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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 2026 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, please press star one on your telephone keypad. To withdraw your question, press star one again. As a reminder, to ask a question, please 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. Good morning and good afternoon, everyone, and welcome to International Paper's Third Quarter 2026 Earnings Call. Our speakers this morning are Andy Silvernail, Chairman and Chief Executive Officer, and Lance Loeffler, Senior Vice President and Chief Financial Officer. Before we jump in, please note that this quarter, in light of the planned separation of the EMEA business and the subsequent U.K. regulatory requirements, we are no longer including our existing Packaging Solutions EMEA U.S. GAAP financial guidance in our guidance framework, and do not anticipate providing such guidance in the future. The EMEA management team will provide more information at the DS Smith plc Capital Markets Day on November 3rd. This will include details about the business model, growth strategy, and financial outlook following the separation. I'd also like to remind everyone 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. Information about these risks, uncertainties, and other factors that could cause actual results to differ materially from our 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. Reconciliation to U.S. GAAP financial measures are available on our website, along with our third quarter earnings press release and today's presentation slides. Now, let me turn it over to Andy Silvernail.

Thank you, Mandi. Good morning, good afternoon, everyone. Let's begin on slide three. In the third quarter, we improved execution and delivered an important inflection in earnings in an environment of weak consumer confidence and rising inflation. Our focus is to control what we can control and execute the three pillars of our strategy: an advantage class position, superior customer experience, and a high relative supply position in the markets we serve. In North America, we made meaningful progress improving productivity, particularly across our mill system. Better execution helped us deliver results above expectations and offset persistent inflation as we continue to serve customers and strengthen our position in the market. Given performance to date and expectations for Q4, we expect to outpace industry demand by approximately two percentage points for the full year. In terms of improved execution, Pine Hill is a tangible example of our progress.

We completed the roof repairs and restarted the mill ahead of schedule. The team's disciplined work and the commitment to safety allowed us to restore operations safely, limit disruption across the mill system, and minimize the impact on customer box shipments. I want to thank everybody involved. Great work. Packaging Solutions EMEA also improved sequentially, although results were below our expectations. Natural gas costs rose sharply and consumers remain cautious. Realization of previously published paper price increases are on track and cost-out actions help mitigate rising input costs. We are also advancing preparations to separate the EMEA business, which I'll discuss later in the call. Across both businesses, the progress is encouraging, but there's more work to do. We expect the current market conditions to persist in the fourth quarter and into 2027.

Our priorities remain clear: execute with discipline, manage what we can control, and strengthen the three pillars of our strategy. I'm on slide four. Let me spend a minute on demand in North America. Our box shipments declined approximately 2% year-over-year in the third quarter, one point better than our estimate of industry demand. In the quarter, we experienced headwinds from the disruption in the West Coast fresh fruit and vegetable business and softness in protein that have come from smaller livestock herds, inflation, and a strained consumer. In the fourth quarter, we expect to continue to grow above market, along with modest recovery in West Coast agriculture, and we expect to see the traditional seasonal increase. We expect to outperform the industry by more than 1% in the fourth quarter and by approximately 2% for the full year.

With that, I'll turn it over to Lance to discuss third quarter results and outlook in more detail.

Thanks, Andy. Turning to slide five and our enterprise results for the third quarter. Revenue improved sequentially, primarily through realization of previously published price increases. In EMEA, softer demand and a challenging macroeconomic environment continued to weigh on sales. Earnings and margins improved significantly from the second quarter. In North America, the main drivers were price realization, lower planned outage activity, and the absence of spending associated with the now-completed Riverdale machine conversion. Higher-than-expected inflation and softer demand partially offset those benefits. In EMEA, we continued to face softer demand and rising input costs. The team responded by accelerating cost-out actions, which helped mitigate the impact of these pressures. Third quarter adjusted EBITDA increased to $843 million, including $37 million of corporate expense. Of that expense, $30 million was attributable to higher insurance costs.

Our adjusted EBITDA margin improved nearly 400 basis points sequentially to 13.6%, and adjusted operating earnings per share was $0.37. Despite the improvement in earnings, free cash flow was -$267 million in the quarter. This reflected cash payments for the second quarter's heavy maintenance spending, annual interest payments on legacy DS Smith debt, and an inventory build following our planned outage season. For the full year, we expect to generate free cash flow of approximately $100 million-$200 million. Turning to slide six, Packaging Solutions North America increased adjusted EBITDA by 56% sequentially. Price realization and stronger operating performance drove the improvement despite softer demand and higher input costs. Price and mix were $141 million favorable, reflecting faster realization of previously published price increases announced through June. Volume was $46 million unfavorable.

