Brad Ankerholz - VP and Treasurer David Scheible - President and CEO Mike Doss - COO Steve Scherger - SVP and CFO.

George Staphos - Bank of America Merrill Lynch Alex Ovshey - Goldman Sachs Ghansham Panjabi - Robert W. Baird Philip Ng - Jefferies Mark Wilde - BMO Capital Markets Anthony Pettinari - Citigroup Al Kabili - Macquarie Debbie Jones - Deutsche Bank.

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Graphic Packaging First Quarter 2015 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Brad Ankerholz, VP and Treasurer, you may begin your conference..

Thanks, Rob, and welcome, everybody, to the Graphic Packaging Holding Company's first quarter 2015 earnings call. Commenting on results this morning are David Scheible, the Company's Chairman, President and CEO; Mike Doss, our Chief Operating Officer; and Steve Scherger, the Senior Vice President and CFO.

To help you follow along with today's call, we have provided a slide presentation, which can be accessed by clicking on the Webcasts and Presentations link on our Investors section of our Web site, which is graphicpkg.com.

I would like to remind everyone, the 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 expectations. 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're made, and the company undertakes no obligation to update such statements. David, I'll turn it to you..

Thanks Brad. Good morning, everyone. We had solid first quarter and results were in line with our expectations. We continue to execute well in a difficult and changing operating environment. We produced over 20,000 more tons in our U.S. paperboard mills and sold nearly 57,000 more tons through our global system compared to the first quarter of last year.

Sales on our ongoing businesses increased by about 5% in the quarter and were driven predominantly by acquisitions, new product launches and some sub-straight substitution.

Comparing against Q1 of last year, our adjusted EBITDA increased by 24 million benefiting from our global performance initiatives and of course lapping up $15 million weather related impact in last year's first quarter.

We've invested in the past several years transforming the business into pure play global paperboard packaging company, with what we believe is a clear growth strategy.

We think the first quarter of '15 was a good example of our ability to deliver top and bottom-line growth in the pace of foreign currency headwinds and what was a pretty challenging period for many of our customers in end use markets particularly here in the U.S. Many of you know the conditions across the U.S.

improved in beverage markets have been difficult for some time, so this quarter was nothing new. Consumers are managing spending very closely and buying only what they need and some of their preferences are changing. Fresh and healthier choices along with smaller specialty brands are trends in the market and large U.S.

driven beverage companies are having to adjust their businesses. These trends have been in place for some time and we're managing our business accordingly going forward. Q1 there is no exception but some end use market like craft beer and frozen pizza doing very well. But others like in cereal and soft drink continue to be challenged.

We built this business historically around the U.S. food and beverage categories, but we're now a global operator with a more diversified portfolio of customers and products, weakness in some of our end markets is being offset by strengthening others and we believe that our market shares up slightly on the global basis.

That's really the way we plan to manage these business these days, and it's all part of our global paperboard packaging strategy. Margins in EBITDA were again very strong in the quarter. Adjusted EBITDA was $181 million and we grew margin by 330 basis points to 18%.

Mike and Steve will give you plenty of details about those trends but the macro trends this quarter were in line with what we have seen for a few periods now, low inflation, solid operating performance and good contribution from our acquisition to overall results.

The only real outlier this quarter was foreign exchange, which was higher by $8 million. We expect to continue to shorten our supply chain, we're going to lower our input cost and we'll improve our operating efficiencies across the organization to drive margin and cash flow growth.

Last quarter, we also told you about a capital allocation plan our board of directors had approved. This plan included a $0.05 per share quarterly dividend and a $250 million share repurchase program. Steve will discuss this a little bit more in his section but we paid our first dividend in April and made our first share repurchase in March.

This is something I'm incredibly proud of and hard to believe only five to six years ago that we'd be in this position. Looking forward, we have not made any changes to our full year guidance or operating outlook. Steve will provide you with more details in a few minutes.

But we're targeting EBITDA growth of 5% to 6% and free cash flow of between 350 million and 375 million in 2015. Currency will likely be a much bigger headwind than we initially expected, but we will aggressively purse cost and proven opportunities and initiatives to achieve our targets.

I'm going to turn the call over to Mike Doss, our Chief Operating Officer to discuss the business in more detail and then he'll turn it over to Steve..

Thanks, David and good morning. Volumes in our global paperboard packaging business increased by 9.1% in the first quarter, the increase was driven primarily by our European expansion and the Rose City Packaging in Cascades' Norampac paperboard acquisitions. This is partially offset by declines in our U.S. business.

Our core business was essentially flat as we successfully offset weakness in some of our U.S. end use with targeted gains in other areas. The integration of Europe is progressing well and we're seeing strong growth in that market.

As we've outlined in the past, our SUS paperboard offers better performance characteristics than competing substrates and is gaining acceptance and market share. In the first quarter, we integrated an incremental 20,000 tons of our SUS board in Europe and expect to ship nearly 150,000 tons to Europe in 2015.

Our European strategy is clearly gaining traction and growth in that business further supports the internationalization of our paperboard mill tons. Outside of Europe, our international businesses were positive in the quarter.

Premiumization particularly in the beer category is an important trend in emerging markets such as China and Brazil and is driving increased demand for our packaging machines and cartons in these regions. As David discussed, demand across our U.S.

consumer products and beverage folding carton markets was challenging in the first quarter, but there were some bright spots such as frozen pizza, craft beer and strength packaging. Fresh and healthier choices, convenience packaging, sustainability and specialty brands are some of the prevalent trends that continue to reshape the U.S.

food and beverage markets. Many of our largest U.S. customers are adjusting their businesses around some of these trends, in particular cereal and certain frozen food applications were challenged in quarter as several customers worked their mix to address these consumer trends. New product development remains a key driver to the business.

In the first quarter, we launched several new strength-based products with our heavyweight SUS and proprietary Z-Flute and Litho-Flute carton designs. Our plastic replacement strategy also continues to gain momentum as we saw solid growth in the specialty beverage category in the first quarter.

The operating side of our business had another very strong quarter. Our U.S. mills ran well across the system and we've produced 20,000 more tons in the first -- than in the first quarter of last year. If you recall, severe weather unexpectedly shutdown and impacted production of our virgin mills by around 16,000 tons in the first quarter of last year.

While this skews the first quarter comparison, we still increased our yield and production levels after adjusting for those lost tons last year. Fortunately, we didn't see repeat of last year's severe winter weather but the Southeastern U.S.

had a particularly wet Q1 which pushed wood prices modestly higher in the quarter and we expect these higher costs to continue into Q2. The higher production levels in our U.S. mills helped drive the 28.4 million of performance-based improvements we achieved in the quarter.

The improvements were the result of strong performance across our entire integrated platform as well as the negative impact of weather in the first quarter of last year. We continue to utilize Lean and Six Sigma resources to lower input costs, shorten our supply chain and improve operating efficiencies throughout our business.

Last quarter we told you about Rose City packaging and Cascades Norampac paperboard acquisitions.

Our work to integrate these assets is progressing to plan and we continue to believe there is potential to integrate 20,000 to 25,000 tons of graphic paperboard and generate 10 million to 15 million in synergies from these two acquisitions over the next 24 months.

Some of the work in 2015 is required to achieve this goal and our net incremental EBITDA projections are around 10 million in 2015 and in the 20 million to 25 million range in 2016. Integration of the Benson Group acquisition is also on plan and our synergy targets of 6 million to 8 million this year remain unchanged.

Last quarter we told you about a $30 million co-gen energy project that is expected to generate 10 million in annual energy savings at our West Monroe mill. Early work on this project is in line with plans and the new energy source is targeted to come online in early 2016.

Looking at the sequencing of the business this year, I want to remind everyone about the impacts of weather in the first and second quarters last year. We estimate that the severe weather negatively impacted first quarter EBITDA last year by nearly 15 million. This came in the form of lost production, higher operating costs and lost performance.

Conversely we estimated about half the weather-related EBITDA was recaptured in the second quarter last year.

In addition to the weather, we also have some shifts in our plant maintenance downtime schedule this year, specifically 3 million to 4 million of additional downtime cost will shift into Q2 from what we experienced in the second half of last year.

Steve Scherger, our Chief Financial Officer will take you through Q2 and full year guidance in more detail and now I'll turn it over to Steve..

Thanks Mike and good morning. As Mike and David have shared, our Q1 results show strong improvement versus prior year. Consistent with past practices, when I refer to EBITDA, net income and EPS today, I'll be referring to adjusted numbers.

Adjustments this quarter were modest at $2.2 million pretax and related to M&A activity integration costs for Europe and North America and other special charges. For those of you on our Web site, please refer to Page 9 to follow along. Focusing on Q1 results, our reported net sales were down $64 million compared to Q1 2014.

Excluding net sales from divested businesses, net sales from our ongoing business were up 5.2% to $1 billion. EBITDA increased 15% to 181.3 million, as margin improved to 18% from 14.7% a year ago. Net income increased 12.2 million to 56.7 million, while diluted earnings per share for the quarter was $0.17, up $0.04 from a year ago.

Turning to the Q1 sales bridge, the key contributor to the 5.2% increase was improved volume and mix, which was primarily driven by our acquired businesses. Price was modestly positive at 2.2 million as we cycled to all on the 2013 paperboard price increases and commodity inflation recovery.

We expect pricing and commodity inflation/deflation to remain in balance throughout 2015 consistent with our guidance. The strength of the U.S. dollar versus the global currencies in which we conduct the business resulted lower sales of over 29 million as foreign currency denominate sales have translated back into fewer U.S. dollars in prior year.

Focusing on the strong improvement in EBITDA in Q1, the ongoing business increased almost 19% to 181.3 million. As Mike mentioned, 15 million of the improvement was weather related.

Modifying for this our year-over-year EBITDA was up over 8%, drivers of the increase include strong performance of 28.4 million driven by global improvement initiatives, acquisition, synergies, SG&A reductions and producing and selling significantly more tones in the quarter.

Given the Q1 '14, $9 million favorable weather comparison for performance, our full year view on performance benefits remains in the $70 million to $80 million range. Volume contributed nearly 11 million to EBITDA as the incremental benefits from the Benson, Cascades and Rose City acquisitions flowed to our results.

Slightly higher pricing and moderating commodity cost contributed just under 5 million, energy and secondary fiber were the key drivers of the commodity deflation, while wood prices were slightly higher than a year ago. Please keep in mind that 5 million of the nearly 15 million weather impact in Q1 '14 was commodity inflation related.

