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Founded in 1898, International Paper is one of the world’s largest producers of renewable fiber-based packaging, pulp, and paper products. With operations across the Americas, Europe, North Africa, and Asia, it serves industries from e-commerce to food and beverages. In 2024, it led the packaging and container industry in revenue.

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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's third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, you will have an opportunity to ask questions. To ask a question, press star one on your telephone keypad. To withdraw your question, press star one again. As a reminder to ask a question, press star one. To withdraw your question, press star one again. It is now my pleasure to turn the call over to Mandi 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 third quarter 2025 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 the 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 differing 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.

Beginning this quarter, management has elected to present forward-looking guidance based on adjusted EBITDA rather than adjusted EBIT. This change reflects our views that adjusted EBITDA provides a better comparative metric to use during the company's transformation. Our website also contains copies of the third quarter earnings press release and today's presentation slides. I will now turn the call over to Andy Silvernail.

Thanks Mandi. Good morning and good afternoon everyone. Let's begin on slide three. As we go through today's presentation, there are three key messages I want you to take away. First, we're making significant, measurable progress on our transformation. Our strategy is getting traction. Second, macro conditions in North America and EMEA continue to be challenging. Third, we're focused on what we can control. We're moving aggressively on cost initiatives to enable margin expansion and continued investment in our success. This quarter represents an important step on our transformational journey as we continue to execute the strategy we launched last year. We committed to an ambitious transformation plan to reinforce our leadership in sustainable packaging solutions through an advanced cost position and high relative supply position in our most strategically attractive markets and delivering an unmatched customer experience.

Our strategy is rooted in 80/20 which has four elements: Simplify, Segment, Resource, and Grow. In that spirit, over the course of this year we have announced several targeted actions. We are simplifying our organization by exiting select businesses, markets, and functions to sharpen our focus and liberate resources. Post the GCF sale and the exit of some specialty businesses and low margin export, we will be exclusively a sustainable packaging business. This is a major milestone on transformation. A key step of segmentation is the rollout of our Lighthouse model which has accelerated across the North American box system and continues to gain traction in our mill system and we are now kicking this off in EMEA. We are directing our resources, namely people and capital, toward our most advantaged opportunities to drive higher reliability and productivity. For example, we made the decision to close Savannah.

We redeployed approximately 30 people to Riverdale and avoided a $300 million capital call which allowed us to fund our Riverdale conversion to lightweight containerboard. These actions contribute to a stronger business for our customers, employees, and shareholders which is reflected in our EBITDA improvement. Now moving to slide four. We are well on our way in our transformation journey and are pulling multiple levers with many moving parts across North America and EMEA. Several drive immediate benefits and you'll see those in our numbers now. Others are medium and long term benefits that come with near term financial offsets, facility closures, overhead reduction, and refocusing. Our commercial efforts will have multiple short term puts and takes. During this call, we want to ensure that we describe the key components of our transformation.

The main takeaway is that our underlying earnings are growing significantly, and we are confident in our strategy to deliver profitable growth over the long term. It's important to recognize that North America and EMEA are at different stages of the transformation journey and operate in very different markets, which creates unique opportunities and challenges for each business. In North America, we're seeing significant benefits of the actions taken to date, and despite short term market offsets, giving us conviction that we're on the right path. In EMEA, we are early in the process of optimizing our footprint, reducing overhead costs, and reinvesting in strategic priorities. Despite macro headwinds, we are making progress and have a clear path forward to drive improvements. I'm on slide five as we consider our journey and how much is left to accomplish.

I want to anchor us in the progress we've made today, utilizing North America as a transformation proof point. This slide shows how we can drive results in a tough market while investing to win. In North America, we have delivered a 40% increase in adjusted EBITDA year to date compared to the same period in 2024, while expanding adjusted EBITDA margin by 370 basis points. Our strong performance year to date has been the result of several cost and commercial drivers. In terms of cost improvement, we continued our footprint optimization in North America. We closed additional mills and box plants, sold or exited some of our non-strategic export and specialty businesses, further simplified our overhead structure, and rolled out our 80/20 Lighthouse model to 74 box plants to drive improved operational efficiency and service levels. We launched the Lighthouse implementation in our mill system in the third quarter.