The benefit of one additional shipping day was more than offset by softer demand, including food safety-related disruption in West Coast agriculture, weakness in protein, seasonally lower daily demand, and lower exports. Operations and costs were $85 million favorable. Improved mill efficiency was the key driver. Initial benefits from the Riverdale ramp-up and the absence of spending associated with the completed machine conversion also contributed. We also experienced additional benefits from a full quarter of NORPAC earnings, our 80/20 strategic initiatives, and lower ongoing mill costs. Inflation was higher than we anticipated during the third quarter. Higher diesel, OCC, and energy costs drove a $55 million unfavorable impact on input costs. The temporary Pine Hill shutdown had a $20 million unfavorable impact in the quarter, including roof repairs and business interruption that were partially offset by insurance recovery. We received most of the expected insurance recovery during the quarter.

In total, Packaging Solutions North America delivered $663 million of adjusted EBITDA in the third quarter. Moving to our fourth quarter outlook for Packaging Solutions North America on slide seven. Price and mix are expected to be favorable, driven by the continued realization of previously published price increases. The September published price increase is expected to begin flowing through late in the fourth quarter based on our normal realization patterns. Volume is expected to be favorable as seasonally higher daily demand is expected to more than offset two fewer shipping days. Operations and costs are expected to be slightly favorable sequentially, supported by the continued Riverdale ramp-up, NORPAC synergies, and the absence of the third quarter Pine Hill expense. As a reminder, we also expect this to be the final quarter of Ixtac insurance proceeds, as those benefits will not repeat in 2027.

Seasonally higher labor and employee medical benefit costs are also expected to partially offset these benefits. Our outlook assumes continued inflationary pressure, with input costs expected to be unfavorable, primarily driven by higher diesel and OCC costs. As noted in the footnotes, our diesel assumptions reflect futures market pricing and US Department of Energy projections published as of September 29th. These items result in an adjusted EBITDA outlook for Packaging Solutions North America of approximately $700 million-$740 million for the fourth quarter. Moving to slide eight, I'd like to take you through our updated full-year 2026 outlook for our Packaging Solutions North America business. The third quarter improvement was meaningful and our execution confidence and output is improving, but higher inflation and weaker volume expectations have reduced our full-year outlook. Our full-year adjusted EBITDA outlook is moving to $2.27 billion-$2.31 billion.

Since our second quarter call, incremental headwinds of approximately $145 million have emerged. The largest drivers are higher diesel fuel and distribution costs, along with increased volume pressure. Those headwinds also include approximately $20 million from the third quarter Ixtac event, net of insurance recovery, which was not included in our prior outlook. The balance primarily reflects higher employee medical costs and an outage move from the first quarter of 2027 into the fourth quarter of this year. Partially offsetting these headwinds is $35 million of price benefit from faster realization of the June increase and partial realization of the September increase. Together, these items reduce the midpoint of our full-year North America packaging outlook by approximately $110 million. Our 80/20 initiatives remain on track.

We delivered a significant improvement in the third quarter and expect further progress in the fourth quarter from productivity gains, the Riverdale ramp-up, and NORPAC synergies. Many of these actions supporting that improvement are already complete and contributing to results. That execution gives us confidence in the expected fourth quarter step-up even as demand and inflation remain challenging. Turning to Packaging Solutions EMEA on slide nine, third quarter results improved sequentially but were below our expectations, reflecting continued softness in market demand and persistent cost inflation. Price and mix were $27 million favorable sequentially, primarily reflecting the pass-through of previously published paper price increases and higher prices on external paper sales. Higher paper costs pressured box margins, partially offsetting these benefits. Volume was $32 million unfavorable sequentially as demand across the business remained soft and fell below our expectations.

Operations and costs were $76 million favorable sequentially, reflecting cost-out actions, tighter management of controllable costs, and lower variable costs associated with reduced volume. Input costs were $39 million unfavorable, primarily due to higher energy costs. All in, Packaging Solutions EMEA delivered $210 million of adjusted EBITDA in the third quarter. As a reminder, considering the planned separation of the EMEA business and the subsequent U.K. regulatory requirements, we are no longer including our existing Packaging Solutions EMEA U.S. GAAP financial guidance in our guidance framework and do not anticipate providing such guidance in the future. I will now turn the call over to Andy to provide an update on the separation planning. Andy?