Hence, price and inflation were in balance for Q1 '15. Other costs primarily in labor benefits were up almost $8 million in line with our expectations. Finally given that exports are paperboard to our international affiliate and translate their local earnings back to U.S. dollar. FX negatively impacted EBITDA by nearly 8 million this quarter.

Given the continued strengthen of the U.S. dollar. We expect the full year FX impact will be in the $30 to $35 million at today's FX rates. Our balance sheet in liquidity profile remains strong, net debt was up approximately $170 million during the quarter.

In addition to our traditional, seasonal Q1 working capital build, we invested approximately $118 million in the Rose City and Cascades' acquisitions. We contributed to $12 million to our pensions and repurchased $4 million of our shares.

Considering the Q1 2015 pension contribution, which was not made in Q1 2014, Q1 operating cash generation with modestly better than last year and we continue to target full year free cash flow available for debt, M&A and return to shareholders to be in the $350 million to $375 million range.

We ended the quarter with 2.06 billion of net debt, leaving our net leverage ratio at 2.81 times, first the 3.27 times this time last year and strong domestic liquidity and excess of $900 million.

As an update on our new capital allocation plan, we repurchased $4 million of GPK shares during the first quarter and our first quarterly dividend of $0.05 per share was paid on April 06. Before we turn to full year guidance, let me discuss our expectations for Q2.

Mike spoke about the no maintenance down time we expect to take this quarter, which will drive at $3 million to $4 million negative EBITDA comparison versus prior year. And the Q2 2014 weather recovery that will not repeat in the quarter.

Currency rates and seasonally higher Q2 volumes will drive the FX impact somewhat higher than what we experienced in Q1. As such we expect Q2 2015 to be roughly in line with last year's Q2 EBITDA or a more normalized $10 million sequential increase over Q1 2015. Our overall guidance for 2015 is essentially unchanged from last quarter.

We see full year EBITDA growth in the 5% to 6% range and free cash flow available for M&A and our returns to shareholders to be in the $350 million to $375 million range. Thank you for your time this morning. I'll now turn the call back to the operator. Thank you..

[Operator Instructions] Your first question comes from the line of George Staphos from Bank of America. Your line is open..

Thanks and good morning everyone, I appreciate all the details. I guess first question I had for you is -- given the persistent weakness in some of your markets and obviously that's not your fault, it's what's happening ultimately with the end consumer.

How to the extent that you can comment, are you thinking about changes in your strategy in domestic markets if any at all, changes in your operating stance and how you go to market and then I had a couple of follow-ons..

George, I don't really think we're changing our strategy for the end used markets, we've got ups and downs in new sectors, beer is continuing to be strong and of course we made the acquisition with Sierra Pacific a couple of years ago, and so that's paid benefits. Our global expansion in Europe is been a great win for us.

The volume growth over there has been in beer and actually in SUS substitution, so we continue to see that going forward. Pasta has been strong.

Cereal was a little tough quarter for us, it was down -- we were even down greater than what yields showed, but some of that is obviously our customers adjusting to their inventory flow as well so I mean I think our domestic volume we expect to be flat to up still maybe a percent in total volume and then we end up with the acquisitions driving another percent, percent and a half we sort into that 2.5% growth sort of number and that sort of fits our strategy because we're producing incrementally more tonnes supporting that business globally..

Okay so then at this juncture, you don’t see any need to adjust your manufacturing footprint specific to markets like cereal or frozen foods and trying not to be too short-term in our thinking, these trends tend to be longer term?.

Yes, there you go George, you got it, it’s exactly right not that I would accuse you guys of quarter-over-quarter short-term evaluations by any means, but no we're not going to adjust our manufacturing strategy based on quarters worth of change.

So what we will do and what we have been over years is, if we end up with converting capacity that we do not -- that it gets estranged we'll make those adjustment. I think since I've been here and Mike will know better, I think we have shutdown like what 17 or 19 converting facilities, right.

So relative to that, but I think you have to look through in and you know this biographic that the profit engine for us is integrating and pulling through back through those board mills and as I have said with the acquisitions and with the global growth in the end-used sectors, we sold 57,000 more tonnes a board year-on-year.

So I think, if you think about the profit engine of the corporation, I think it's pretty well in place as we go forward, so I am not getting overly concerned about individual quarterly ups and downs right.

In fact right now if you look at the pull for what we are starting in the second quarter, you clearly even in some of those end-used markets you start to see some strength returning. So I think we need a little bit more data before we make significant strategic shifts in the business..

Understood, understood and that's why I was giving the context before the question. I appreciate the call over the comment.

One other question and I am going to turn over, over those first few quarterly reports that we've had thus far, one observation we've had is there is certainly ongoing fixed cost inflation if you have to think about that way that we need to as investors and analysts think about for the business that we evaluate and it sounds like one of the ways that you've been dealing with it pretty well is through Lean, can you comment at all in terms of how that might help you specific to that normal performance improvement targets that you have and are there any potential other things that you can do to manage against that again not in just the next quarter but over the next two to three years? And I'll turn it over after that..

Yes so if you think of fixed cost, I guess the part of that questioned you and I answered initially which is part of the fixed cost will be in the converting side of the business in which case if there is not volume then you take out the roofs, right. That's part of it.

The second part and Mike talked about it is that our capital plan this year is very much aimed back at some fixed cost reductions or investments that drive variable costs.

That you mentioned the investment in West Monroe, Louisiana for example where we're going to put a co-gen down there that $30 million investment is $10 million a year at least based on current energy cost.

So there are clearly ways within our paperboard mills and our converting business to facilitate better fixed cost utilization across the process and I don't know Mike if you have got to..

No, I'd just add George, you know, and we talked about this that even in Q4 last year after we had sold a number of these businesses. We took a hard look at our SG&A across the business and took out a pretty sizable portion of our -- what we've deemed to be standard SG&A.

And initially that reflected in our Q1 numbers pretty well from an SG&A percentage in terms of total sales. So it's something we're always looking at.

What is our manufacturing footprint, how are we running the business, what cost do we need to service business we have, it's really in our structural DNA as we outlined relative to some of the Lean and Sis Sigma work that we do..

And Mike you would affirm to continued $60 million plus performance improvements for the foreseeable future the next several years, would that be fair?.

Yes and I think if you strip out and we did a little dash line there 9.2 I think we called weather and just subtract that out and multiply that pretty close to 4. We’re comfortably in that range here for 2016, or for '15 I am sorry..

George, this is Steve just to see just consistent with Mike's comments, our 70 million to 80 million of performance commitment remains intact as we kind of look through the full year in terms of that guidance..

Your next question comes from line of Alex Ovshey from Goldman Sachs. Your line is open..

Couple of questions on the Cascades acquisition now you have had in the business for a little bit, can you talk about what's going on with the mills, how are those running, how are you utilizing the paper there?.

Both mills Alex have run fine. We're using the paperboard in various parts of our business, we're starting to take a look at how do we optimize trends in calipers David talked about that on the last earnings call that we had that is part of how we optimize a multi-mill system.

So I'd characterized it as on plan from what we characterized and heading towards those synergy numbers that we have outlined for you. .

On the SBS side I know one of the mills have ability to do something similar to that type of product are you buying a little bit less SBS as a result?.

Not yet. I mean that's really more of a TMP thermo mechanical pulp, it can be used for some of those applications but. We haven't really started, displacing any SBS in our business right now..

And then you talked about share gain from other substrates would you be able to elaborate that a little bit, what substrates and maybe examples of specific product, where you guys are winning in the market?.

I'll give you two examples, I mean the strength packaging really has been a big driver for us and we've talked about that in the past, well that really displaces litho lam some of the corrugated applications, these are heavy caliper SUS products that we make for club stores and other channels and that's kind of an ongoing basic type thing that we do and then the other part of it is and I commented on this in my prepared remarks, that substrate the SUS substrate has really found a nice home in certain applications in Europe and that is the characteristics are different, there is the strength and the lighter grammage that allows it to perform well in those applications and being able to make it available through our converting plans and the customers we have over there.

We've seen some nice, some wins at the expense of other substrates and that's evidenced by the trend that we have got now with, that we believe will ship 150,000 tonnes to Europe this year that product..

And Alex that's kind what the your question is in extension of George’s, which is sort of where how's the business continued to grow and as Mike said, we're going to be upward 50,000 tonnes or so of this SUS is the -- since the first acquisition we made in Europe maybe a little more..

More than that..

So, we clearly see a path to 200,000 tonnes of paperboard being sold in Europe and that's paper that we were not producing two years ago. And that drives incremental EBITDA and we can argue it's not growth but it’s growth relative to our model because our model is an integrated model.

So if we're in Europe and we're selling cereal and pizza and we're buying board on the outside but we now integrate that into SUS because it makes a better application that's growth. I mean, that's Graphic Packaging’s growth because of the integrated model.

So, I think you have to think of Graphic’s growth on a couple of different plains not just are we selling an extra carton the question is on the carton you're selling is it greater value and greater EBITDA growth because you have your integrated approach and you're mixing and quite frankly that's exactly what we're seeing..

And just a last one for Steve, on FX the headwind seems more meaningful, the 30 to 35 then what would be implied by the revenue number? Maybe can you provide a little bit more detail, what currencies are having the most impact? And whether there is any transaction FX exposure in the business, which is making that number higher than what we would think it -- well what sort of a base case assumption would seem to be?.

Yes Alex and it's a good question. The reason that it moves a little bit beyond just the top-line is that we do have a little transactional and translational impact and so the translational component comes of course as we translate primarily European and Japanese earnings as well as our global footprint but those are the primaries.

And then of course we do have transactional as Mike and David has both articulated on 150,000 tonnes of paperboard for example into Europe gets transacted back at due to the currency impact, so that's why we want to try to provide pretty good clarity on both transactional and translational and the primary currencies for us as you know are euro, the pound and the yen, and we've got it at today's rates that's 30 million to 35 million of both transactional and translational impact that we will see on a full year basis, slightly higher than what we shared with you in our last quarter..

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

Back to the reference on the consumers changing preferences and your customers changing the product mix, David is that just an affirmation of what you have been seeing overtime or do you sense a new sense of urgency from your customers? And I guess the related question is how philosophically how does the paperboard market get impacted overtime as the packaging needs change as well with these new products?.

Well, I mean, if you're asking me whether the first quarter was a huge structural change, no.

And as I said in my prepared remarks, we've been seeing that change for a while which is we didn’t sort of wake up on third and thought we hit a triple I mean the acquisitions that we made were specifically focused on end-used sectors and geographies to offset some of those declines and some of those processes, so the acquisitions in Europe with Contego and with A&R were specifically the largest players in their end-used spaces, the same thing in Cascades we felt strongly there was an opportunity to grow in Canada but we did not have the converting base through which to pull our paperboard.

