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Graphic Packaging Holding to Acquire Letica Foodservice in Q3

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Graphic Packaging Holding Company (GPK - Free Report) has announced yesterday that one of its completely-owned subsidiaries, Graphic Packaging International, LLC, signed an agreement to acquire Letica Corporation’s foodservice business (Letica Foodservice). The transaction value has been fixed at $95 million.

Letica Foodservice primarily engages in the manufacturing of cold and hot cups from paperboard, and cartons. These products cater to customers in the North American foodservice market. The firm operates through two converting facilities; one in Pittston, PA, and the other in Clarksville, TN. Letica Corporation is a subsidiary of RPC Group PLC — one of the leading suppliers of plastic packaging in Europe.

Details of Buyout

As noted, in the 12 months ended Jun 30, 2018, Letica Foodservice generated revenues of $110 million. Moreover, its paperboard, solid bleached sulfate (SBS)-based, conversion totaled roughly 40 thousand tons.

The addition of Letica Foodservice to the portfolio will result in cost benefits arising from lower logistic expenses and other resultant efficiencies. It will also boost the company’s overall SBS paperboard tons. On completion of the integration, the buyout’s EV/EBITDA is predicted to be roughly 6x.

This buyout will be integrated with Graphic Packaging Holding’s Americas Paperboard Packaging segment. In the second quarter of 2018, the company generated roughly $1,022.8 million revenues from this segment, reflecting 25.9% growth from the year-ago quarter.

Subject to the fulfillment of closing conditions, the acquisition is anticipated to be completed in the third quarter of 2018.

Graphic Packaging Holding’s Inorganic Initiatives
 
The above-mentioned transaction is consistent with Graphic Packaging Holding’s policy of acquiring meaningful businesses to gain access to improve its product lines and market exposure.

Earlier, in June 2018, Graphic Packaging Holding acquired assets of PFP, LLC and PFP Dallas Converting, LLC. The assets, engaged in the production of air filter frames (paperboard-based), were integrated with the Americas Paperboard Packaging segment. In January 2018, the company completed combining its business with North America Consumer Packaging business of International Paper Company (IP) in January 2018.

Zacks Rank & Key Picks

With a market capitalization of nearly $4.5 billion, Graphic Packaging Holding currently carries a Zacks Rank #3 (Hold). Its financial performance in second-quarter 2018 was lackluster, with earnings lagging estimates by 10%. For 2018, the company anticipates earnings before interest, taxes, depreciation and amortization to be at least $1 billion while cash flow is predicted to be roughly $475 million. It stands to gain benefits from acquired assets as well as from its efforts to improve productivity and lower raw material consumption. However, incremental commodity cost inflation, estimated to be roughly $25 million, will be a headwind in the second half of 2018. For the full year, commodity input costs are estimated to be roughly $50 million.

In the past 60 days, the Zacks Consensus Estimate for earnings per share on the stock is pegged at 85 cents per share for 2018 and $1.09 for 2019, reflecting a decline of 4.5% and growth of 5.8% from the respective 60-day-ago tallies.

Graphic Packaging Holding Company Price and Consensus
 

Graphic Packaging Holding Company Price and Consensus | Graphic Packaging Holding Company Quote

Further, the company’s share price has decreased 3.4% in the past three months compared with 1.2% decline recorded by the industry it belongs to.



We believe that Graphic Packaging Holding’s acquisitive nature might help in boosting its growth opportunities.

Some better-ranked stocks in the Zacks Industrial Products sector are Altra Industrial Motion Corp. (AIMC - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Barnes Group Inc. (B - Free Report) . While Altra Industrial Motion sports a Zacks Rank #1 (Strong Buy), both Chart Industries and Barnes Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. The average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 29.36% for Chart Industries and 6.88% for Barnes Group.

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