Thanks, Lance. Turning to slide 10 and to the EMEA separation. We are advancing the EMEA separation and are on track to finalize execution. Earlier this month, we issued a press release confirming that we are evaluating a potential sale while continuing the spin-off work in parallel. The release was issued in accordance with U.K. requirements. As a matter of practice, we do not comment on ongoing M&A discussions, so I will not elaborate further beyond what we have already disclosed. Work on the potential spin-off is progressing well. Under that scenario, we expect both companies to have investment-grade credit ratings, tailored investment and capital allocation strategies, and compelling financial profiles. We plan for International Paper to retain approximately a 20% stake in the independent company, DS Smith. Regardless of the path we ultimately take, we are moving swiftly forward with the separation.

The progress reflects tremendous focus, discipline, and commitment of the teams working on the separation. I want to thank everyone involved for the excellent work they are doing to prepare both companies for success. As noted earlier, on November 3rd, the EMEA management team will host the DS Smith Capital Markets Day, providing a deeper look at the business, its growth strategy, and its financial outlook following separation. This will be an important opportunity to showcase how DS Smith is preparing for the next chapter. Let me close on slide 11. Our third quarter improvement is meaningful and the trajectory will continue this year and next. Across both regions, we have lowered structural cost, eliminated inefficient capacity, and invested to improve our customer experience. We have made substantial progress, and there is more to do.

In North America, we expect further improvement in the fourth quarter and throughout 2027 as cost reductions, productivity gains, and price realization help us offset inflation. We will continue to simplify the business, invest in customers, and build strength in our most promising markets. The upcoming separation creates the opportunity for two focused regional packaging leaders. EMEA will continue to focus on its self-help story with a step function change in cost position and investing to leverage in its market position and customer relationships. The new International Paper will drive significant improvements in profitability and returns in Q4 and in 2027 by building on the progress we have made in cost transformation and commercial depth and breadth. Following the separation, we will share more details on our financial outlook, capital allocation framework, and strategic priorities.

Our confidence in future profitable growth is grounded in what we have accomplished and the actions already underway, not an assumption that the environment will get easier. We will be disciplined in execution and focused on creating lasting value for customers, our teammates, and shareholders. With that, let us open the call up for questions.

Thank you. If you would like to ask a question, simply press star one on your telephone keypad. To withdraw your question, again, press star one. As a reminder, to ask a question, press star one. To withdraw your question, again, press star one. 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. Your first question comes from Phil Ng with Jefferies. Please go ahead.

Well, Andy, great progress in 3Q in terms of the operations and commercial side of things. That is pretty encouraging. But in terms of the outlook, what are you seeing in terms of what your customers are saying, whether it is in North America and Europe? Appreciating 3Q got impacted by some of the ag dynamic, but have you seen that kind of bounce back? Just curious what kind of trends you are seeing in October, November, and the opportunity on the commercial side, perhaps, to win some new business in 2027 for North America as well.

First of all, good morning, Phil. As I look at North America, what I would say is the market is stable. If I think sequentially, the market is generally stable. We expect it is going to take some time to work through the fruit and vegetable issue on the West Coast. What I mean by that is, obviously, you are starting to see demand

At the consumer level picking back up, but that will take its time to work itself all through the supply chain and then the growing season into next year. So it will take a little bit of time there, but we do not see any big issues. Protein was a little soft, and if you look at the beef folks as an example, they are getting squeezed right now. Consumers appear to be trading down. We are seeing that certainly in the marketplace. You are seeing softness there, but generally, I would say, pretty flat sequentially. Across the board, the biggest issue, both on the inbound side and hitting the customer, is inflation. That is the thing that they are wrestling the most with. Obviously, we are wrestling the most with input costs, and we are now seeing price flow itself through and becoming positive there. We expect that to continue.

In Europe, it is much the same, just more volatility. I think that is just fair to say. More volatility on the input costs and more volatility that the customer is experiencing in the marketplace. Everyone has seen the news of what is going on over there. So there is hesitancy in the marketplace. But generally, North America, pretty flat sequentially. Europe, very modest uptick that we have seen thus far in October, but I would not say anything to get real excited about at that stage.

Okay. Helpful. In appreciating some of the dynamics you are seeing in North America is timing, right? You have got a pretty good box price realization in 3Q and that will continue to build. I think at one point you were talking about aspirationally 20%+ type EBITDA margins in North America. Is that still a realistic goal for 2027 given the pricing you have realized already? Or do you need more help on that for it to get to that type of profitability in that business?