Commercially, we continue to invest in our best-in-class experience for our customers. This has resulted in key strategic wins across national and local customers. As we continue to benefit from strong margin improvement in North America, we have pulled the levers of change aggressively. The tremendous effort and focus by our team is working. We will continue to build on our progress in North America while leveraging our 80/20 playbook in EMEA. Now moving to slide six, let me cover a few quarterly highlights. To begin with, our packaging solutions businesses grew EBITDA sequentially at 28%. These results underscore the progress we're making with our 80/20 implementation as we move to demand. We came into the year, we anticipated U.S. box industry shipments would be up 1%-1.5%.

However, we now expect industry shipments to be down approximately 1%-1.5% for the full year due to factors like trade uncertainty, soft consumer sentiment, and weak housing market. Similarly, in EMEA, our expectation coming into the year was for box volume to be in the 2%-3% range. We're now seeing that closer to 1%. While the markets are challenging, we are controlling our own destiny. We control our customer-centric approach, and that focus is working in North America. In the month of September, marked an important milestone as we took market share and grew box shipments. That trend will continue in the fourth quarter and 2026 despite softer than expected market conditions. We have continued to build momentum on our transformation journey and are rapidly executing cost-up measures that will yield additional benefits in 2026, which I'll talk about in detail later.

In addition to our mill closures and specialty business exits, we still expect to close the sale of GCF by year end pending regulatory approval. During the balance of our time today, we'll walk through more details about our third quarter performance, our outlook for the fourth quarter, momentum into 2026, and updated targets for 2027. Now moving to slide seven, looking at our overall company performance excluding GCF. Our third quarter results reflect solid progress and additional proof points along our transformation journey. Third quarter revenue is slightly higher sequentially, driven by continued strong price realization and stable volumes. Importantly, we delivered our expectation of significant sequential EBITDA improvement in the quarter. As a result, our EBITDA improved by 28% and our margin expanded by approximately 300 basis points.

Our adjusted EBIT and EPS results included the accelerated depreciation expense of $675 million related to our facility closures, which impacted EPS by $0.81. Free cash flow in the quarter increased sequentially to $150 million, primarily driven by strong growth in operating cash flow. Despite approximately $60 million of direct cash costs related to our transformation, the strength of our balance sheet allows us to invest and position ourselves to drive sustainable, profitable growth. I'm now on slide eight. Sequentially, we saw a significant improvement in EBITDA this quarter of approximately $190 million for IPC's continuing operations with the GCF business included. We achieved more than $1 billion of EBITDA in the quarter, in line with our expectations. I'd like to take a moment now to acknowledge the entire GCF team for their contributions and their hard work demonstrated throughout this transition.

We wish them continued success as they team up with American Industrial Partners. Now I'll turn it over to Lance for a few additional details.

Still on slide eight, let me touch on a few housekeeping items related to GCF. First, we've recast this year and the prior two years of financials to reflect GCF moving to discontinued operations. Second, we've identified approximately $60 million in annual stranded overhead costs, which we have reallocated to the corporate line throughout 2025. A significant portion of these costs will be covered by a transition service agreement following the close. As the TSA winds down, any residual stranded costs will be eliminated. Third, with the signed transaction, we've written down the GCF business to fair market value, and the associated impairment of approximately $1 billion is reflected in the discontinued operations line this quarter.

Finally, upon closing, we intend to use the sale of these proceeds of GCF to reinvest in our Packaging Solutions businesses and pay down debt in order to sustain our target credit metrics and maintain a strong investment-grade rating. Turning to slide nine in our Packaging Solutions North America third quarter results, as a reminder, we are using adjusted EBITDA for our bridges as a better comparative metric during the company's transformation. Looking at the data sequentially, price and mix in the third quarter was higher by $28 million, primarily due to strong price realization from prior price index movement. Volumes were relatively stable in the third quarter, and operations and costs were $49 million favorable, primarily driven by the non-repeat of second quarter items, as we discussed on the last call, and the impact of strategic cost out initiatives.

Planned maintenance outages resulted in $86 million of lower costs in the third quarter. In order to accelerate our mill footprint actions, we adjusted our outage schedule accordingly. Going forward, we will continue to optimize planned outages to align with demand and balance our network. Input costs were $27 million unfavorable for the quarter due to higher energy costs, including the incremental costs from the natural gas curtailment that continues at our Valliant Mill. All of this leads to an adjusted EBITDA for North America of $655 million following the bridges. I'd like to note our depreciation expense in the third quarter was $831 million, which includes the accelerated depreciation expense of $619 million associated with the closure of our Savannah, Riceboro, and Red River Mills. Turning to slide 10, let me take a moment to put the trajectory of North America business into perspective.

As mentioned on our last call, we finished the second quarter with a gap to industry around -4% but expected to close our gap by the end of this year. Although industry numbers will not be published until tomorrow, we believe that we will be in line or above industry growth rates in the third quarter. Importantly, we exited the third quarter with volumes up 1% year-over-year in September, and we are seeing that trend reinforced in October. This gives us confidence in market share gains in the fourth quarter. As you can see in 2024, our volume trajectory versus the industry was a direct result of strategic actions we took to renegotiate low margin contracts. While this had a significant impact on our volumes, it allowed us to shed less desirable business and refocus our capacity and commercial efforts on higher value, more profitable businesses.

You can see the benefits of these changes starting to take effect in 2025, where we have closed the gap to market and expect to have above market performance in the fourth quarter and 2026. The current trajectory is consistent with our expectations and further affirms our strategy is working. Turning to slide 11, let me provide some detail on our fourth quarter packaging solutions North America outlook. Taking a look at volume, we expect industry demand to remain relatively stable in the fourth quarter. However, our outlook of an $82 million decline includes approximately $60 million of unfavorable commercial impact associated with the exiting of the two strategic, non-strategic, excuse me, export and specialty markets businesses. In addition, there are three less shipping days sequentially, which we anticipate will be partially offset by the benefit of strategic customer wins and stronger seasonal volumes.

We expect operations and costs to be favorable by $44 million in the fourth quarter, primarily due to the $60 million of cost out benefit from mill closures tied to the exit of the non-strategic export and specialty markets. This benefit is partially offset by seasonally higher labor costs and reliability spend aligned with our planned outages. Just to be clear, the $60 million benefit in option costs related to the mill closures in the quarter offsets the $60 million of negative commercial impact in volume. The fourth quarter will also include higher maintenance outages sequentially as planned. All in, our fourth quarter outlook for North America is approximately $600 million of EBITDA. Now moving to slide 12, as we look to the balance of 2025 for North America, we expect continued EBITDA improvement, building on our strong first half momentum.

Let me provide you with more details of our commercial and cost out improvement. This bridge reflects the expected benefits that we are realizing in the second half of 2025. From a commercial perspective, the benefit from the February price increase will continue to ramp throughout the year as we roll out our Lighthouse model. More broadly, we expect more wins with strategic customers both nationally and locally. On the cost front, the EBITDA improvement throughout 2025 is primarily driven by corporate overhead, structural changes, and the closure of the Red River Mill. These actions taken earlier in the year continue to flow through in the second half and into 2026. This quarter, we also announced the closure of Savannah and Riceboro Mills.

As I mentioned on the last slide, the reduction in fixed costs favorable to EBITDA is offset entirely by the commercial margin loss from exiting saturated kraft and low margin export markets. Both of these mills had significant near term capital requirements and did not return their cost of capital through the cycle. By taking these strategic actions, this capital will be redeployed for stronger returns within the business.

Let me add some context here. In light of the more challenged demand environment, we are accelerating our cost out actions. While these are difficult decisions, they are the right thing for the long term success of the business. This has been an active quarter and I want to speak to several decisions in North America. Lance just walked you through the mill closures announced in August, which ceased operation last month. Earlier this month, we also agreed to sell our bags business, and just last week we executed the decision to outsource a large portion of our North American IT service and support functions. A strategic move toward better scalability, cost efficiency, and positioning IT and our businesses to deliver operational and customer excellence. We're grateful to all employees affected by these actions. Thank you for all of your contributions and we wish you very well in the future.

Now let me hand it back to Lance to walk you through EMEA's third quarter results.

Thanks, Andy. Now turning to slide 13 in our packaging solutions EMEA third quarter results, while we continue to see soft demand in EMEA, our business grew EBITDA and expanded margin sequentially. While price and mix contributed $13 million of improvement in the third quarter, this was below our expectations primarily due to recent downward price index movement. Volume was also lower than expected in the third quarter, which we believe resulted from overall market softness and destocking in anticipation of paper price declines. Operations and costs were unfavorable by $10 million, primarily due to the pricing impact on the value of our inventory. As a result of the paper price decline, we experienced lower fiber costs of $19 million in the third quarter, all of which resulted in third quarter adjusted EBITDA for EMEA of $209 million.

Turning to slide 14, I'd like to discuss our fourth quarter outlook for packaging solutions. EMEA price and mix are expected to improve by $12 million next quarter, primarily driven by continued box price realization due to the flow through and timing of prior price index movement. Turning to volume, we expect an increase of $12 million in the fourth quarter based on improved seasonality heading into the holidays and the start of the citrus fruit season in Morocco. In addition, we expect operations and costs to be $24 million unfavorable, primarily due to increased costs related to the seasonally higher volume. Finally, we expect favorable fiber costs to provide a $16 million benefit in the fourth quarter. All in, our fourth quarter EBITDA outlook for EMEA is approximately $230 million.

As I turn to slide 15 and as we discussed in North America, we are showing a bridge for EMEA. Similarly, that reflects the 80/20 progress and the anticipated EBITDA benefits we expect to realize in the second half of this year for our commercial initiatives. Building towards our 2025 EBITDA targets, we previously identified uplift from prior price index moves. Since then, the European market has been challenged by demand softness and there have been several price index decreases offsetting that original gain. Our current view includes known adjustments to the paper price index. As a result of the challenged macro environment in EMEA, we are taking action to accelerate our cost out initiatives. This quarter, we've proposed several closures across East Europe, the Nordics, and Italy, which are all subject to consultation.

Last quarter we announced a proposal to delayer and remove the regional overhead structure in Europe as well as consolidate from 13 to 7 sub regions. Consultation on this reorganization is progressing with an anticipated financial benefit occurring in 2026. Finally, we are launching our Lighthouse pilots in Spain and the U.K., similar to the model we rolled out in the U.S., with plans to expand across EMEA next year. I would also note that the input cost and other bar includes the additional month of DS Smith and favorable energy costs offset by inflation. Obviously, EMEA is not in the position we expected this year. While we have significantly improved our strategic positioning and competitive strength, market softness and negative price movements have made the start to the DS Smith acquisition challenging.

That said, we have an aggressive roadmap to improve profitability, invest in our strategic pillars, and position the business for long term success. Now let me turn it back over to Andy.

Thanks, Lance. I'm on slide 16 as we look ahead to 2026. We'll provide full year guidance on our next call at the end of January. The numbers on this slide show clear line of sight to the additional benefit of actions we have announced in 2025, which equate to $600 million of incremental adjusted EBITDA in 2026. The majority of the benefits already executed come from cost actions. We will see the impact from our footprint optimization, distribution, overhead, and sourcing initiatives as we realize the full benefit of our 2025 actions with approximately $500 million of cost carryover into 2026. We will also see incremental margin gains from known strategic commercial wins in North America and EMEA, partially offset by exiting the non-strategic businesses related to Savannah and Riceboro closures.

We have not included in this analysis additional upside potential for market growth, price, and future cost actions including productivity as we drive improvements in our North American mill system. Collectively, the actions we have already executed and actions we will take going forward are foundational to our controlling and shaping our future performance in a dynamic market environment. I'm on slide 17 as we finalize 2025. I want to share with you our updated transformation targets. There are a few key points. First, our execution is on track. We have taken decisive action in North America, and we are accelerating our execution in EMEA. Second, market headwinds throughout 2025 will likely persist into 2026. The soft market has cost more than $500 million in profit this year alone. Importantly, the profit opportunity remains. It is simply going to take a year longer to achieve.

