Graphic Packaging Holding Company (GPK) Earnings Call Transcript & Summary

Welcome, everybody, to the first session of the of BofA Annual Global Ag and Materials Conference. I'm George Staphos, BofA's pulp, paper and packaging analyst for the Americas. Now this year, we had dispensed with the palm trees and the buffet breakfast. But nonetheless, we are delighted that you're here, and most importantly, that Graphic Packaging is here to open the conference. We have with us today Steve Scherger, Executive Vice President and Chief Financial Officer of the company. And Steve has had a wonderful career, a number of operating and finance jobs, joined Graphic from MeadWestvaco in 2012. Steve, again, welcome. We're so glad that you're here. And we look forward to a great conversation with you.

Absolutely, George. Good morning. Good to see you.

What's new in Atlanta these days?

Well, like everyone, we're working through weather challenges. And spring will be on the horizon here in Atlanta and certainly throughout the country. I know everybody is looking forward to that, given some of the weather issues we've all been managing through.

Yes, I'm looking forward to drinking a little bit more coffee on the road there, Steve. So I'll see what I can do for the P&L later on in the year.

[ What do you say to that? ]

Listen, first question for you. As you think about the year ahead, and we're a couple of months into it, 2 months into it, what do you think Graphic Packaging has to get right? What are the 2 things you have to get right in 2021, that you can control, obviously, that will make the year a good year for your shareholders and your -- all your other constituencies?

No. Thanks, George. It's the right lead-in, and I'd probably turn 2 into 4, as you might expect. But I think what's absolutely critical and what we're holding ourselves accountable to is continuing to grow organically. So the 100 to 200 basis points of organic growth year-over-year is critical for us. We've got good line of sight to that as we march into the year. Continuing to have productivity that's of substance this year, more than offsetting labor and benefits inflation. That's absolutely equally as critical. I'd add to that, that pricing and offsetting commodity input cost inflation is absolutely an imperative, one that you're seeing us take decisive action on. And then we'll be bringing to life, as you know, the Kalamazoo investment. So I probably turned 2 into 4 for you, but those are the real critical things that are the controllables for us that we're extremely focused on as we execute on 2021.

Understood. And the second one, Steve, was -- you said -- I thought it was similar to the third one. You said growing in excess of inflation. Or -- but if you could repeat that again.

Yes. No, the second one was our productivity, George. As you know, every year -- we have a substantial productivity goal this year, $70 million to $90 million. We're picking up about $20 million, as you know, with reduced maintenance downtime given the recovery boiler work we've done over the last couple of years, and that will more than offset our labor and benefits inflation. So in terms of driving EBITDA improvement year-over-year, earning on organic sales growth, productivity more than offsetting labor and benefits inflation, and then probably offsetting commodity input costs. Those are really the 3 critical financial metrics for the year while we bring Kalamazoo up and running late this year.

Thanks, Steve. If you could give us a bit of an update on how things are progressing in the quarter. You obviously put out a week or so ago some update in terms of how the freeze is affecting you and some guidance around EBITDA. So we appreciate that. It's always -- to get that news earlier than later. So we applaud you on that. How are things tracking? What -- if you were in our seat as an analyst or investor, how would we track that Graphic is both on track for the quarter, as much as you can control, and for the year?

Well, we tried, like you said, to give you line of sight to it as early as we could estimate it. We were also, last week and on Monday, we were in the market securing about $800 million, two $400 million bonds that we brought to life on Monday. So we wanted to make sure that the overall market had a good view into what we were seeing. And overall, 2 facilities, Texarkana, Texas and our West Monroe, Louisiana facilities were impacted by those very unique storms and the cold weather. And West Monroe was down for just about 4 days or so, Texarkana for roughly a week. The facilities are back up and running effectively. So a bit of a onetime event. Now we are managing through, as I know you know, some access to some raw materials, some delays that we're experiencing, mostly resin-based, chemical-based, as the logistics channels get up and running. So we're working through that. It's kind of what was in the estimate that we developed for you. But everything is coming back up, as you would expect. The quarter prior to that was very good. Our volumes were tracking as we would expect them to. And most of this should be more oriented toward delay in terms of our ability to get product to our customers. We're working out of inventory where we can. So we're returning to normal, but it certainly was a unique and pretty unprecedented event, as you know, particularly in Texas.

And I want to remind everybody who's listening, if you do have questions, the Veracast service allows you to send us questions that I will pose on your behalf to Steve. One of the key concerns, Steve, that we get about Graphic Packaging is that, hey, GPK is a wonderful company, well managed. We understand what they're doing. But it's always in a race against inflation. And investors, analysts, we sometimes over-learn our lessons, but everyone goes back to a few years ago where it was a tough hole climbing out of. What do you say to investors who say, "Gee, GPK can't ever get out of that inflation hole." And what gives us confidence on the minus $20 million to plus $20 million price/mix goal for this year -- net price/cost goal?

Well, it's the right question. And if you do the from-to over when we had a large dislocation several years ago versus today, certainly, from an industry structure perspective, there's been significant and appropriate consolidation. And as such, the supply/demand environment is in a very positive place. If you look across all 3 of our substrates, demand for CRB, CUK, core SBS for us are all quite favorable as the supply/demand environments are in the right spot. And as such, backlogs, operating rates are where you would expect them to be such that, when price action is required to offset commodity input cost inflation, that we can take those actions. You've seen us be very decisive in those actions with multiple price increases that are in the market that we had executed on and that we are now executing on. Recognizing that we will see some inflation, we believe, this year. Certainly, here in the short term, we're experiencing some as most folks are. And so I think you have to look through supply/demand, backlogs, operating rates. You also have to look at what we've done to consolidate lags and take our lags from 9 months down to 6. We talked on our last call that we're taking additional action beyond that for things like freight where we're now taking openers 4 times a year because of the volatility of freight. So we continue to take very clear actions because any dislocation in price and commodity input cost inflation, we want it to be short-lived and shallow. Hence, the plus or minus $20 million that we conveyed in our guidance.

Steve, if you could remind us what you're currently in the market with now, if that's appropriate. And have you done anything recently in CUK? And after that, given the increase that you do have in the market, can we confirm that you're at least invoicing your customers at those prices?

Yes. So let's talk about each of them. We've been in the market executing on a price increase for both SBS across that platform as well as CRB. And yes, we are executing invoicing at higher prices. RISI, as you know, chose to not recognize in their last publication given some complexity in the marketplace and some competitive challenges with some things that folks were working through. But I think all indications were that it was being executed on, and we are executing on it. We actually followed up with our customers, the open-market customers, coming out of that publication, that said we are and will continue to execute on these price increases for CRB and for SBS. We did, as you also mentioned, last week, we announced an additional CUK price increase of $50 a ton effective in April. We've just now started to execute on that with our customers. So right now, there's price activity that we're executing on currently across all 3 substrates.

One question from our audience that just came in. In your view, what is driving customers from bleached SBS to CUK, in your view? Is it cost, aesthetics, higher speed on the customers' lines? To the extent that you have comparable products, what's driving that?

Well, it's interesting. In 2020, we actually drove folks from CUK to SBS, as you know, because we were very sold out on CUK given add-on consumption trends and global demand for CUK paperboard, primarily for beverage packaging. I think over time, we've seen some moves into CUK, for example, from SBS, as folks sought some of the sustainability, perceived advantages of the brown on one side, white on the other type solution. But generally, as you know, things are pretty fit for purpose. I mean for us, SBS is primarily about foodservice applications. Of the 1.2 million tons of SBS that we produce, 400,000 tons of it are for our cup business. And that is highly integrated. So the vast majority of that tonnage, we sell to ourselves and then turn it into the cup that hopefully you're drinking your coffee out of, as you mentioned earlier. And then the remaining 800,000 -- thank you. The remaining 800,000 tons is primarily for food service applications like plates and bowls and the like. But a lot of that is what we converted into what were CUK applications. So I don't think it as much as there are components of SBS where there's been some movement away or declining markets. They don't tend to be the ones that we're participating in. And not to make it a long answer, but to the question, we're also raising our strategic optionality for our SBS assets with the conversion of a machine in Texarkana to a swing machine to produce both CUK and SBS with the long-term goal of having that be primarily a CUK-capable machine.

We have one more question on pricing that just came in. And for everybody listening, we're going to turn the discussion pretty shortly to some longer-term and capital allocation questions. But again, given the input that we always get on GPK, I wanted to hit some of these price/cost issues upfront first. And the question is, what price increases are included in your guidance? Is there anything incremental to what you've included in guidance? My sense is you basically put in what you announced, but that's it. But you -- please Steve...

What we said on the call is it's plus or minus $20 million of price/cost relationship did have some execution on what were the end market pricing, and those were the CRB and the SBS. And we didn't articulate a specific dollar amount because there's a range there, but we said that we were assuming some successful implementation, and we expect to see some. And so it hasn't really moved us away from that overall range. I mean, one of the things, George, that we did when we provided the market with an update on Q1 is we didn't change our full year guide at this point. I really want to let February and March play out. Let's let these things play out relative to a little bit of the temporary inflation. Let's see how that plays. Let's watch our price increases move through the market. Let's see how volumes play out. And then, of course, at the end of Q1, we'll provide a more thorough update on the full year because we remain committed to, once again, increasing and improving EBITDA year-over-year.

Let's switch gears here a little bit and look at how the pandemic has affected your business and how it could affect your business going forward. On the one hand, what are the growth opportunities now that you see because of the pandemic? Are there opportunities, even on the machinery side, where customers might be looking for improved automation and productivity on their end that could help your business? And then as we think about this year and the next couple of years, might we see a shift such that we're seeing a bit more foodservice, which is maybe going to be certainly richer in dollar mix, but maybe less tons? So could we see less tons than shipments over the next couple of years that we see a rebalancing back? All the while still hitting that 100 and 200 basis points of organic sales growth.

Yes. No, a lot there, George. And I think just kind of standing back from it. I think it -- if you talk about what we're certainly excited about, is the addressable market for fiber-based packaging solutions that are the ones that we produce, invent and take in the market, the addressable market is even larger than we expected it 2 years ago. We've now have it estimated at a $7.5 billion addressable market. Our 100 to 200 basis points over the next 5 years would have us growing the top line, I'll just round, to 10% of that, $750 million of growth over the next several years. And we really like the portfolio of solutions, not one solution, but a portfolio of solutions, that can win, net, in those markets. And that ranges from KeelClip for beverage packaging; PaperSeal for bowls and trays, that's very exciting; e-commerce and ship in your own container solutions that are delivering to your home on a much more robust basis than we were this time even a year ago. Our cooking solutions have momentum. And it's broad-based, and that's what we like about it. Because when you stand back from the solution set, these are a lot of $100 million, $200 million portfolio additions over time. And that's what gives us confidence that we can continually operate in that 100 to 200 basis points. You're correct that we may see, as foodservice returns to somewhat of some more norm, folks are heading back into a work environment a little more actively than they have been, that we will see some reversion back for some growth in foodservice and some more moderation in some of, some, of the at-home consumption, even though I think it's going to be real interesting to watch because we're all spending more time at home. We've invested in our homes. We're getting things delivered to our homes. And so I think some of it will have a pretty long and sustainable tail to it. That being said, we may see some pockets of sales growth outrunning tonnage growth moderately. We saw the opposite last year to a degree, a little bit more tonnage growth -- a little more tonnage growth than the sales growth. We may see a little bit of that, but I think it's going to be measured around the edges, a percent here or there. But I think overall, the 100 to 200 basis points on the top line and earning on it, because that's really what's critical, is how we'll continue to generate improvements in both earnings, margin dollars and margin percentage.

I mean, Steve, just thinking about it. If it's only measured around the edges, then as foodservice comes back, you're kind of implying that, that which you've gained so far at the at-home doesn't really dissipate. I would surmise that your revenue growth target is very, very achievable. And I mean, again, who the heck knows? It's only beginning of March. But I would come away thinking the tension's to the upside, not downside, on your organic growth, if in fact things play out like you say.

Well, no, George, I think you're -- we all are anxious to kind of work through the realities of the pandemic and obviously vaccinations and getting us all back into a little more of an at-home and away-from-home normal environment. And we're looking forward to that as well because we, too, want to look through that and say, wow, when you step back from it and look at then, what -- how do behaviors and consumption patterns then settle in, there may be more opportunity there. But it's too early for us to declare that. But we, too, as we look for solutions around, okay, there's been a massive acceleration of food and beverage being delivered to your home in the last year, and it needs to be packaged and it needs to be packaged well and sustainably and appropriately sized. But a lot of opportunity for us there, and we're seeing that as we engage with customers. And so to your point, that's why we're speaking with appropriate confidence around 100 to 200 basis points. And as we kind of come out the other side of this unfortunate pandemic, I think how it all settles in could actually inure positive benefit for us as we manage through our role in a circular economy and producing products that consumers view as good and balanced for the planet.

Steve, that's great. One quick question for you. And if it's -- if we're just theorizing, you don't need to spend too much time on it, but if you have any data on it, I'd be curious. Is any -- given your customer base is so name brand, packaged food, packaged beverage oriented, has any of their data or, for that matter, your data on the consumer. Because the consumer ultimately gets what they want. That's one of the things I've learned about packaging over the last 0.25 centuries. Has anything in the data shown that the consumer's been sort of awakened to the branded product that they're getting in terms of quality, et cetera? 5 years ago, it was all about the death of the center, the supermarket, and gee, that was bad for all of our companies. Maybe not. And what's the data saying if you have any data on that regard?

Well, I'll speak to what we're observing is what you're saying, too, George, is that brands matter. And consumers experience with the brand matters because consumers want to have confidence. They want to have confidence not only in the product, but they want to have confidence that it's packaged appropriately, that it's safe, that it's hygienic, that if it's delivered to me that I have confidence in it. And as such, I do, I think that there's a real, a true, deep-rooted place for packaging that's appropriately branded and that lives in your home or in your pantry or on your way home that you have confidence in. You also -- the consumer has voted relative to their expectations now that it will also have an appropriate sustainability footprint, that it will be balanced in how much packaging is there and how -- that it is -- can be -- I can put it in my recycling bin or I can make sure that it gets utilized again. And so that's become something that, really, over the last 18 to 24 months, the consumer has voted and said, "I want those products to have the right look and feel." And that, by the way, that doesn't mean our solutions are the only. There are a lot of good packaging solutions, but they have to have the look and feel that feels appropriate because the consumer is setting that as an expectation. There's no doubt about that.

I want to touch quickly on 2 things, then I want to go to capital allocation as we wrap up. One, can you comment on what you're seeing in ship in own container and what opportunity that represents? And maybe it's so small right now, it's a gleam in your eye, but it's not really worth talking about, or maybe it is. And then we talked about sustainability. Can you talk, to the extent that you have a view on this, how the recovery of recycled fiber is an economically viable practice for those who need it to make their paperboard. Some of the other materials are not, in my view, currently economically viable on a sustainable basis because you don't get paid enough, ultimately, through the value chain relative to the cost of extracting it. So those 2 quick questions, then we'll go to capital allocation.

Yes. I mean, quickly, I think you said it well. Ship in own container for us, it's early days. But we like what we see because of the acceleration of what we said around the actual last mile to your home for food and beverages. And so I think we're going to continue to see good progression. And again, a lot of it has to do with the right amount of packaging. And we play well there because, generally, we play that role in the branding of it and the bringing to life of it in terms of the labeling and so on, and then of course the facts that are there. So because that's where we participate, we can see opportunities for, again, ongoing growth. It's not going to be a step-function, I don't believe, but I think we'll see it as a net positive in our portfolio. I think to your point, good news about fiber and about paper is, I think, in the U.S., we'll just focus on that, I mean, we're at 70-plus percent recycling rates. They tend to be -- recycling rates tend to be a little bit better when you're managing through retail environments than at-home environment. So I think the supply chain will have to continue to evolve so that, if generally, there's a little more at-home consumption than there was pre-pandemic, then the supply chains have to learn to operate to make sure that those percentages stay high so that we can, in fact, feed the system, both for virgin paperboard made the first time, which you have to have, so that you can then make it over and over again, either in the form of our coated recycled board or the corrugated recycled solutions.

I want to switch gears to capital allocation, and we also have a question on capital allocation of the audience that we'll get to in a minute. And I'm going to sort of get to the punchline first with this question. Graphic has been one of the better-performing, actually, paperboard packaging stocks over a number of years. And the company should be pleased with that. But obviously, it's always about what's next in our world as a publicly traded company. And with that, the company, the stock has, I think, appreciated about 30%-plus over the last 4 years. Which is, again, better than most of the other paperboard stock, I think it's the [ tops ]. However, it's below the market and it's below other consumer packaging stocks that we track, for better or for worse, rightly or incorrectly. What is your takeaway from that? What do you think the market maybe is missing? And how does that inform your approach to capital allocation and strategy for the company?

All the right questions. And I think you touched on it there. I think what we continue to be focused on is moving the company in the direction that we actually are, which is a highly integrated packaging company. Our customers are the world's greatest food, beverage, foodservice, consumer packaging companies. That's who we do business with. We sell them end products. We're a packager. Our metrics as a corporation looks like a packaging company almost on all respects, and we measure them all against the competitive landscape of packaging companies. And we just know that we have to consistently execute in such a way that the investor community can say, "You know what? This really is a packaging company and should earn a multiple similar to packaging companies, and it's not an 8x business, it's an 8.5, 9, 10x business." But we have to earn that. You can't ask for it. And you earn it through your metrics. You earn it through your returns. You earn it by executing on investments that generate above cost of capital returns, having good control and influence over price versus commodities that pass through appropriately. And you earn on organic growth. And that's -- we're only 1.5 years, 2 years into that journey of really earning on organic sales growth. And I think as 2021 plays itself out, that's going to be critical. It does and has driven our capital allocation priorities because, while we have been executing on our strategies, over the last 3 years, at moments where we really believe that the corporation is worth dramatically more than the investor community, we've bought back 20% of the company since the end of 2017 because we have confidence in where we're going. And part of that has been, of course, the exit of the good partnership that we've had with International Paper, which we can touch on here in a moment, I'm sure.

A lot there. As sometimes as you guys say, with all the analyst questions that are uncomfortable. So why don't we touch on IP? And I guess, one question that we received is that -- if you're in a position to comment. That which was ultimately offered to the market, would you have perhaps considered buying that in? Or were there any sort of guardrails that would have prevented, that either from a leverage or some other protocol standpoint?

There were no guardrails there. As you know, contractually, they've been exiting from the partnership, per the contract, every 6 months, $250 million of their partnership units. We engaged together on this latest one and decided to go larger. So we went to $400 million. And as we stepped back from it and we looked at our capital allocation priorities, we elected to acquire $150 million of that in the form of cash/debt and turned $250 million of it into the market. It's a non-dilutive event, you know. On the day that it occurred, it was very modest discount, there was good interest in it as we expected that there would be. And a lot of that, George, is really about capital allocation, which is where our leverage is a little higher than the 2.5 to 3x that we target, for all the right reasons right now with the Kalamazoo investment and us buying back the partnership as we have been. But we want to make sure we keep dry powder for M&A. And so we've got a long history of excellent M&A, we want to make sure we still have the capacity to do so. So some of that was around looking at our balance sheet and wanting to leave some capacity there to execute on the totality of our capital allocation priorities. And as I mentioned before, I'll repeat it. I mean, at the end of the day, our actual share count today, including their units, is lower, lower, than it was when we did the transaction with IP back at the end of 2017, early '18. So we've, in essence, acquired it back. And I think it sets the stage. We'll let -- IP will make their decisions as well on what's next, but we're down to 23 million units, a 7% position, and certainly an appropriate and balanced path towards an exit. We'll have 100% of the company back again. They've been an outstanding partner. It's worked and inured benefit for both of us, and we're thrilled that it played out as it has.

Yes. Just taking a step back. It really has been a good partnership from what we can see and worked out from what -- again, what we can see for both sides. So congratulations to all.

Absolutely...

One of the questions that had come in earlier that was around this topic, we were saving it for now, from the audience. With the recent redemption of the IP minority interest, how will you use that $150 million or so cash that you received? Redemption of minority interest. How will you use that cash on hand, revolver borrowings, to fund the purchase? Let me rephrase that. With the recent redemption of minority interest, can GPK use cash on hand or revolver borrowing, sorry, to fund the $150 million cash on transaction? Hopefully you understood that, Steve, despite my poor reading there.

I believe what that said basically, we used -- the way the transaction worked is $250 million was converted into GPK shares and $150 million we acquired with cash or debt is the best way to say it. And so I think of that as a share repurchase as it is. And so we acquired back another $150 million of the company. That was cash outlay for us. We did that at the same transaction price per share as the GPK shares were taken into the market. So we acquired it back at the modest discount as well, which is modest value creation for us. And so think of it now that there's 23 million units remaining. It's about 7% of the equity of the corporation. And that's now what the minority interest is today versus the 20-plus percent that it was when we began the partnership.

Thanks for the answer, Steve. And sorry to the person in the audience that I got the question a bit off here. But there's another part to it. For the remaining tranches that are out there, how do you expect to fund those as well...

We'll do the same thing. Yes, we'll do the same thing that we've done. We'll make the decision at that time. We'll make it in the context of our overall capital allocation priorities. I think it's reasonable to assume that it might look something like what we did before. But I want to maintain real flexibility there depending upon what we have line of sight to on our other capital allocation priorities, M&A and the like. So it could range from -- if they were to exit again or if we chose to do it larger, because we're down to about a remaining $400 million or so. We have flexibility to go either direction in terms of cash versus conversion into shares. And we want the balance sheet to be in a good, solid place. And I think the market receptivity -- certainly the market receptivity to an eventual full exit, I think, we all recognize it can inure some benefit just because there is the natural modest concern around overhang. I think it's massively overblown, but a little bit of an overhang discussion. And I think that folks wait for that final shoe to drop, it will -- it's playing itself out.

I want to switch to some of the projects that you've been working on. Obviously, you mentioned Kalamazoo and Texarkana. And from the numbers that you provided in our math, those are roughly 17%, 20% types of returns. When we do the math, making some assumptions for depreciation and tax rate, the -- a NOPAT return would be somewhere 9% to 11%, which we think is above your cost of capital. So that's a good thing. I would also think, though, that these are, obviously, some of the larger projects that you had left in the toolkit, so to speak. How do you -- from -- if that's a correct assessment, how do you increase return on capital measurably from ongoing productivity and other products on a going-forward basis?

Well, I think you said it. There are occasional larger-scale investments like Kalamazoo, which was a truly unique investment of that size. I don't expect anything to repeat of that size. But things like Texarkana, where we can put $100 million to work very effectively on a capacity-neutral basis to improve margins materially over time because of the growth in CUK, we're always assessing those types of investments. Having all 3 paperboard substrates, having the ability to optimize between and among them, is really a big part of our path towards 16%, low-16% EBITDA margins where we're at today, up towards that 18% to 20%. And so capturing real benefits from the capital investments, kind of the small to medium day-to-day things that we do to keep our productivity in that $50 million to $70 million range, and then occasionally larger investments that make sense to do. That all being said, we're looking forward to a significant pivot towards positive cash flow generation. Particularly in 2022, we will really turn the dial up on cash flow generation, gives us a lot of optionality next year as we capture the benefits of Kalamazoo, take our CapEx back down towards $400 million from $700 million this year. That's going to be a real value driver because we can put that money to work to either drive our leverage down towards the 2.5 to 3x range and capture that inherent value or put the money to work in some of the M&A activities that we have line of sight to. So we really like that optionality as we start to bring Kalamazoo to life, capture those benefits, generate the cash flow and can really look for high value creation from having that cash flow available to us.

Steve, I know it's hard to predict this and no one has a crystal ball. But do you think, given what you can see right now and what's in your pipeline, and what's perhaps even in the market, that the opportunities for M&A would be more accretive to return? Or do you think your growth opportunities, especially as we're seeing this perhaps accelerated pace of growth for the product that you make would give you an accelerated -- or an incrementally higher return on capital. How do you see that between the 2? Recognizing it's all of the above.

It is. But I will say, George, and I appreciate you asking the question the way you did. I think if you went 3 years back, we would have said that M&A was going to be the path to it because it would drive the integration rates, your driving consolidation, your driving integration. Today, it really is a both-and. And so we have to weigh them, and we are weighing them, around investing back in the business to drive organic growth or investing in the business to do inorganic or acquisition-based growth. And it's actually a good thing because it creates -- the strategic optionality higher. It's multiple options that exist to us. We're investing behind our new product development activities with additional resources internally to make sure that we can see that organic sales growth, that were inventive, that we're creating the kind of solutions that the consumer prefers. And so it is a more balanced approach today, and it's why we're excited about the packaging company orientation, if you will, around having actual consistent organic sales growth be an important part of the value driver for the company, and earning on it.

Steve, quick question that comes to me here, and I don't mean to blindside you with this. And it's -- again, it's going to be all of the above, I recognize. But first of all, would you say that Graphic has come through this pandemic better than most of your peer set? Especially some of the, I would say, more mid-sized companies. How would you view that?

Well, I think we can just focus on what we've seen. I won't compare us to anybody in particular. But what I will say is I don't think there's any way that we can be more proud of what our organization did to pivot through the pandemic and to adjust and modify incredibly well to stay safe and healthy and to produce critical products. And if anything, George, it gave us confidence that we can work at real pace under real unique environments and generate the kind of returns and kind of, still, enthusiasm and innovation to execute on it in times you never could imagine. And so from that perspective, I think it gave us more confidence in the -- in Vision 2025, in the vision that we established for the company. So I think we're here stronger today and even more confident today in the vision than we would have been pre-pandemic, which speaks to the talent of the organization.

From my vantage point, it just means that the success that you've had competing in the market maybe puts a higher threshold return on any potential acquisitions that you'd look at. Because you're showing that you can perform pretty darn well through pretty extraordinary conditions. How important do you think M&A will be to topping off your vertical integration target and getting to that 80% from 70% now?

I think it will be part of the solution. It won't be all, because of what you just said. We see the real potential for earning on our organic sales, aspirations to what we were talking about earlier, the 100 to 200 basis points, and assessing where else can it be accelerated, what other addressable markets can we win in. And you said it, it is a both. But I think it's a both in a positive way, meaning that we can win with the consumer and drive real top line organic sales growth that we can earn on. And as such, what it does is it -- and it's a good thing, is it makes the bar appropriately high for M&A. And it's a good thing. You're not chasing it, you're actually really assessing it. Is it strategically a great fit? And can you see -- can we see the synergy capture from anything that we do on the M&A front? Because we have to see the value creation, as you know, before we'll execute on it.

Steve, a last question that pivots back. I've gotten a couple from this one particular attendee, so we want to be respectful. Tell us a little bit about the PLA-based cup. Is there any news that you'll be able to share in that regard? And then a somewhat related question in that. Back on the fourth quarter, you said that you consumed about 105 million pounds of polyethylene annually between cups and lids. Is -- Graphic is using PET, polypropylene, polystyrene. What is Graphic's total annual resin buy in pounds? So I guess, tell us about PLA, which is ultimately going to take poly out of the cup. And then shed a little bit more visibility on your poly buy.

Yes. I think the poly buy facts are out in our materials, so I won't go there to round it to the dollar. But I think what you can see and will see is that we expect to have something to talk about in the second half of this year around PLA and around a good solution that has the ability to be scaled. And so we're looking forward to that second half of the year. We're working on some things we're excited about. And it's a little bit delayed because of the pandemic and the ability to have customers want to make the investment as well. But that one is a little bit of a stay tuned, in a good way, relative to something we expect to be able to talk about here as we round the corner into the second half of the year.

And ultimately, the benefit to the consumer and to the market will be that this is a product that can be put right back into the recycling stream and doesn't -- without any poly contaminant. Is that the give or take of it?

That's right, George. And I think the consumer will see it as a more recyclable product, a more bio-based product. And as such, the customers will also be able to articulate that with labeling and the like on the cup in this particular instance.

Thank you, Steve. I think we are concluding our presentation here. I appreciate, as always, Steve, your very sort of thoughtful, quantified and ultimately terrific responses to questions. I want to say thanks to everybody for listening in as well. We wish you a great day, Steve, and a better rest of 2021. Melanie, you're in the audience as well. Thank you for coordinating. And everybody have a good rest of the conference. Thank you, Steve.

George, thank you. Thanks for everybody that listened in. And best of luck to you with the conference. And very sincere thanks for the questions, far-reaching and the right nature of them strategically. So thanks as well to you for that. We appreciate it.

Take care, Steve. Thanks.

You, too. Take care. Bye-bye. Thanks, all.