Yeah. We are not doing anything in terms of guidance for 2027 at this stage. I think that is prudent given what we are seeing happening with inflation in the marketplace. But I think the trajectory that we are on and our ability to get to something with a two in front of it, I still very much believe that that is possible in the business. Just across the board, we are starting to see traction operationally, which is really good. If I go back in time, really throughout this entire year in the mill system in particular, it has been clouded a little bit with a couple events in terms of the ice storm and with Pine Hill. But if you look at the underlying operational improvements over the past year, the team has just done a terrific job and we are now seeing that momentum.

If I think back to this time last year, we were talking about a lot of the issues that had been consistent in that mill system from under-investment, and we are seeing fewer of those. They are not zero, and I do not expect them to be zero because the investments take time to build, but I really like what we are seeing there. If you look across the entire system, in the U.S., we have closed 20 facilities in total, box plants and mills. We have really lost no business along that process, and in fact, we have won business. Most importantly, we are seeing the kind of productivity that we talked about in the second quarter and the first quarter.

We saw it again in the third, we believe we are going to see it in the fourth, and we will see it significantly into next year as we lap some of the big projects that we did this year as we bring up NORPAC, as Riverdale continues to ramp. We feel good about the trajectory that we are on in terms of margin improvement.

Okay. Appreciate the color, Andy. Thank you so much.

Your next question comes from the line of Mark Weintraub with Seaport Research Partners. Please go ahead.

Thanks. Andy, you sort of got in front of my question a little bit, saying you do not want to provide any guidance for next year, which I understand. Everybody is trying to work that out. So maybe the controllables and as we think about, obviously, where costs go, that is very hard to predict. But we still have a lot of the flow-through from price. Is it fair to say that you do not have a lot of the September increase baked into box prices for the fourth quarter?

And I think you mentioned Riverdale, you mentioned NORPAC as something that can continue to ramp higher. Are there other things in terms of actions you've done and/or have already signaled that we should be contemplating in terms of what can drive earnings higher next year in North America?

Yeah. Mark, it's not kind of big nameplate things like facility closures that we've mentioned in the past, but we're now moving to really aggressive reinvestment in productivity. And that's what we're seeing show up now. And so our expectation is that we are going to be delivering kind of trend line productivity here into 2027 and feel very good about that as I think about the investments and the costs that we've had in 2024, 2025, now 2026. We're definitely seeing that ramp in productivity. So you should not expect to see, again, big nameplate things, but you should expect to see meaningfully above trend line improvements in productivity.

Yeah. I'd also add, Mark, that next year, too, will also be the continuation of eliminating the tails on that operating cost for the facilities that we have closed as we continue to-

Sell the real estate and actually fully exit a lot of those decisions. That will continue as well. Those layers mean a lot, maybe not in isolation-

But as you stack up 20 of them on a monthly basis, it's a meaningful number. We expect to make significant progress in that area, too.

Okay. That's helpful. Just maybe if we think about, I guess you're really not talking about Europe at all, but as that process happens, is there anything on the corporate expense side as you run North America separately that we should be thinking about that would change in 2027 versus 2026?

Yeah, Mark. There's an extensive part of this that's aimed at watching the stranded costs and eliminating those as we go into the course of next year. So that's something that we have been focused on, that we're planning for, and that we will continue to execute so that those stranded costs don't become a weight on the new IP. Yeah.

Let me finish. That would also include the impact of GCF too, remember. We sold GCF earlier this year. It is a combination of the stranded costs associated with carrying GCF and our European business.

Yep. We will give more specific guidance when we execute the separation, whether it is a spin or a sale. We will have more information for everybody to help you with the modeling more specifically.

Your next question comes from the line of George Staphos with Bank of America. Please go ahead.

Hey, everyone. Good morning. How are you? Thanks for the details. Understanding that you are not going to guide on 2027, I wanted to come back a little bit to maybe some of the individual buckets in terms of the bridge, and in particular, let us call it the 80/20 cost piece or productivity piece as we look out. Is there a way to size what, in North America, that benefit was this year, 2026, and what it could look like in 2027? And what the ongoing cost inflation that you have got to hurdle every year might look like and what it looked like this year?

Yeah, I think so, George, if you look at everything we've published so far to date, including the third quarter today and the expectations on the fourth quarter, if you go back and put those bridges together, that will answer the first part of your question really explicitly.

But I just want to get at. But in 80/20, you do include some commercial, I think. