Graphic Packaging downgraded by RBC on inflation, oversupply, cost overruns

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Graphic Packaging Holding Company (NYSE:GPK [https://seekingalpha.com/symbol/GPK]) late Wednesday was downgraded to Sector Perform from Outperform by RBC Capital Markets, with analysts saying that ongoing cost pressures, weak consumer packaged goods volumes and bleached paperboard oversupply weigh on earnings potential.

VOLUME WEAKNESS, INFLATIONARY PRESSURES

Analyst Arun Viswanathan wrote that the company’s core food packaging volumes have softened, with July flat but August declining 2% and continued weakness likely into September. Inflation is pressuring consumers and limiting promotional activity, while reformulation costs tied to “Make America Healthy Again” initiatives could further strain brand spending.

RBC cut its 2025 and 2026 earnings before interest, taxes, depreciation and amortization forecasts to $1.435 billion and $1.5 billion, respectively, down from $1.485 billion and $1.55 billion.

BLEACHED PAPERBOARD OVERSUPPLY COMPRESSES MARGINS

A major concern for margins is oversupply in the bleached paperboard market. Sappi’s recent 520,000-ton capacity addition has narrowed the premium over recycled grades to just 7%, compared with a historical range of 40–60%.

This dynamic, RBC said, has limited Graphic Packaging’s (NYSE:GPK [https://seekingalpha.com/symbol/GPK]) ability to raise prices across coated recycled and unbleached board, which represent roughly 80% of sales. As a result, ebitda margins are projected at just 17% to 18% through 2026.

WACO PROJECT COST OVERRUNS

Graphic Packaging (GPK [https://seekingalpha.com/symbol/GPK]) also raised its 2025 capital spending guidance to $850 million, up from $700 million, due to cost overruns at its Waco, Texas project. RBC estimates the higher outlay could extend the company’s deleveraging timeline and limit shareholder returns. “Each 0.5x of leverage or EBITDA is worth about $3 per share to our price target,” the analysts wrote.

VALUATION AND OUTLOOK

At $18.79, GPK shares trade at roughly 9.4 times RBC’s 2026 adjusted earnings estimate of $2.00 a share. The new $21 price target, down from $25 previously, reflects a 7.5x multiple on estimated 2026 ebitda, in line with packaging peers. The analysts set an upside scenario of $32, assuming stronger productivity gains and higher multiples, and a downside of $14 if volumes and pricing remain weak.

While RBC acknowledged Graphic Packaging’s (GPK [https://seekingalpha.com/symbol/GPK]) strong capital allocation record and long-term opportunity to benefit from consumer demand for sustainable packaging, the firm said it is waiting for “lower inflation, more promotion, and stronger volumes” before becoming more constructive.

MORE ON GRAPHIC PACKAGING HOLDING

* Graphic Packaging: From A CAPEX-Heavy Consolidator To A Cash Flow Compounder [https://seekingalpha.com/article/4825059-graphic-packaging-from-a-capex-heavy-consolidator-to-a-cash-flow-compounder]
* Graphic Packaging Holding Company (GPK) Presents At Jefferies Industrials Conference 2025 Transcript [https://seekingalpha.com/article/4818946-graphic-packaging-holding-company-gpk-presents-at-jefferies-mining-and-industrials-conference]
* Graphic Packaging Holding Company 2025 Q2 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4805648-graphic-packaging-holding-company-2025-q2-results-earnings-call-presentation]
* Cardboard-box demand slips, raising concerns about consumer spending [https://seekingalpha.com/news/4496803-cardboard-box-demand-slips-raising-concerns-about-consumer-spending]
* Graphic Packaging Holding declares $0.11 dividend [https://seekingalpha.com/news/4476148-graphic-packaging-holding-declares-0_11-dividend]