The acquisition of Sierra Pacific and Rose City were a geographic expansion but a pull-through in our mill system as well because in the case they are in some regional businesses Rose City is a great example. They are in the food business but they're selling to some of the regional guys, regional people that we don’t necessarily see.

They aren't necessarily the large consumer goods companies but those guys are growing regionally, so what I am saying is that, yes, although the people that seem to be struggling on the food side happen to be the large consumer goods companies.

We absolutely get that, but we're working to not only through new products and acquisitions but to offset that and you're kind of seeing that.

But while those guys struggle materially with their volumes, we overall were pretty flat, so what I would say is that as those large consumer goods companies sort of figure out their mojo and change their approach then we're going to be bullied by that change.

In the meantime we're doing global expansion and regional expansion in smaller regional player food guys to be able to help that, keep that volume going and that has been our strategy for a while and that's why these acquisitions have been I believe on point we're trying to deal with kind of where the puck was going and not where the puck was..

Okay that makes sense, thanks so much.

And then a question for Steve, just on the FX, I mean it looks like another 15 million to 20 million headwind versus maybe initial guidance for the year, just curious are there any other offsets on the plus side or minus side that we should we think about as we kind of model at the back half of the year?.

That's really the most significant movement that we've seen in terms of overall guidance. The rest of the key attributes remain as we suggested price and commodity inflation we believe will be in balance as we've suggested the numbers will move around a little bit but in balance.

And overall those commitments that we shared with you from a guidance perspective remain intact..

Yes I think what we would say is that despite those headwinds we're going to deliver the same EBITDA and cash flow growth that we talked to you about the start of the year. We haven't changed our numbers a bit, this quarter was a perfect example.

We had $8 million worth of FX but nonetheless we were able to overcome and then we would expect the same thing the rest of the year we're counter-measuring out that, if the currency changes positively that would be great, but in the meantime we are expecting to overcome that and still deliver the forecast that we gave you..

Your next question comes from the line of Philip Ng from Jefferies. Your line is open..

It sounds like demand has firmed up recently but can you comment on the inter-quarter trends in 2Q and how your backlogs are shaking out, do you think 1Q was negative in anyway by Easter and just the weather in general?.

Yes, the shorter answer is no, we're not provide inter-quarter forecast because it's irrelevant until the end of the quarter.

If I could tell you what our orders are doing right now it would have nothing to do essentially with what will happen at the inter-quarter, what I will tell you is that the quarter and second quarter which is seasonally higher for us traditionally is following historical trends.

It's stronger than it was in the first quarter from those end-used markets if you would expect to be better, soft drink, beer even cereal is better so you're seeing that and it's what you would expect to see in this quarter..

I guess the value proposition of your European business impart is just due to the low cost structuring of board and just your broad product offerings, does it sound like its impacting it much but how did the strengthening dollar kind of impact your business going forward?.

$8 million, in the quarter alone in 30 to 35 for the year, but what it does affect is the strategy, what I will tell you in our European operations despite the fact most of that headwind in foreign exchange was predominately in Europe through the growth that they had, or operating improvements they overcame that that headwind just in pure good operations.

And so you talk about low cost mills, but I will tell you what if you went to see our converting facilities in Europe they are as good as anything on the continent. The acquisitions that we've purchased in Contego and in A&R and Benson are greater operating process and we're actually using that to expand what were legacy Graphic operations in the UK.

We're busy in Europe. We've been incredibly successful in growing that business and in substitution of the board over there predominately because we have good teams on the ground and we have great assets on the ground. So I am optimistic about our European business because despite the headwinds they've been able to operate through it.

Those are our expectations for them so that's not a surprise, it's just I am pleased that they're able to do that..

Okay and just one last final one for me, I know the trade publication has lowered pricing as such for CUK and SBS, can you help frame the near-term impacts and I guess on assets you're buying bleach board in open market, but from a headwind perspective on your converting side it’s not going to impact on the margin going forward but just kind of help frame it for us would be helpful?.

This is Steve.

The impact this year will be very modest than was in inside of really the guidance that we had provided, there is most of what we saw with those small numbers we have really kind of had factored into our thinking that it was a very minor net movement on the SBS front, those cost we of course would transact with our -- when we purchase and those things tend to flow through to our customers, so no real impact there as well.

Mike anything you’d add to that..

No, I think that's right..

You got to remember two guys in our contracts for the end-used customers we don't really move around on $10 a tonne up or down. Because it is just you would be changing invoice pricing forever on folding card. And so there is a range at which it just has no impact on the carton side of the business and that's we're kind of comfortably in that range..

Your next question comes from the line of Mark Wilde from BMO Capital Markets. Your line is open..

Dave, I wondered, if we could just talk about sort of the acquisition market, financially you are in great shape right now. You have been growing through acquisitions.

I guess the first question is just, whether you would be willing to tackle more in the short-term given that you just closed on Norampac and Rose City?.

Yes, I mean, Mark, you know us long enough to know, we're serial acquirers and investors. So, if you give the teams sometime off, they get rusty. So, that is not our plan and we have a number of things that we're looking at right now.

As you would expect, we're keeping some powder dry because I still think there is some potential dislocations in the North American and European market and we want to have be prepared.

I will tell you that, you and I have had this conversation before but the only regret I really had since I have been in this job is that a couple of assets came available at one point in time that I would have loved to have but we just did not had the balance sheet to be able to do them.

And I don't want to be -- I don't want to be caught watching the paint dry so we're trying to keep ourselves in a place where good acquisitions are available then we can do it quickly, people know we're serious and they know we're capable and that's kind of what we're doing at this point in time..

And Dave just any general thought on what you're seeing right now in terms of both flow and value expectations on assets that might be for sale?.

That's a good question.

Mark, a lot of times it depends upon who owns those assets, right? Certainly in the private equity, all the European assets that really Mike and Steve purchase those things were all done from private equity and they were exit plans and the multiples on those things were on average what 6.5 or something like that, they were accretive the day we brought them and then with the synergies they are probably on average 3.5 or 4 times.

So, that's different. If it's a strategic purchase typically, Mark the multiple tend to be up a little bit. But our multiple is at a good place right now as well. So, we can do something and still be creative to our business, if we're buying good assets Mark..

And just Dave, in terms of geographic, I mean, we've talked about Mexico in the past, we've talked about North America and we've talked about Europe.

Can you just give us some sense of where you would be kind of most interested at this point? Because it sounded like maybe you were going to back off at Europe for a little while and you have raised the issue of Mexico several times in the past?.

Yes, I mean, and Mark I think you have got it right I mean, it depends upon the asset right. I mean, if we were going to buy and if the world is your oyster and you were going to buy board assets then predominantly that's going to be a North American purchase for us and that will be different.

If we are going to buy converting assets and I think all those geographies are open and that includes Mexico, Mike and I have said, publically we would love to find asset in Mexico and build on our base, we've a great little plant down there and we even have a really nice business down there but we don't have all the critical mass that we want.

But in Mexico, you have to know what you are buying and that takes a little bit more time and a little bit more diligence, just because that market is a little less transparent relative to the financials. So, I think long-term we're going to end up with more assets in Mexico but I want to make sure we don't make mistakes.

In Europe, yes, and Mike said it last time that we are probably looking at the second half of '15 or early part of '16 before we made another European asset but you’d also know timing is, what it is? It's a great asset comes up that is in end-used space that we need to be in and we think that asset will fit then we will lean over our skis a little bit and we will ask Mr.

Youst to bucket up and buy it and go do it and every Graphic Packaging manager sort of know it and that's really our DNA that's really what we do, and that's kind of the expectation, if you're going to be there.

So, I'm not calling off anything because of really management capacity at this point in time, it is the right asset in the right place at the right price..

Okay.

Just two other quickies, one, is there any chance Steve that the deflation could actually be of a bigger benefit this year?.

No I think as we kind of look forward at least, obviously, assuming rates and inflation/deflation activities are about where are at we don't really see it. We've got some inflation as Mike mentioned that we're managing on the wood side.

Transportation cost, we don't tend to get the enormous benefit out of the reduced gas prices because of inflation on drivers and lanes and so I think we've got it about right and of course we do have hedging activities that are in place as well that keep us pretty consistent and so our hedging strategies also tend to flatten it out, so we have less variability then the natural what would appear to be the inclinations of the market.

So now I think we've got it narrowed in reasonably well, we wouldn't expect too much in the form of variability off of the guidance..

Okay the last question, Dave, when we were down in December, we saw that new tight pack beer pack that you were doing for kind of one of the smaller brewers in North America and you were talking about potentially introducing that one of their other breweries and also more broadly, have you gotten anymore pick up on that?.

Hi, Mark, it's Mike. Yes, we actually do have introduced which is the second breweries we had indicated that we believe we would and we're in the process of actually getting some additional sales from another customer during this quarter and quarter two..

And anyway to size on that Mike just what the impact is for you guys?.

I think when you were down here we indicated that on annualized basis that could be to 15,000 to 20,000 tonnes all in of course we're in the infancy stages of that. So it takes a while for it to materialize and go through the qualifications..

Okay I assume that's something also you could look at introducing in Europe as well?.

Yes, we could and we're..

Your next question comes from the line of Anthony Pettinari from Citi. Your line is open..

I had a question on stir pulping capacity given you have had more demand from Rose City and Cascades and you've been operating well, is there any upside to the incremental pulping capacity that you can bring to market, I think you've guided to 150,000 to 200,000 tonnes last year, is there any potential upside that that would, maybe with the Cascades mills or just better operating performance?.

Well what we were speaking about Anthony when we actually made that comment was we had in the neighborhood 150, well, between 100,000 and 150,000 tonnes of SUS pulping capacity.

And the way to think about that as we convert that pulp obviously into paperboard, and as David said, these acquisitions actually drive our SUS demand up internally therefore we're able to get the benefit of that pulp.

So it really tends to be specific relative to the mills system as opposed to the two mills we got up in Canada that would be a little different deal..

And I guess what we would say is that Anthony we still have plenty of runway on the pulping capacity. We do a fiber balance every month and then every quarter we look backward through the mills.

We haven't done a pulp capacity necessarily look but at this point in time if you look at the way our digesting capacity is running and the efficiency in the backend of those mills, I am absolutely 100% positive. We have generated incremental pulping capacity through the efficiency and the investments.

And I think I mentioned earlier, most of our capital investments right now is not necessarily on the converting side, we're continuing to buy new pressers and cutters so all the customers are listening on, we're going to continue to upgrade those.

But the fact of the matter is most of our real improvement capacity in capital is back in those paperboard mills and ultimately that does incrementally add to our pulping capacity.

So we've got plenty of runway over the next two to three years for sure in making pulp and turning that into paperboard assuming we can continue to grow the business successfully as we've been doing..

Okay that’s very helpful and then just a question on folding carton markets.

I guess you said that you might be flat to up organically if I heard that correctly, do you see yourselves gaining share this year? I wondered if you could just talk a little bit about the competitive nature of folding carton markets in North America and are you seeing any share shift or market moves ahead of the merger of two of your largest competitors and potentially a merger of two of the largest buyers of boxboard?.

Yes, I guess the way I'd answer that is globally Anthony if you look at our numbers in Q1 as we outlined where our core markets are flat, we saw some sectors that are actually down a bit as David outlined.

And we actually had wins in sectors that were up a little bit, things like frozen pizza, craft beers and examples those were up year-on-year and that helps make up for some of the shortfalls we saw in things like carbonated soft drink or cereal. So that's kind of the way to think about it. In terms of major share shifts, we have not seen that.

We are just paid in ongoing bids like pretty much everybody else in the space does and we win some we lose some in terms of the overall share, but it's been pretty steady and we don't anticipate that being a big issue going forward.

I think the thing you have to remember is we competed against both the two MWV and Rock-Tenn whatever they're going to end up calling themselves prior to the merger as well, so we know those businesses pretty well and we expect we will continue to compete against them..

Your next question comes from the line of Al Kabili from Macquarie. Your line is open..

And just the first question is the if the euro for whatever reason were to fall the parity to the U.S.

dollar, would that materially change your outlook on the opportunities for SUS conversion in Europe and converse, as well, do you think the value proposition is high enough for SUS that you might be able to charge more for it in local terms to offset some of the FX headwinds overtime? Thanks..

Okay. So now we're into the total hypothetical, look at the end of the day, the SUS value proposition is one that is going to survive the euro moving to parity as you can well imagine, we've modeled on a go forward basis.

And the fact of the matter is a lot of it may depend upon what actually drives that somebody asked earlier question which Steve would you see some positives out there? We're sort of looking the same if the euro and is sort of where it's, it is because the input material and the global economies are sort of where they're right now.

If there is a major change in those things probably something else is going on underneath and those things like TiO2 and caustic soda and input are probably going to drop as well.

So you end up since some of this is translational and some of this is transactional you end up sort of offsetting that because, we buy raw materials to make SUS on a global basis right. We bring barges of caustic soda on a global basis up in West Monroe to do so. So, I'm not as much concerned about those dislocations of the dollar moving to parity.

I'd be a lot more concerned on that if it was some global melt down and had nothing to do with the actual cost but it had something to do with global demand changes or something that was really structurally changing in the end-used markets, that would be more difficult to overcome as opposed to a transitory change in input costs or currency flows..

I guess the second question is on it sounds like you're targeting about 150,000 plus tonnes of expansion this year, any thoughts and then North America in terms of growth for tight pack and your other growth initiatives, in terms of tonnage in terms of target growth in tonnage there that you could help us with?.

Well a clarification or a correction I guess, first, we're not targeting 150,000 tonnes of SUS expansion in 2015, what we have talked about is we've got 100,000 to 150,000 tonnes of available pulp and we can turn into paperboard as we need it.

We started doing that this year, we'll continue to do that in years to come as we add additional acquisitions or have customer demand for that, that's really the model. We're not going to produce pulp or board that we cannot sell.

So as we've said that those targets are sort of over and we said that it is over a two to three year period of time, we expect to be at because based on our growth tonnes we will need that capacity in terms of board. But our growth this year is I mean, it has been pretty consistent in tonnes..

Okay.

That helps and then the growth on tight pack, can you give us just a sense in terms of tonnes or volume rate how that's looking the first part of the year here?.

It's a great product and we've seen the growth that we sort of talked about before as Mike said, it's probably a 15,000 to 20,000 tonne all in market.

In some cases, it's -- we're using that to feel volume in something in serial or some other process, we only use that example not to suggest that it's into all issues to show that there are ways that when parts of the market are struggling if you have some innovation and you have the tools then you can offset some of those declines in other businesses and still gain market by making products and substitutes.

So, what I'd tell you is that those kinds of things, right now, are going and that's why Michael said on a global basis we were sort of flat because all the new products stuff sort of went in and kept our global markets on those core businesses flat in the quarter.

And that's against a pretty difficult core first quarter relative to some of the end-used market like soft drink and cereal which you would not expect to see the kind of declines that we saw year-on-year on an ongoing basis. So I was optimistic that there is some growth in those core markets as we go out.

But I have sort of out of the forecasting business for cereal, soft drink, frozen pizza macaroni and cheese because this is a little difficult to figure out within a quarter the clarity on those kinds of demand..

Okay. Thanks, I appreciate it. The last question just housekeeping on the maintenance and the sequencing, the 3 million to 4 million timing on the maintenance in 2Q year-over-year, is that a favorable than in the third quarter or do we have a little bit more higher maintenance spending overall for the year? Thanks..

Yes, this is Steve.

Yes just as Mike mentioned, the 3 million to 4 million is maintenance that we will incur in Q2 that's in our normal course on an annual basis but it was last year would have been in the back half of the year and so think of it as a shift, which is why we wanted to provide a little more clarity on Q2 given all of the weather activities as well as some maintenance movements, so it is not an increase in total it's more of a shift into Q2 and out of the second half of the year in terms of when we did it last year?.

Your next question comes from the line of Debbie Jones from Deutsche Bank. Your line is open..

Dave on the last call you mentioned, the Graphic, you feel that Graphic spent too much money storing and moving things around in warehousing and that could be an opportunity for you overtime over the next couple of years, I was just wondering if you could elaborate this and maybe kind of size up what that opportunity might be?.

Well, since I ask Mike about it every month I will let Mike size up that and talk to you about it..

Yes, and it remains an opportunity as you know, Debbie, line haul rates continue to go up even though diesel prices are down.

So we want to make sure that we are as efficient and effective as we possibly can be we're shipping a lot of tonnes to Europe, more tonnes now than we ever had before, so we've invested in the a lot of people and processes to help us really drive that out.

But I think the way to think about that is that's really embedded in this ongoing performance that we talk about the $70 million to $80 million a year that we've got to get out. I want to think about it as on top of that.

We get a lot of questions, well how do you view ’16, ’17, ’18, these are the types of things that really help us build a multiyear platform and really drive that level of performance year in and year out..

Okay that's helpful and just to ask a quarterly question here, is there any specific reason for the shift in downtime from Q3 to Q2?.

It really just comes down to the fact as you know when you have one of these outages, you have got a lot of specialized venders, maintenance venders that come in, contractors if you will that do the work. And from a scheduling standpoint, it was most favorable for them and for us to do that in Q2 this year..

And Debbie to that you got to remember that those specialists tend to be the same people that shift around to every other companies mills, and in the Midwest where a lot of this work is going to be done there are quite a few recycle board mills of some size up there, so you kind of get in the queue and you kind of do it in intent because you want the right people in those spots and that's really where -- and you know and I've said before, we don't really manage it to a quarterly basis.

What we want to make sure is we got it done within the year which is why we tend to give you annual guidance but not quarterly guidance because we just really manage the Company to a quarter-to-quarter basis it makes no sense to do so for a paperboard company..

Yes, now I agree, I just wanted to understand if there is something out there. Thank you very much, that is helpful..

Your next question is a follow-up from George Staphos from Bank of America. Your line is again open..

I guess first of all if we think about the frozen food category longer term Dave, if we are to see more growth in the future, do you think it's going to come from Susceptor Technology getting better or do you think that the, if you will offering and delivery is really good as it is right now and it is just a function of consumer spending patterns and tightness in the wall so to speak that's keeping frozen food languishing right now as an end-market?.

Well a lot of it depends upon a shift in the millennial thing, if you look at it right now for the first time ever the baby-boomer is not the predominate age limit 22-year olds are, so they consume slightly differently. And you can see that in some of the frozen stuff, so the microwave stuff is doing really well.

But also so are smaller servings and so that's not bad for us, it's just a shift because if you still make more boxes, if we are doing more frozen and you're seeing smaller units but I feel so pretty good about the frozen food market because you still see the millennials using that kind of product as an augment to all the fresh and -- around the store -- you know around the peripheral of the store.

So I think ultimately we feel pretty good about frozen food but it's going to have to be functional and the fact that it's making stuff food better and that's one of the reasons that microwave tends to end up in that space..

Okay second question, how would you gauge your ability versus your mainline competitors to commercialize new product and come back to customer with prototypes in a very limited time span when we visited your facility we've actually been very impressed with your ability to turnaround things very quickly, would you say GPK is more or less in line with all the other mainline competitors or do you think you’re a notch above or perhaps trending below the other larger carton guys?.

What I would say is this as you got to sort of measure the results and if you look at our new product growth opportunities, it's been solid.

Our customers gravitate towards coming here but I am sure our competitors, which are well-capitalized and they know the market as well I am sure they've got very-very capable new product development activities and new product development process.

All I know is that our resources are paying us dividends and you can see it in our new product development activity and substitution work, so I am comfortable that we're invested appropriately..

Just two last ones I'll turn it back, so at the end of the day if FX is more negative than you would have expected and you're not changing guidance on the other line items nor you're changing guidance on EBITDA, I might have missed it but what was the offset then that allows you to maintain your guidance? And then the other thing is….

It was input cost from the most….

Okay and then thank you for that and then the last thing I kind of remember on the maintenance spending standpoint that last year you had a called outage in the fourth quarter and that shouldn't replicate this year? Does that help your comparisons or is that just a timing factor as well? Thanks guys and good luck in the quarter..

I think it was only the one mill. I think, we will have a called outage this year in a different pulping mill..

It just a shorter one..

Yes..

Okay. Thanks guys..

So, total days are not changing dramatically.

We have got one minute, Alex I understand you're in line for another question?.

And Alex Ovshey, your line is again open..

Just on hedging, if you can just update us on what you guys are hedging on the energy side and the timing around when those roll off or when you think about renewing those? That's really it. Thank you..

Yes, we have ongoing hedging strategies as you know and we're about 75% hedged on natural gas for '15 and we're pretty materially hedged into '16 as well and so those are the two majors and on the board side where we hedge as we discussed on the paperboard side, we roll those through on more of an annualized basis..

Yes and I would imagine the hedging on '16 guys below where you're in '15, is that fair?.

That's fair and correct..

Yes right. Thanks very much, guys. I appreciate it..

Look, we're going to have to go, thanks for all your questions. And we will talk you in the next quarter..

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect..