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International Paper (IP): Company Profile, Stock Price, News, Rankings

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International Paper

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Good morning, and thank you for standing by. Welcome to International Paper Second Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, you will have an opportunity to ask questions. It is now my pleasure to turn the call over to Mandy Gilliland, Senior Director of Investor Relations. Ma'am, the floor is yours.

Thank you, Krista. Good morning and good afternoon, and thank you for joining International Paper's second quarter twenty twenty five earnings call. Our speakers this morning are Andy Silvernail, Chairman and Chief Executive Officer and Lance Loeffler, Senior Vice President and Chief Financial Officer. There is important information at the beginning of our presentation, including certain legal disclaimers. For example, during this call, we will make forward looking statements that are subject to risks and uncertainties.

These and other factors that could cause or contribute to actual results to differ materially from such forward looking statements can be found in our press releases and reports filed with the U. S. Securities and Exchange Commission. We will also present certain non U. S.

GAAP financial information. A reconciliation of those figures to U. S. GAAP financial measures is available on our website. Our website also contains copies of the second quarter earnings press release and today's presentation slides.

I will now turn the call over to Andy Silvernail.

Thanks, Mandy. Before we get into the detail, I want to welcome you to the IR team. It's great to have you lead our Investor Relations efforts as the next step in your successful career. Now let's jump in. I'll begin on Slide three.

As we continue our transformational journey to our ambition of $6,000,000,000 in EBITDA by 2027, I want to speak to our strategy and the momentum we are gaining across the organization. There are three key messages we want you to take away today. One, our transformation is on track. Second quarter revenue was at our expectation, we have confidence in closing the market share gap in North America this year even as The U. S.

And EMEA markets remain soft. Two, our cost performance in North American Mill System and EMEA are not where we want them to be, but we have clear line of sight to improvements. Three, we are holding our 2025 EBITDA guidance with our commercial and cost improvements efforts taking hold. We will win at IP through our deployment of eightytwenty. More specifically, we'll win through great teams deploying eightytwenty at the point of impact.

We launched eightytwenty a year ago, and we did the same at the close of the DS Smith acquisition. EMEA has mobilized teams to deploy eightytwenty by region, focusing on initiatives to accelerate significant synergies and profitable growth. Radical focus on the critical few is the key to our transformation. Momentum is picking up. While our two regional packaging businesses are at different stages in this journey, they're both executing a similar framework to achieve our 2027 targets.

In the second quarter, we started to see momentum build and they will take flight in the second half of the year. I want to thank the EMEA team for their tremendous work in tackling the challenges involved in combining the two organizations. This includes the finalized required sale of five plants in France, Spain and Portugal to the Palm Group announced earlier this month. Our Packaging Solutions North America team has bound the transformation journey since last year, and we're seeing accelerated momentum in our eightytwenty implementation. We're gaining traction and customers have noticed.

In the last few months, I had the opportunity to meet with several large customers, and they're excited about the things that we're working on. They're experiencing improvements in service and quality. They appreciate the investments we're making to support their growth, and they recognize the new international paper with a stronger customer centric focus. This same sentiment is at the heart of our commercial gains in the second quarter as we continue to close the gap to industry in North American packaging. I've also visited our lighthouse teams in Chicago and Atlanta during the second quarter, where I observed our strategy in action.

They have incorporated eightytwenty into daily management, they and are building stronger problem solving muscles, which has resulted in improved reliability and cost reduction. The same focus on eightytwenty is permeating the company both in operations and in our corporate functions. It is the engine to our strategy. Moving to Slide four, let me start by sharing our current view of the markets in North America and EMEA. Industry demand in North America has been relatively stable, but softer than last year as economic uncertainty from tariffs continued to impact industrial production and box demand across the manufacturing sector.

Based on our order patterns through July, we expect industry box demand to remain stable in the third quarter with upside potential in Q4 if geopolitical tensions ease and economic activity improves. Our gap to industry widened over the course of last year, peaking in the 2024 when we shifted our portfolio to a more profitable mix. As we indicated in the Q4 call, we anticipated closing the Gap to industry this year. That trend started in Q1 and improved as predicted by another 200 basis points in the second quarter. We expect our Gap to industry to close by the fourth quarter, largely attributed to known commercial wins that will ramp up in the second half of the year.

Turning to EMEA. Due to the inconsistency of industry data in EMEA, the chart on the right hand side is reflective of our EMEA box shipments on a year over year absolute basis. The weak market is a headwind for us with macroeconomic volatility in the region. While we're holding market share, box shipments slowed sequentially in the second quarter by approximately 1%, primarily driven by market softness in April and May. June volumes, however, showed signs of recovery, which has continued into July.

Looking ahead to the second half of the year, we anticipate a moderate increase in demand with fast moving consumer goods seasonal growth in the third and fourth quarters. The wildcard is the unpredictable and unresolved tariff negotiations, which continue to pose macroeconomic uncertainty. Moving to Slide five. Last quarter, we shared the commercial actions we are taking to achieve our 2025 run rate target of $600,000,000 and our 2027 target of $1,100,000,000 You can reference the list of first quarter commercial and cost out actions in the appendix, and we'll continue to update the appendix slide each quarter to reflect our cumulative actions and momentum. Now let's take a look at our accomplishments in the second quarter.

In Packaging Solutions North America, we continue to make progress servicing our customers. On time delivery improved from 92% in the fourth quarter of last year to 97% in the second quarter. We made investment announcements focused on growing in attractive markets. We continue executing to over serve our 80 customers such as rolling out our One to Perfect service model. This includes identifying actions required to achieve perfection on key metrics for our 80s customers.

We're also increasing positions with large global accounts by collaborating across both packaging businesses. In EMEA, with our combined team, we are refocusing our efforts on the most attractive customers, differentiating our go to market strategy and developing prospect plans to grow our position. And we are winning strategic accounts through our strong customer centric culture at DS Smith. All in for the first half of the year, our actions account for a run rate of approximately $650,000,000 This trajectory reinforces our confidence that we are on our way to achieve our goal of $1,100,000,000 of commercial excellence benefits by 2027. Now I'm moving to Slide six to discuss our cost out actions in the second quarter.

In Packaging Solutions North America, we announced decisions to close four facilities, sell three facilities and exit a non core business. As difficult as these decisions are, it is the right thing to do. Strategic decisions like these allow us to reduce complexity and minimize cost, which enables us to reinvest to build an advantaged cost position and enhance the customer experience. Last quarter, we communicated our goal of deploying the lighthouse model to 75 plants by year end. We have now installed the model in 40 plants and continue to see productivity improvements as we optimize.

We are also identifying opportunities in procurement to reduce spend across both packaging businesses. Importantly, we continue to struggle on our North American mill system. Year to date, we have left about $150,000,000 of profit on the table due to reliability issues. We are hyper focused on this area for improvement. In EMEA, we have proposed to close five U.

K. Plants subject to consultation, which we believe will be worth approximately $25,000,000 We have also proposed to streamline our Packaging business regional structure and consolidate 13 subregions into seven, essentially eliminating a layer of the organization. The estimated cost of the regional and subregional reorganization in EMEA will be known once those plans are finalized and we begin consultations with the new proposed organization. With the combined first and second quarter cost out actions, we are nearing our goal of $600,000,000 run rate by year end, and we are on our way to achieve the $1,900,000,000 target for 2027. We have accomplished a great deal this past year, but we have much left to do.

Our work is just beginning. And as you can see on Slide seven, we have many more value drivers developing that will contribute to our performance on our transformational journey. As an example, last month, we announced the expiration of a greenfield state of the art sustainable packaging plant in Salt Lake City. We anticipate this investment will drive growth in an attractive market where we can leverage our strategic strengths. Moving forward, initiatives such as these will continue to be developed.

We are committed to a relentless pursuit of commercial excellence and cost out in order to build a great company. So let's turn to our performance and outlook. Slide eight serves as a reminder of how we will reference our businesses for financial reporting purposes, including the abbreviations of PSNA and PSEMA for our Packaging Solutions businesses in each of those regions. Regarding our global Southerners Fibers business, the strategic review has progressed. There are no changes to our expected time line, and we remain committed to achieving the best value for the business.

Now I'll share some highlights of our performance and then turn it over to Lance to walk through the details. I'm on Slide nine. Second quarter results reflect higher revenue driven by a full quarter of DS Smith and strong price realization. Volume in the second quarter was seasonally higher and stable in a stable demand environment in North America. However, we experienced lower volume and softer demand in EMEA.

Last quarter, we noted that results were relatively low quality and we expected 2Q to be much higher quality. That's exactly what happened. The modest sequential decline in EBITDA is primarily due to four things: one, Q1 had favorable non recurring items that did not repeat two, Q2 had unfavorable non recurring items and costs from our transformation efforts Three, Q2 also accounted for our highest quarter of planned maintenance outages. Four, while Packaging Solutions EMEA demand was soft, we also experienced a spike in fiber costs. Lance is going to walk you through the detail in a moment to bring clarity to the bridges and give you insights into the important Q3 sequential profit ramp.

Our free cash flow for the second quarter was $54,000,000 As a reminder, cash flow in the first quarter was negatively impacted by $670,000,000 related to the investments in our transformation, including severance costs and DS Smith transaction costs along with incentive compensation payout. For the full year, we still expect to be in the range of 100,000,000 to $300,000,000 of free cash flow. As we look to the third quarter, we expect significantly higher earnings sequentially. This will be driven by higher volume and lower cost across all our business segments. Our commercial strategy is gaining momentum.

We are closing the gap to industry in North America, and we will continue to strengthen as we onboard strategic wins. We also have fewer planned Mountains outages in North America, And we are accelerating eightytwenty implementation as we move into the third quarter. With that, let me turn it over to Lance to provide more details about our second quarter performance and outlook.

Thanks, Andy. Turning to Slide 10. Second quarter adjusted operating earnings per share was $0.20 as compared to $0.23 per share in the first quarter. Price and mix increased by $0.21 per share, primarily driven by strong price realization in our Packaging Solutions North America business as well as continued realization of prior price index movement in GCF. Volume was flat overall.

In Packaging Solutions, our North America business experienced seasonally higher demand, which was offset by softer demand in EMEA as well as lower volumes in GCF primarily due to heavier outages in the second quarter. Operations and cost was unfavorable by $0.32 per share this quarter primarily driven by non recurring favorable items from the first quarter and non recurring unfavorable items in the second quarter including costs associated with our eightytwenty strategic actions. I will cover the option cost variances in more detail by segment in a couple of slides. Maintenance outages were unfavorable by $0.16 per share. As Andy mentioned, we expect the second quarter to be our heaviest maintenance outage quarter for the year.

Overall, input costs for the quarter were favorable by $0.10 per share, primarily due to lower than anticipated energy costs. Corporate and other items were unfavorable by $0.16 per share, primarily driven by an extra month of interest expense associated with de estimate debt, the non repeat of favorable first quarter discrete tax items and an increased average share count due to the additional months in the de estimate share conversion. Depreciation and amortization was favorable by $0.18 per share. This is primarily due to a non repeat of the accelerated depreciation from the Red River mill closure in the first quarter, partially offset by an additional month of DS Smith depreciation as well as changes in estimates to the step up depreciation as a result of our acquisition. And finally, earnings for the DS Smith legacy business included an additional month and was partially offset by soft demand and higher fiber costs in Europe and market related downtime in North America, all of which accounted for a favorable $0.12 per share.

Moving on to our Packaging Solutions North America second quarter results on Slide 11. These results reflect the additional month of the D. F. Smith North America business as well as the benefit from our cost out initiatives and commercial excellence actions, including the strong realization of prior price increases. Our second quarter volume was seasonally higher sequentially.

And as Andy mentioned, we reduced our volume gap to market this quarter by 200 basis points. Planned maintenance outages were higher in the second quarter offset by lower input costs. Operations and costs were unfavorable sequentially and I'll cover those details in the next slide. I'm on to Slide 12. This will be our last quarter breaking out our DS Smith legacy business from Packaging Solutions North America results.

Beginning next quarter, all of our financials will be reflected as one Packaging Solutions North America business. Price and mix in the second quarter was higher by $67,000,000 primarily due to strong realization from prior index movement, especially across local accounts. Price was also favorable due to geographic mix benefits in our export channels. For the third quarter, we expect an incremental $10,000,000 benefit from the prior price index movements. Volumes were seasonally higher in the second quarter and we expect to see continual growth in the third quarter as we ramp up our strategic wins.

Operations and costs were $119,000,000 unfavorable sequentially, primarily driven by the non repeat of favorable items we discussed in the first quarter totaling approximately $60,000,000 In addition, the second quarter included unfavorable non recurring items of about $50,000,000 which included costs associated with footprint and business optimization actions, inventory revaluations and year to date employee benefit accounting true ups. In addition, we experienced incremental costs from the natural gas curtailment at our Valiant mill resulting in $18,000,000 over two months. The gas curtailment has continued through July and is expected to be resolved shortly. These unfavorable costs were offset partially by footprint optimization benefits from the Red River closure and other prior cost out initiatives. For the third quarter, we anticipate operations and costs to be favorable by $68,000,000 due to the non repeat of unfavorable items in the second quarter, cost out actions and focused performance improvement.

Planned maintenance outages were heavier in the second quarter resulting in $39,000,000 of higher costs and we expect lower outage costs in the third quarter. Input costs were favorable in the second quarter due to lower energy and fiber costs. However, we expect slightly higher energy costs for the third quarter. Depreciation expense was lower by $177,000,000 in the second quarter, primarily due to the non repeat of the accelerated depreciation expense associated with the closure of our Red River mill, offset by a combination of an additional month of depreciation from the DS Smith North America assets and refinements to our DS Smith purchase price accounting estimates. Adjusted EBITDA for DS Smith operations in North America was $5,000,000 unfavorable, primarily driven by higher unabsorbed fixed costs due to market related downtime and other nonrecurring items offset by an additional month of earnings.

Moving on to Packaging Solutions EMEA's second quarter results on slide 13. As a reminder, again, last quarter accounted for two months of DS Smith data. So second quarter results include an additional month in the sequential and year over year variances. Volume in the second quarter was softer than anticipated reflecting ongoing macroeconomic uncertainty. However, we saw encouraging signs of demand recovery in June and we expect that momentum to continue into the third quarter.

In the second quarter, we experienced a spike in fiber costs in April and May with limited supply driving up prices. Energy costs in the second quarter were favorable and provided some offset to the fiber cost run up. We expect fiber prices to normalize in the third quarter. Adjusted EBIT was significantly impacted by the revision of purchase price accounting estimates related to our D. S.

Smith acquisition. These estimates will continue to be revised over the balance of the year. Turning to Slide 14. As discussed, this will be our last quarter for breaking out the DS Smith legacy results from our Packaging Solutions EMEA business. Related to IP's legacy packaging system in EMEA sequentially, price and mix in the second quarter was higher by $7,000,000 due to the prior price index movement and higher external paper sales.

Volume was lower in the second quarter given the expected seasonality of the fruits and vegetables segment in Morocco as well as overall soft demand. Operations and costs were $17,000,000 unfavorable sequentially primarily from the non repeat of our energy credit sales in the first quarter. Turning to depreciation for both business segments sequentially. As we just discussed, the major driver of the second quarter results is primarily due to an additional month of depreciation and revisions to the DS Smith purchase price accounting estimates. Finally, the adjusted EBITDA contribution from our legacy DS Smith operations in EMEA was $64,000,000 primarily driven by the benefit of a full three months of earnings in the second quarter.

Sales price increased realization and lower energy costs, partially offset by softer demand and higher fiber costs. Now let's move to the third quarter outlook, which reflects our combined entity. We expect price and mix to increase by approximately $25,000,000 due to price realization from prior index movements. Looking at volume in the third quarter, we expect an increase in approximately $24,000,000 primarily driven by a moderate improvement in overall demand and confirmed strategic wins. We expect operations and costs to benefit from approximately $8,000,000 of favorable cost out improvements related to our eightytwenty implementation.

And lastly, we anticipate lower fiber costs for a sequential benefit to input costs of approximately $10,000,000 Now turning to our GCF business on Slide 15. Earnings and volume were lower sequentially due to increased outages, but partially offset with higher sales price realization and favorable input costs. As I turn to Slide 16, price and mix in the second quarter was higher sequentially by $30,000,000 primarily due to price realization from prior price index movements. In the third quarter, we expect a reduction of $36,000,000 primarily due to the non repeat of energy credit sales that were realized in the first half of the year. Volumes were lower in the second quarter primarily due to a higher outage schedule and we expect volume to increase in the third quarter with fewer outages.

Operations and costs were $18,000,000 unfavorable sequentially primarily due to the timing of spend related to turbine work. We anticipate continued mill reliability improvement in the third quarter. Planned maintenance outages were heaviest in the second quarter resulting in $37,000,000 of higher costs. With more than 80% of our outages occurring in the first half of the year, we're expecting higher overall quarterly earnings in the third quarter. With that, let me turn the call back over to Andy.

Andy? Thanks Lance. Now we're moving on to Slide 17. As I mentioned earlier, we've accomplished a great deal in the first half of the year, but we have more to do. Within our Packaging Solutions businesses, with the momentum we've made and the actions we continue to take, our run rate in the second half of the year, excluding GCF, is approximately $3,800,000,000 of adjusted EBITDA.

Entering the second half of the year, we have momentum from our actions to drive substantial costs out and meaningful growth from our commercial wins. This positive momentum keeps us on track to the goals we laid out at our Investor Day in March. I'm on Slide 18. We've covered a lot of ground today, and I'm encouraged by the progress we're making on our transformational journey. We're driving a winning mindset within the company, and our teams are relentlessly focused on deploying eightytwenty at the point of impact to deliver excellence for our customers, our shareholders and our team. With that, let's go ahead and take questions, operator.

Our first question is going to come from the line of Mark Weintraub Please go ahead.

Thank you, and and thanks for the the comprehensive review. And, you know, a a lot of it all comes together from, I guess, the one question that I have is the the mill reliability issues. As you're taking this journey, that's also incredibly important. And you've been there now a year plus. What do you think sort of holding up getting as much progress as perhaps you are certainly I would have hoped to have seen and what's going to sort of get us there to not have no reliability issues pop up again?

Yes, Mark. So first of all, good morning. So the middle reliability issues that we're dealing with are not new, right? I think that's the first thing. These are things that have been building for a lot of years from the underinvestment that we've been talking about really since this time last year, and we have started to ramp up.

So as an example with our decisions around Red River and a number of the converting assets, we are redeploying capital that was being spent elsewhere in the assets that frankly didn't have a competitive advantage into assets that should and do have a competitive advantage over time. And so Mark, this is a lot of really tough basics. It's foundational stuff of investing back into the mills at the rate that they really need long term and having assets that really do have long term strategic advantage and are going to be in the top half of the top quartile in terms of cost and performance. And so that's what it really is. If you look at the work as an example we did in Mansfield, we've done in Mansfield this year, we talked about this in the past.

We had a major outage that was driven by a lack of investment from really a decision five years ago and we can't have that. And so we're going to battle that, Mark. And when I mean that, it's a consistent investment and focus on those strategic assets that matter, exiting assets that don't have a long term strategic perspective and redeploying those resources, people and money back into the system. So this is going to be a very specific kind of just chopping wood. You've got to go at it quarter after quarter, month after month, week after week, day after day to make those improvements.

It is not rocket science. So what's happening here is nothing kind of unique. It is about the basics of fundamental execution and investment back into the right assets.

Okay. Very much appreciate that. Just one quick one. Just can you remind us the GCF time line? I think you mentioned you're still kind of on track. What was the time Yes. Line

Our goal was to close by the end of the year. And so that's our goal. So we are well into the process, and there's no reason to believe that, that won't be the case. Super. Thanks very much. You bet. Thank you, Mark.

Our next question is going to come from the line of George Staphos with Bank of America. Please go ahead.

Thanks very much, everyone. Good morning. Thanks for all the details guys and for taking my question. The first question, there's obviously a big jump in earnings 2Q to 3Q as we look at it. North American GCF, it's really an ops and outages.

In Europe, it's really on commercial conditions. And as you were talking right now, you're working through your chopping wood on the operations issues. You feel more comfortable about the outlook 3Q to 2Q for North America because at least it's controllable relative to Europe, which is commercially driven and sort of subject to what's going on in the market or not? And how would you have us think about that? Relatedly, where is EMEA now slotting in terms of your EBITDA guidance?

At one point, it was 900,000,000 to $1,000,000,000 Is that still the goal? How is that shifting? And do you have a view on GCF as well recognizing you're going to hopefully close the process at the end the year? Thank you.

Hey, George, there's a lot in there. I think I heard three And so if miss it, please come back to me so Lance will help me out here. So first, yes, I feel better about North America for a couple of different reasons. One, we've had our arms around it longer, and I think we've really dialed it in there. I think the work that Tom Hammack and team are doing in North America commercially is going very well.

And so when you look at the back half of the year, I think probably the most important thing that we're going to that we're really seeing right now is this transition from consistently losing share over a long period of time to getting to parity to winning share. I think that is really critical and we're absolutely seeing that. So everything that forget about the market for a second, just on what we can control, that is going the right way and the hard work that's gone into that is going really well. Second, we really launched eightytwenty very early on in the converting side. And to be fair, again, Tom and team, when Tom was running just the converting business, they really started a year before I joined in tackling what they were calling melt at the time, which was really the reliability and performance issues that were happening within converting.

And again, just like I just talked about with Mark's question, has been going on for years, right, underinvestment for years. Literally in a two year period of time, we've gone from a dramatically underperforming set of assets to one that is performing quite well and winning back share. So and I got to give Tom and team a lot of credit. Started work started way before I ever joined. And so I feel really good about the commercial side and the converting ops and cost side.

The mill side, to Mark's question and connected to your question, we do have control of it, but we're still early in that journey, right? But I believe and we've demonstrated in the converting side and at Mansfield, which by the way, to be clear, we don't have that completely wrestled to the ground, but we made a huge amount of progress that we know how to do this. And so but that stuff is in our control. You mentioned the outages and things like that. And also, as you know, the momentum as you're driving cost out of a process related business, this is unlike my world at IDEX, right?

So my world at IDEX, things happened in relatively short cycles. We decided to close a business, exit a business, things showed up and flowed through your P and L relatively quickly. From the scale and the timelines that are simply required in this business, you don't have a choice of kind of how you go about those changes. It takes longer to come in and show up in the results. And so we've got to get that engine moving within the mill system in North America.

So but with that, yes, I feel I have a lot of confidence in what's going on in North America. In Europe, we have launched eightytwenty. We started, as I mentioned in the last quarter, we started out of the gates, right out of the gates. And Tim Nichols, who's running that over there, Stefano Rossi, Paul Brown, the leaders over there, they have grabbed onto this. And it's a big deal.

If you look at what we've already announced in The UK and the delayering in Europe, that's a really big deal. We have to move fast. We know we have to move fast. I know people are scared about transformational change in Europe, but we know how to do it. I've done it many times in my past.

I know Lance has done it many times in his past. We know how to get this done. But it will be bumpy. Don't get me wrong, right? This is tough work to be done.

And so you're right, sequential improvement in quarter to quarter in Europe is really going to be driven on that commercial side, right? Because we don't have the underlying drivers that are moving the needle. Those are going to show up six and twelve months from now, and that's just the lag time that's really required. So that's question one. All right.

Question two? Outlook for EMEA and GCF. Yes. So outlook for EMEA look, I think we expected we believed that the trough was in the early part of the second quarter. June suggested that, that was so, and July is suggesting that is so also.

And so we feel good about that. But you're absolutely right to question it because we are subject to what's going on in that marketplace. And so there's going to be more variability that's out of our control there. There's no doubt about it. And there's what about $50,000,000 Lance in total between those two things, those two pieces of volume and price coming through.

So yes, you've hit that on the head. But when I net it together and I look at that ability to get into that $1,000,000,000 run rate range, right, we feel good about that. Yes, it's not look, there's no slam dunks in what we're doing now. I mean this is tough money work, and we all knew it getting into it, and you guys have all been on the journey with us. We know how to do transformation, but it is tough and it's not linear.

But I will say the traction both in North America and in Europe, we're making progress. GCF looked at the process. We if you kind of go back in time, we made the decision last fall, a lot of carve out work to get it as a stand alone business and to be able to make sure we're presenting that appropriately. The markets have been tough, right? This is a tough market around us in terms of the financing markets and the bumpiness in the macroeconomic environment.

And we're committed to getting the value for that business. But we want to be a packaging business. Look, that's what this is. I said this kind of this time last year or maybe into the fall. The idea of being a pure play packaging business, I think, is very exciting, right?

The stability of that business over time, the predictability of that over time, even with all the noise that we have right now, that's an awful good business to be in and that's where we're going.

Okay. So Andy, Europe may be pushed to the right, but you still feel good about the $1,000,000,000 summary on that. Would that be fair?

So the $900,000,000 of 1.1 is that operable this year?

You're talking Europe? Are you talking Europe, Yes. I'm sorry. My $1,000,000,000 was what I was referring to is not pushed to right. My $1.4 was $1,000,000,000 run rate in EBITDA for the company, right, in the third quarter.

Europe, yes, Europe, we're basically holding. That range that we talked about at the Investor Day, we're holding that. Sorry, I confused that, George.

My My bad. Thank you so much. Good luck to

Thank you very much, George. Yes. Thanks.

Our next question is going to come from the line of Anthony Pettinari with Citi. Please go ahead.

Good morning. Is it possible to say what July box volumes have looked like in North America and Europe as you start off the quarter? And then you obviously have a lot of customers in a lot of industries. But I'm curious, when you kind of think about customer inventories, is there a sense that there could be some restocking in the second half of the year among your customers? Or just any kind of general observations there?

Yes. Thank you. So Anthony, when you look at the market right now, it's relatively flat sequentially. Some of you may have seen the Wall Street Journal article that talked about the kind of the weirdness of the GDP numbers that are out there and the puts and takes and what's that 3% real number. I think you got to dig down for our business and kind of look at what I call the goods economy, right? So industrial production is a decent proxy. It's the overall proxy, but it's a decent proxy. And that's still pretty muddy, right?

Housing has been just a mess and a lot that drives a big chunk of our overall business in this space. And that's been a mess for a while. And so that to me is a real good guy going forward. If you kind of think through over time, that's an opportunity. But we don't expect anything in the near term to happen.

So the goods economy is still pretty constrained. There's no doubt about it. Specific to your question about different parts of the marketplace, I mentioned housing, that's remained soft. It does feel like everybody is pretty cautious, right? So people are pretty cautious with the caveat that there's a lot of noise about kind of people rushing to the gates before the tariffs, the kind of the crazy tariff stuff early on.

And then since then, everyone's kind of feeling this out. There's no doubt about it. So people have been pretty constrained in terms of net investment spending. People have been pretty constrained in terms of inventory. In terms of there being a big restocking, I don't know, right?

There's no evidence that there's going to be some massive restocking. I think one of the great lessons for everybody of the COVID era was around supply chain. I think people got a lot better around supply chain, a lot tighter around supply chain. We certainly have, other people have. And so I think you're going to see less of that unless you get a really big step up in economic activity, and then that will constrain the system.

I think if I kind of think about the going into the third and the fourth quarter or maybe the first half of next year, there are a couple of really big things as I think about the external market that are on my mind, right? One is around the macroeconomic noise, whether it's geopolitics or trade tariffs, etcetera, is I believe there's kind of there's some pretty digital events here that we don't simply control. One is we clarify some of this stuff. There's a lot of pent up investment around the industrial world. There is a ton of pent up investment.

And so I think there's a relatively big upside. If that takes off, then that will constrain short term supply chains, and you could see that bump in inventory restocking as people really try to catch. Maybe it's not even inventory restocking, it's just catching the marketplace. I think that's legitimate. The downside scenario really is this continued moneyness and people holding back.

But as I talk to my peers, as I talk to my old world and the kind of the pure industrial world, people are very cautious. They're holding back right now. So I think there's probably over the next couple of years, it feels to me like there's more upside than downside in terms of the economy picking back up and getting out of this morass that we've actually been in. If you look at it, once you get past that COVID bump, you're kind of four years into a pretty tough industrial environment. And so I see some upside there in the future.

Okay. That's very helpful. And then maybe just related question. I mean you talked about closing the gap with the industry on the box side and expecting to have that closed by 4Q. When you look at your confirmed business wins, is it possible to kind of share any observations in terms of are these customers' IP has won back or existing customers that are giving you more business or maybe new to IP?

And are these longer run, shorter runs, larger customers, smaller customers? Just curious if there's any generalization in terms of how you're winning in the marketplace.

Yes. Look, I think, as I said before, this is a good news story. And when you when we kind of look back, I think, in the future and you say, what were some of the really critical pivot points, I believe that this is going to be one of them. And the reason I say that is the wins that we're starting to see that we believe are going to show up, we know a bunch of them are going to show up here in the third and the fourth quarter. It's a combination of and I'm talking the North America specifically right now.

It's a combination of large national accounts, who are really, really selective about moving business, right? They do not move business easily. This is not an easy thing for them to do, to pick up. Some of these very large accounts, when they move, they test you hard. And we're we've been in that testing phase to demonstrate that we can do this.

And the reason for those choices are typically around service and quality, right? Price is as you've heard me say in the past, price is certainly an entry point when you are when you're winning new business. But as you have business, when they choose to go, it typically starts with service and quality issues and then price becomes a factor when they actually really start looking. If you recall last year, we talked a lot about the premium that can be earned with great service and quality. And what I'll tell you is what we've seen in North America is that's very much true, right?

When you are delivering for those customers, your actual cost to their overall solution is relatively small and your criticality is very high. And so as long as you are fair on price and can really drive the service and quality, that's good news. And so we're seeing it at the large customer side. And very importantly, we've also had local wins, right? So we're seeing it in both places.

And so that's exciting for us. It's early days, right? It is definitely early days. And if I'm in your guys' shoes here, the proof is in the pudding in the third and the fourth quarter and our ability in the third quarter continue to close that gap. We closed it by another 200 basis points.

We landed exactly where we said we were going to land in the second quarter. We believe we're going to close it substantially again in the third quarter. And then by the fourth quarter, I think we're on the other side of the ledger positively.

Okay. That's very helpful. I'll turn it over.

Our next question is going to come from the line of Matthew McKellar with RBC Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. Just to follow-up on Mark's question about mill reliability. Is there an opportunity here to accelerate reinvestment in your mills with the band backdrop is still a bit soft? I recognize you probably can't pivot complex multiyear investment plans on a dime, but could you speak to what degree of flexibility you have here?

Look, it's a great question, and it's a question that we are digging into a level of detail that's excruciating, right? And because to me, the mill reliability is not only about the $150,000,000 It is. I mean that's a big deal, don't get me wrong, because it's $300,000,000 annualized, right? So it's a really big deal. The bigger deal for me is I believe that, that is the gateway to a lot of financial performance, right?

International Paper Q2 2025 Earnings Call Transcript | Fortune

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International Paper (IP) Q2 2025 Earnings Call Transcript

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