think obviously when we talk to our customers about contractual renewals and we offer both alternatives today customers based upon their confidence or beliefs and what is best for their mid to long-term contractual relationships over time both models intended to enter similar price cost relationships over the mid to long term, I don't think Mike [Indecipherable] material movement among customers as they think about the basket.

Michael P. Doss -- President and Chief Executive Officer

Although, I think that's right. Look our cost models are working fine Neel, will pick up the costs that we're experiencing a year and we'll obviously give you drew upon that in October, as we have in this quarter behind us and certainly out a final one is we announce year-end results in early February. But I think the bigger story strength of these paperboard markets. If you look at these paperboard markets operating rates are up on really all grades. Inventories are down and backlogs are higher. And so, it will then it's really allowed us to do is be more aggressive on pricing to our market pricing to go recover these inflationary costs and that's in fact what we've done and what we're continuing to do great.

Neel Kumar -- Morgan Stanley -- Wall Street Analyst

Great. And, that's helpful and then in terms of the 2022 cash flow, I know it's early, but can you discussed in your cash tax rate in 2022 and beyond. I mean is that expected to kick off the completion of the Kalamazoo project?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah Neel, as we've talked, we don't really see any material movement in our cash taxes next year. They may move up very modestly, but we're still out into the [Indecipherable] time horizon before we become a material US cash taxpayer, the completion of Kalamazoo the exiting of the IP partnership are all supportive of that and so you should expect to see that EBITDA as we articulated earlier step up materially our capex at $450 million is the statement that we've made again today. Cash taxes not up material amount of material and then obviously we'll have interest on the debt, which will be a net $5 to $5.5 billion range. Upon completion of the transactions. And that's, that will very significant cash flow generation in 2022 that we've talked about before in that 600 plus million dollar range and obviously move in the debt profile down into that 3.5 times range by the end of 2022 is something that we shared with you previously upon the announcement of the intend today are Packaging acquisition in that remains our intended goal with 2 years into that down in the back into the 2.5 to 3 times range.

Neel Kumar -- Morgan Stanley -- Wall Street Analyst

Thank you.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Next question please.

Operator

Next question is from the line of Mark Connelly from Stephens Inc. Your line is now open.

Mark Connelly -- Stephens Inc -- Analyst

Hey, Mike. Noted on two things, it looks like you're finally in a position to get bleach board pricing back to a better place if you were to implement all of these hikes that have been announced so far. When you can restore that business is cost of capital we still away from there?.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, Mark, it's Steve. Obviously, we talk about that a lot. As you can imagine at the answers, look at it is kind of at the $200 level per ton of what we're executing on across really all the substrates, but SBS did that that specifically would move it into that cost of capital type return profile, which is important to us. As we've talked about it isn't there, and it's a critical priority for us. So obviously some of that will depend upon inflation and then we'll have to take. If there is a need for more, we'll do that. If inflation were to be persistent. But that $200 goes a long way toward the cost of capital type returns for the SBS platform.

Mark Connelly -- Stephens Inc -- Analyst

Okay, that's super helpful and then just a couple of quick questions on OptiCycle. Can you talk about how quickly that product will rollout? And whether those cuts are going to be collected by the stores or whether they're recycled on collection streams.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, Mark, thanks for the question. I mean we're, we're early days there, but we're working with our customers around be an ever collect those cups because it's really good fiber. As you know it's high value and we can use it back. Our cross similar characteristics to low-density polyethylene in terms of barrier, but the recovery of the fiber is actually higher up around 98% and much more readily recyclable to by institutional recycler. So, we're pretty excited about it. We expect that we'll will have some progress here in the second half of the year that's gaining following gaining momentum into 2022. So it's a big step forward for us and consistent with our Vision 2025 goal of being able to reduce low-density polyethylene usage Graphic by roughly 40%. We're on track.

Mark Connelly -- Stephens Inc -- Analyst

Super. Thank you.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Next question please.

Operator

Next question is from the line of Mark terms of Seaport Research. Your line is now open.

Mark Weintraub -- Seaport Research -- Analyst

Thank you. I just wanted to quickly just go back over that. Preliminary component bridge, you laid out when thinking about 22 make sure I got all the components, right there. I think you said that volume and net productivity should be a plus 30 to 50 Kalamazoo 50 acquisitions, 200. So 280, that's 300 from those components and our starting point being roughly 1.1 billion this year. So that gets us close to, not quite, maybe but close to that 1.4 number that was referenced by George earlier. And then, if I understand correctly, you've got 270 million on implemented and recognized pricing and if we were just to look at the carry through on costs. That's 50 to 75, let's just say 70, that would be another 200 million on top. And then of course if there is more inflation, we've got to think about that and whether you've got this additional $150 million in process on additional initiatives. Am I thinking about that right or did I get something wrong in that thought process?.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Well, Mark, this is Steve. I mean, I think you've got the fundamentals. Right. Obviously was. It's very difficult to predict which we won't is where it is inflation go as we move into 2022. And so, the key components that kind of [Indecipherable] 1.4, obviously we've got price cost recovery that needs and will occur in 2022 as well. Let. So I think you were touching on the key components correctly.

Mark Weintraub -- Seaport Research -- Analyst

Right, just to clarify, it sounded like that if we can get all that pricing that's been recognized. If we don't get hit by Q2 much inflation next year. We can actually potentially get a good bit above that type of number.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, I mean, look at the math, I think the bigger question is that we said it, Mark. And just to caution, we are not trying to tell you what in place and is going to be like in 22, because we don't know.

Mark Weintraub -- Seaport Research -- Analyst

Okay. That's fair.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

And I think the bigger story though is, as I mentioned earlier, the strength of these paperboard markets and how we've been aggressive, you're going to have to recapture that input cost inflation, with pricing, we've been taking and we're not done, so the setup as we head into 2022 we like a lot better than some of the, as we've had in the past for sure.

Mark Weintraub -- Seaport Research -- Analyst

Right. I'm sure operating rates and all that and backlogs are way stronger than they were in 2017, 2018. We look at where they are today. And just one last, little one DD&A for next year, you gave us kind of the updated Capex number, just for modeling purposes, including AR what would DD&A likely be next year?.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

You know Mark, we're still working through that because it, my only caution with you is let us get through a little closer today AR Packaging acquisition, the core without that isn't going to be materially different than kind of where we're at, maybe up very slightly, a little bit just because of Kalamazoo but we'll do a refresh for you inclusive of AR packaging obviously on an EPS basis, AR packaging, we believe will be accretive on an all-in basis, pre-synergies, but let us come back to you probably in the October timeframe with a little more definition on where we think that's heading but excluding that it should be up just modestly.

Mark Weintraub -- Seaport Research -- Analyst

Got it. Thanks Mikes for that.

Melanie Skijus -- Vice President of Investor Relations

Next question.

Operator

Next question is from the line of Mark Wilde from Bank of Montreal. Your line is now open.

Mark Wilde -- Bank of Montreal -- Analyst

Good morning, Mike, Steve, and Melanie.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Hi Mark.

Mark Wilde -- Bank of Montreal -- Analyst

Steve, I wanted to just to start off, can you give us some sense of kind of what's your, what your fiber assumptions are in the second half for OCC and also kind of around pulpwood, there was this kind of troubling story and the trade paper over the weekend?. Then, I think a lot of us remember back a couple of years ago when you did see some real pressure on on hardwood costs. So, maybe if you can just help us kind of quantify what your expectations is and both of those elements in H2?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, Mark. As we mentioned kind of across the whole basket of our commodities, we expect a continuation of kind the big components, chemicals, logistics, resins etc. and some continued acceleration around would and secondary fiber. Now, we'd like you were seeing some of the more recent articles, which appear to have delayed some impression that some of that could be accelerating. But, we do have a good $10 million of acceleration based and end the second half of the year, but I think more importantly, we're just, we don't expect to see an abatement of inflation as we march into the second half. We haven't made any assumptions along those lines.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. Just unlike specifically. Steve, I mean talk about kind of OCC going to spot deals being done like of the hundred dollar range, if we were to see 200 dollar OCC will, would that be covered in your guidance or would we need to adjust costs up further?.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

No, we'd be adjusting out further Mark, if we sold that kind of spike beyond kind of where the markets are at today, obviously it's dependent on when it would occur whether it would make it within this year's guide. But if we saw the continuation of that kind of accelerated OCC like we've spoken before we would course understand the value of that and then take additional price I think that's important is, as we see more inflation and you've seen us and came in on our Q1 call sort of we saw more inflation will take more price and that's in fact what we did. So you've got our best you're kind of forecast based on everything we're looking at now, but if we see things continue to run. We're going to have to go recover those input cost inflation with additional pricing.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And for my follow-on Mike, I just wondered if it's possible for you to kind of unpack that first half volume growth for us. And I'm curious about, in particular how much of that organic growth is being driven by the beverage can market. I mean globally beverage can volumes are very, very strong, particularly here in North America and then of course, you've got the introduction of the KeelClip, I think particularly over in Europe. So, just if we could get some sense of how important that overall kind of beverage growth is to your organic volume growth. It would be helpful.

Michael P. Doss -- President and Chief Executive Officer

Yeah, thanks for the question. I would actually, you're right, it's been strong in North America, but it's been as a percentage, Mark even stronger in Europe because of all the shrink-wrap we're replacing on carbonates can be and so we're seeing it up materially in that market and you numbers of kind of held along those lines where we talked at the end of our last quarter call that about half of that volume growth that we're seeing is truly kind of new product development and new replacement for plastic and other type applications and about half of it is just been overall markets being strong. Can you speak about that in terms of that 3.2% we saw year-to-date it's better, I think, look at it in totality, along those lines, but beverage has certainly been a key driver of that for the reasons I described.

Mark Wilde -- Bank of Montreal -- Analyst

So is it possible. Mike, I mean, could we say that half of that 3.2% is coming from just growth in the beverage market or is it a bigger proportion even than that?.

Michael P. Doss -- President and Chief Executive Officer

No, I think, beverage and food. I mean it's half of that 3.2 is beverage and food, beverage and food, beverage is certainly a greater percentage of it and then the other half of that is some of the recovery in these markets like particularly foodservice.

Mark Wilde -- Bank of Montreal -- Analyst

Okay, all right, that's helpful. I'll turn it over operator.

Gabe Hajde -- Wells Fargo Securities -- Research Analyst

Next question is from the line of Gabe Hajde of Wells Fargo Securities. Your line is now open.

Operator

Hey, Good morning. Thank you for taking my question. There is always kind of a delicate balance between recovering inflation with price and then kind of restoring profitability level [Indecipherable] and in certain grades and maybe with the exception of CUK. I think producers over time have largely rationalized boxboard capacity. More recently, there is a domestic producer that is kind of left themselves optionality to potentially convert in the boxboard and over in Europe. I think even we saw an announcement today of some incremental capacity maybe paying less attention to what's happening over, but higher level big picture question, how do you think about I guess returns and the potential to entice on one and capacity with some of these price increases?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Well, I think the first part, gave. We've got a fair amount of inflation, we're going to recover first and as we said, we don't know exactly what inflation is going to look like in 2022 and nobody else does either. I think the other part of that, that we're doing is we got line of sight to our 80% integration, rate on the low side of that, we said 82, 90% as part of our Vision 2025. We're 72% now. Over the next 24 months between Americraft unwinding the supply agreements and our organic growth, we can see that path to 80% and so we are making tons that are being downstream converted in our own converting operations and strategically that's really important for us. So will there be the occasional announcement around additional capacity year but it takes a long time to bring it on. If you're talking about imported material. As we look at the imported material here in the US through the first 5 months of the year because that's all the data we have. FDPs is up slightly, roughly 50,000 tons year-over-year. It's all coming from the Scandinavian countries, but that's not a big market, that's on a 5 million ton market. So as long as a total is pretty small. And it's something we always watch and we need to be aware of, but I think I've given you enough statistics there and rationale for how we're, we're running a different race there by integrating it into our own operations.

Gabe Hajde -- Wells Fargo Securities -- Research Analyst

Thank you. And then just a point of clarification on guidance, I guess 2 parts, one I think Americraft was expected to be roughly $30 million annually, with EBITDA. So I'm assuming you're embedding roughly $15 million. And if I missed it in the slides, I apologize. And then you did tick up productivity. I think a little bit to be 80 to 100 million, is that a function of just running little bit more so out given kind of what you're seeing on the demand side, or is there something else there?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

[Indecipherable] yes, we've got 15 million in for the Americraft acquisition, which closed in July and we do have a little bit higher productivity is we all run quite between here and year-end. We've got more limited downtime in the second half of the year and we have good confidence in the productivity that we'll generate during the second half.

Gabe Hajde -- Wells Fargo Securities -- Research Analyst

Okay. Okay and one last one. I'm sorry guys for the avoidance of doubt. I guess, AR packaging, you do not have anything embedded in guidance for that?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

No. We do, we have 15 million[Indecipherable] I apologize to you though, there is nothing in any of the 2021 guidance with regards to AR packaging, the only reference today our packaging that does impact the materials is our discussion around 2022 capex which does include AR packaging and Americraft when we articulate $450 million. So nothing for 21 and in 22, we do have an embedded in our capex discussions.

Gabe Hajde -- Wells Fargo Securities -- Research Analyst

Great, thank you.

Operator

Next question comes from Adam Samuelson of Goldman Sachs. Your line is now open.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thank you and good morning everyone. A clarification question, just on the, on the pricing actions and how we think about the 2022 kind of carryover benefits from actions that have already been implemented. And I wanted to make sure that that's encompassing both the cost close and-based contract. So I'm just trying to make sure what happened on the cost plus side. I mean we're lapping some very significant inflation in the bunch of categories HMH this in the first half of this year that might have been compounded by some of the winter storm impact and the disruptions in the chemical training for example. What happens if there is an year-on-year declines in some of those in 22, does that 100 still stick or is there, is there a risk that that, some of that that I would make away as you move into the back half of 22. I'm trying to frame it properly.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, the 400 million is representative of everything that we know today, which is of course what we know. With regards to inflation and so that's assumed with the 6 month lag is basically based on known inflation. This is the accumulative impact all pricing actions cost models market models changing conditions etc. And that's what [Indecipherable] known 400 million. To your question, if inflation moved up from year we would pass more of that through in the form cost models that would play out in the 22-23 time horizon, if inflation moved down the same would occur for a cross-section of our contractual relationships. So we'll will continue every quarter to update kind of the full inclusive look at pricing, which is really what we've pivoted to because it's much more complex. As you know that just purely a market-based or cost base discussion. So, 400 hundred on all known inflation all known initiatives that would roll through if inflation moved up or down. The pricing would move commensurate with that over the 6-month time post.

Adam Samuelson -- Goldman Sachs -- Analyst

I know that. That's very helpful and then just on the outlook on volumes and expressed your confidence on the, on the full-year organic sales outlook given some of the capacity constraints that have been cited in the industry mean you think any kind of customer innovation opportunities have been slowed by how by how tight the markets are you, are you prioritizing some of those new customers and maybe paperboard conversion opportunities that are, that are, that are more incremental and trying to think about kind of how the current market by rail may be hindering our accelerating some of those Vision 25 goals.

Yeah, I mean we haven't delayed any innovation as a result of some of the tightness in the markets really caused us to do is have more dislocated supply chains, meaning we're trucking more material than railing to some of our converting plants, because we just need to get there faster. I think at some implications in terms of cost and we've taken a big chunk of our annual outages, as you know, here in the second quarter of this year in the first half of this year, really in the second or the second half of this year, there'll be less and so will be working hard our bills will be running hard to make all the tonnes that we can make which is to service customers, as well as rebuild our supply chains. Okay, great, that's really helpful color on asset objects.

Operator

Next question is from the line of Kyle White of Deutsche Bank. Your line is now open.

Kyle White -- Deutsche Bank -- Analyst

Hi, good morning. Thanks, taking for the question. Do you have a sense of customer inventory levels here, any concerns that customers may be looking to kind of get ahead of price actions or concerns about potential destocking with customers trying to secure as much supply. Just given all the supply chain, tightness in the market kind of mostly focused on CRB here just with markets reopening and maybe some declines. On the food type of packaging?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, thanks. Kyle in terms of like pre-builds, we're just, haven't of the material available. I mean it's been, it's been very tight. As you've seen inventories have dropped substantially across the entire space in regards to some of the reopening could we see some pressure on some of the CRB center of the store. Yeah, that's certainly possible, but on the other side of it, our innovation. As you know, our new product Goldman activities really focused on the center or the outside the perimeter of the store. So we're making up opportunities there too.

Kyle White -- Deutsche Bank -- Analyst

Got it. And then I wanted to go back to. I believe question earlier on some of the cost base models are you, are you looking to push your SBS business to cost-based model. Or are you happy with having that kind of fully market based?

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, you know Kyle, right now, as you know, there is a fair amount of SBS that is still in the open market and those tend to move open market sales tend to move more with with pretty tight pretty based models, excuse me, the 3rd-party models. When it comes to our integrated volume of course that's a conversation that we do have with our customers around cost models market based models and the business is a good example of that and the coke business does have pass-throughs that tend to be cost base in areas like resins for example. And so because the comp is it's a more complicated product just given you've got and the rest that are part of it today. So I think the by don't know if you'd add anything so I think that's right. Look we that like them out of the way, set up in SBS is more market-based and expect it to remain that way.

Kyle White -- Deutsche Bank -- Analyst

Thank you. I'll turn it over.

Operator

Next question from Arun Viswanathan from RBC Capital Markets. Your line is now open.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great, thanks for taking my question. Congrats on the results. I guess let me just ask a question, may be about 22, if you can help us out, so your productivity looks like you're at a little bit. The higher level, maybe a little bit understandable, just given the acquisition so is 8200 kind of the run rate that you expect to achieve now on productivity and then also on price. Just to clarify, I think you noted that there is potentially $50 to $75 million from further price initiatives. So, would be the 22 those two items [Indecipherable] acquisitions cause any of the 400 that you don't realize in 21 or how are you thinking about what we should include for 22?. Thanks.

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

Yeah, certainly want to caution you not to get ahead of yourself on additive result that was finally reaction to your statement HMH our core productivity, excluding Kalamazoo, we've talked about as being more in that $60 to $80 million range year-over-year, which is more than offsets our labor and benefits-inflation to some favorable value there and then earning on organic growth. So the earlier conversation was that we would expect net volume mix performance minus labor and benefits-inflation to be net positive for the year. We then would add to that. Kalamazoo and then the earlier discussion that we had on the call. And obviously as we talk we have a price initiatives that we're pursuing beyond the 400 million, which is about another 150 million that we did is yet to be that characterization of fully recognized HMH and then obviously that would be there to offset any additional inflation that will come through the business beyond this year's 2021 inflation.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Okay, thanks for that Steve. I appreciate the detail. And then just as a quick follow-up this year, you're running organic growth, above your kind of long-term target. Also on a pretty impressive year last year. So, when you look into the future. Is there room to move up the 100, 200 basis point organic growth target, especially given some of the new product innovation or is that really the right range that we should think about?

Michael P. Doss -- President and Chief Executive Officer

Thanks for the question, it's Mike. I ask you to think about 100 to 200 basis points. It has been the right goal for us as part of our Vision 2025. I appreciate your comments around those success we had in 20 and then now 21 where we're at. But, there will be some different mix that comes in over time, I'm sure. And so we really don't want to get ahead of ourselves here. We're obviously excited about our packaging in the That it's going to bring another insight into a very sustainably focused market where consumer fiber-based packaging does very well. So we're going to learn some things from that it will help us, but the 100-2 200 basis points is the right goal for us as part of our Vision 2025 and I'd ask you to restrict for that.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Okay, thanks a lot.

Operator

Thank you, participants. [Operator Closing Remarks]

Duration: 62 minutes

Call participants:

Melanie Skijus -- Vice President of Investor Relations

Michael P. Doss -- President and Chief Executive Officer

Stephen R. Scherger -- Executive Vice President and Chief Financial Officer

George Staphos -- Bank of America -- Analyst

Ghansham Panjabi -- RW Baird -- Senior Research Analyst

Neel Kumar -- Morgan Stanley -- Wall Street Analyst

Mark Connelly -- Stephens Inc -- Analyst

Mark Weintraub -- Seaport Research -- Analyst

Mark Wilde -- Bank of Montreal -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Research Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Kyle White -- Deutsche Bank -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

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