We expect to capture the full opportunity by 2028. Third, due to the impact of the market softness, we are adjusting our targets for 2025 and 2027 compared to what we outlined at our Investor Day in March. Again, we'll offer full guidance for 2026 in January. With the market softness continuing in North America and EMEA, our revised full year 2025 targets are $24 billion of net sales, adjusted EBITDA of $3 billion, and free cash flow of -$100 million to $300 million. Our long term ambitions remain. IP has the ability to deliver on the targets we laid out at Investor Day. In the medium term, however, the softer market this year and into 2026 has delayed our progress. We can deliver $5 billion of EBITDA in 2027 and continue to accelerate our progress thereafter.

With our improving performance, cash on hand, and strong balance sheet, we will continue to invest aggressively in our transformation. I'm excited for the future as we retool International Paper through 80/20 and our strategic pillars. The team is doing yeoman's work across the company. We are committed to delivering on our transformation plan. Before we move to Q&A, I want to thank our IP team. Our people are working tirelessly to win together. We are on an important journey to realize our potential as the market leader, employer of choice, and value creator for customers and shareholders. Now, operator, let's open it up to questions.

Thank you. If you would like to ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star one again. As a reminder to ask a question, press star one. To withdraw your question, press star one again. We will now pause a moment to compile the Q&A roster. We do ask that you limit yourself to one question and one follow-up question. Our first question comes from the line of Mark Weintraub with Seaport Research Partners. Please go ahead.

Thank you. Congrats. Progress in a tough environment.

First question for me. I heard Lance's explanation in terms of kind of the opportunities in EMEA, but one thing I'm just trying to really understand is the difference between what you're going to be doing in EMEA versus North America and sort of two pointed or two points on that one. There was a lot of opportunity in North America to take out excess capacity that had developed in the system and you basically didn't have to walk away from any business. There wasn't the negative commercial impact that is related with Savannah. For a lot of the stuff done earlier, are there those types of opportunities in EMEA or is it more the second type where you know it's going to be improvement over time, tough decisions being made. Second, in North America there also had been commercial decisions made a few years prior that had hurt.

Essentially you're able to make changes. We've seen lots of benefit from that. Are there things like that in EMEA too or is that how's the commercial opportunity in EMEA different from North America?

Those are both great questions, Mark, thank you. On the cost front, it is a little bit different, right? We don't have the same kind of magnitude of excess mill capacity or paper capacity that we had in North America. That said, there's more capacity out in the field. If you think about the box system and underutilization in the box system, we did not have a ton of underutilized capacity in the box system per se. We certainly found it as we have implemented the Lighthouse model. Those two things were true in North America. In Europe, we definitely have excess box capacity as we look at the European footprint. On the mill side, what we have is a pretty considerable amount of our capacity that isn't going into the box business. We have to really look at the economics around that and make really good choices.

One of the things that's different in Europe than in North America is that complexity. Where we found a lot of complexity in North America was at the corporate center, as you kind of defined it, so call it the Memphis Corporate Center. That really then bled into the field, that added complexity from a product, from a customer standpoint, policies, procedures, investment flow, investment, those sorts of things that all still exist very similarly in Europe. Mark, the difference is it sits kind of in the above country structure. There's a very complex above country structure that we talked about last quarter, Lance talked about again this quarter that we've already announced and we're in consultation to address. What I would say is on a proportional basis that the cost opportunity is as large or larger.

Frankly, when you just look at the cost structure, the differences are a little bit in the buckets that we find. Lance, is there something you want to add?

Okay, excellent. Mark, does that answer that question for you?

Yeah, no, that's super helpful. Just one other follow-up in parks. I'm getting this asked from some investors wanting me to ask it. I'm going to ask it on their behalf. Is in the bridging to 2027, I guess we're kind of starting if we need like another $1.4 billion, if we have like the $3.6 billion run rate already identified.

How much of that would be cost? Takeout, commercial, and does commercial have to include some price now that prices have gone down in Europe, or how to think about that part of the equation?

Yeah, absolutely, Mark. First, I realized I didn't answer your second question, so let me get to that. On the commercial decisions, there are not those same magnitude of commercial decisions that have to be made in Europe.

The issue that we had in North America is that we had priced a number of contracts dramatically underneath the market. As you saw the different pieces, we reversed that both in terms of capturing the margin and now winning market share, which I think is very important. In Europe, we have some commercial challenges, but it's more of actually focusing the resource. We have an awesome set of resource in Europe around the commercial side in terms of customer focus, helping our customers through their value chain, and driving innovation. That's a real skill that we have in Europe. It's probably too diffused, and we've got to focus it more on those large key customers that we call our ads customers.

So that Mark, I'm sorry, remind me of the question you asked before that.

How much is cost and how much is commercial?

On a net basis, it's about 50/50. On a gross basis, as you imagine, it's more cost because you got inflation.

To your point, yes, there is some price baked into that. As we have said all along, we have an expectation that we would get to mid-cycle pricing in North America by 2027. We still believe that to be true. That's probably, I'm guessing, one price rev away and I would guess if you receive an improvement in the U.S. market, that's probably likely. We don't have that built into, as you saw in our bridge of 2026, we specifically didn't talk about benefits from market growth, from price, or from future actions that we haven't executed yet. We don't have any of that baked into that $3.6 billion that I just outlined to get to the $5 billion. Yes, we would expect that and we would expect a modest rebound in Europe. You see that being tested constantly. You've seen that be tested two or three times this year.

It's gone up and retracted a little bit. The bottom 25% of paper producers in Europe are in a very, very tough position right now.

On a cash basis, they're in a very tough position. I'm not foolish enough to believe that there's going to be some kind of mass decision making to take out capacity. You see a lot of resilience in terms of holding on by privately held long-term family companies. I'm not looking for a miracle there. We should be executing as we can. We would expect, however, modest price improvement over that timeframe.

Really appreciate the thorough and clear response.

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

Hi, thanks very much for taking my questions. Follow up on really the other side of that. North American box shipments comp positive in September, seemingly again in October is quite positive. You made the comment that you expect above market performance in Q4 and 2026. Could you maybe refresh us what kind of volume growth and volume performance versus market you've assumed in getting to the 2027 target?

Yes. All along we've assumed a pretty soft market. Right. Our assumptions going into this year were plus 1 to 1.5% in the U.S. We had more robust assumptions coming in Europe, which were disappointing so far. As we look forward, our expectation would be 1%-1.5% in North America and 1%-2% in Europe over time. As you know, Europe has a stronger secular trend around moving from other materials, plastics as an example, to fiber, and a stronger consumer component related to that. That's why you've seen kind of stronger growth over time in the European market. We would expect those trends to continue. Very importantly, when we sat and talked about adjusting our 2027 target, we all recognize that we've gotten some questions already on, hey, why did you do that? It just was obvious.

It was obvious that the $500 million that we've lost this year from the combination of volume and price, unless you expect a major pickup in volume to the tune of the U.S., you have to claw back a couple points additionally, and the same in Europe. Unless you expect that over a two-year period, those benefits are going to get pushed out. We thought it was appropriate to capture that and not kid ourselves or anybody else around that and focus on what we can control. Our expectation, Matt, is that we're talking the 1%-1.5% in North America and the 1%-2% in Europe.

Very clear. Thanks very much. Just as a second question, last for me, could you maybe just provide a bit of a perspective on the strategic rationale and high-level economics for the Red River conversion and what kind of returns you might be targeting with that investment? Thanks very much.

Yeah, you bet, Matt. On relative to Riverdale, importantly, we mentioned it in the script, but the decision on Savannah, as you looked at that, right, we had all the economics that screamed about Savannah and why we didn't want to put an incremental $300 million into that. The opportunity at Riverdale was really around moving to lightweighting, as you know. That's about a $250 million investment, plus or minus, and we would expect near 20% returns on that. It's a really attractive spin from a business that for the long, for a very, very long time and indefinitely was going to be under its cost of capital to a business that has an attractive future and attractive return on capital.

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

Hi. Thanks for taking my call. Thanks for all the details and congratulations on the progress. Andy, I guess first question I had for you. If we look at the change in the guidance for this year and we appreciate the update, the free cash flow number for us from our vantage point moved a decent amount. I think it was a $1 million-$300 million positive for the year and it's now a comparable deficit. What were the primary areas in terms of the movement there? Was it just purely the cost actions that you took at Savannah, et cetera, that moved that, or were there other factors there? I just want a clarification on the answer you were giving to Mark earlier. As we think about the commercial and the cost out targets that you initially had in your March guidance and now in the current guidance, have those figures actually changed or are they still the same? I had one follow on.

Let me do the second first. No, those have not changed. That's consistent. On the second question, on the first question, cash flow, it really is vastly the slowdown in the market.

That $500 million, if you look at the $500 million of profit, actually it's a little more than $500 million of profit that we would have expected to have captured if the market had been at the expectations we talked about at our investor day. We would be right on, if not a little bit better, on the cash flow from a cash flow perspective. It really is attached to the market. There are some incremental costs that are higher than we expected because we've been more aggressive in terms of timing of some of the actions. It's not a giant number, it's not a huge number. On a relative basis, it's probably $50 million--$100 million more than we had expected to spend. Importantly,

We have a decision to make and I've made that decision, which is not to back away from the transformation plan. We have the balance sheet, we have the proceeds from GCF, we've sold a number of smaller businesses, we have the operating improvements that we have. I think it would be a fundamental mistake to slow down our transformation by pulling back on CapEx. I really do believe that. As long as we're in the area that we're in, we need to move at full speed. You're seeing exactly what happens when we get this right in North America. It's not linear, it's not perfect. It's not going to be perfect and it's not going to be linear.

The level of improvement that we can drive in this business when we get the asset balance correct and we are investing in the commercial front end of this business, you can see what happens if you just kind of put North America in perspective. You go back a year ago. We were losing market share, we were getting crushed on volume and we were seeing declining incremental margins.

Therefore, we were cutting capital. We were in a spiral that you cannot be in, in a business. We have reversed that spiral in 18 months. I mean, I am incredibly proud of that. Team EBITDA is up 40% year-over-year through the third quarter, 40% year-over-year. We've gone from losing market share to winning market share, and we will finish this year above our cost of capital in North America. That's a pretty awesome turnaround. Europe will be harder. I'm not a Pollyanna.

There's more hard work to be doing. It takes longer and it costs more, but the playbook is the same. We're going to go after it and we're going to stick to this. That's critically important.

I guess my second question, and it's kind of a two-parter, but they are tied together. You did see, and congratulations to you at least in the results, in terms of a pickup in box shipments in September. You're looking for the positive in the fourth quarter, as you mentioned. What's been driving that? Are there any particular end markets where the new IP approach is particularly gaining traction as we're seeing it? The related question, bigger picture, if I look at the results you've put up and that some of your peers have put up now, the narrative is everyone is, I shouldn't say everyone, but individually, each of the companies is really trying to produce to market. You're seeing your margins do fairly well, you know, 17% or better.

There's a lot of volume being sort of reintroduced back into the market, which means there's another portion of the market that's really not earning a very high margin. Is that a comparatively good place for IP shareholders to be in, or relative to where you were back in March, a more dangerous place for IP shareholders to be, where there's a lot of players out there with a lot of volume and not necessarily a lot of margin? Thanks and good luck in the quarter.

Thank you. There was a lot in that question. If I miss it, help me out here a little bit. We know where to find you. Yes, thank you very much. Relative to what's going on in the marketplace, first of all, we don't comment on competitors ever. That's just not a good thing to do, so we won't do that. Everyone's got to make their own choices. Relative to our perspective in terms of right sizing ourselves and focusing on the right kind of markets, we think we're getting the balance correct there. In terms of the things we're trying to utilize, our strengths in the marketplace, where we are winning over market is really on select initiatives around very specific customers in those markets that we find attractive. As you imagine, we touch pretty much every market by just our sheer size and scale.

We tend to be, I'm going to call it, medium sized to larger customers. That tends to be, but we have lots of great smaller customers all over the world. Our strength in fruits and vegetables and protein has absolutely shown up. We've gotten highly engaged on strategic customers. We're just putting a lot more time, energy, and resource into those customers that we believe are critical to our future. I'm not going to go into the specifics around those, but it really is customer centricity. It's about putting resource on the most attractive customers that fit our business model. To your second question around what's happening in the overall marketplace and margin, again, I'm going to speak for us and not speak for anybody else. I think what's happened in the industry collectively is at times people have chased the incremental cash benefits of getting incremental volume, right?

In our world, if you've got excess capacity and you're sitting on fixed cost and you bring in something, we sit in North America as an example, we sit at a 65%-70%, what I call material margin. Think of contribution margin not including direct labor. That means that the next dollar in on our average piece of business comes in at $0.70 or the next dollar out leaves at $0.70 of profit either way. Even if a competitor picks it up at 20%, at 20% off, and they pick up 50% in the very short term, that sugar high feels good, right? You see that and you've seen that play out a lot over the years. I've looked at this a lot, kind of how people have played this. What that does is it stops us and others from actually doing the right thing.

That means that eventually that business that you bring in has to be invested in. It's going to require capacity, it's going to require investment at some point, and all of a sudden that sugar high goes away and then that kind of gets passed around. What we are doing is we are having the discipline to not do business in that way. What other people do is up to them. We are going to have our own discipline to go after markets that can earn an attractive return on capital. Importantly, in that, the three pillars of our strategy really matter in concert. Number one, to have an advantaged cost position, a huge piece of what we're doing is driving cost out of this system. We have an advantaged cost. That does not mean that we intend to sell at the lowest price.

What that means is we have optionality for margin expansion and reinvestment that competitors can't. If we have a lower cost position, second, around customer-to-customer experience, we just talked about that. We're invested heavily. We've added 22% more salespeople this year than we had last year. We changed our pay for performance, we've changed our innovation process. All of those things are around really driving that customer experience. That's backed up by major improvements in quality and on-time delivery that our customers are noticing. Finally, we want to have a relative strength in the markets that matter to us, and we're going to invest in that. If we do that, we will have discipline. If other competitors decide that they need to get their house in order, that's for them to decide.

Okay, Andy, I appreciate it. We'll turn it over. Good luck in the current quarter.

Our next question is going to come from the line of Mike Roxland with Truist Securities. Please go ahead.

Thank you, Andy, Lance, Mandi and Michele for taking my questions. Congrats on all the progress in a difficult environment.

You on the closures of Riceboro and Savannah. Can you help us understand the EBITDA benefit associated with those closures? When I look at previous closures like Orange and Red River, you guys called out specifically the adjusted EBIT or adjusted EBITDA benefits associated with those mills. I don't believe anything was highlighted in your recent SEC filing for those mills. That's question one. Question two, are you now at a point in your U.S. Mill system where you can't reallocate tons and need to actually make mill investments, such as what you're doing at Riverdale? What I'm trying to get at is if you can't reallocate the tons from Savannah elsewhere in your system, then there might be a negative EBITDA impact in 4Q and maybe early 2026. Any color you can provide would be helpful.

Yeah, you bet. Let me do this, and then, Lance, if you want to add some color to it, please do. Let me talk. I'm going to split Savannah and Riceboro because they're different. Savannah was primarily, principally shipping into the export market and what I would call the low value piece of it, which was effectively an outlet on volume. When I look at that and you look at it over a cycle, we did a ton of work on this. What you see is that at some point in the cycle, you are making positive cash. You're actually creating cash, but through the cycle, you are not.

International Paper (IP) Q3 2025 Earnings Call Transcript

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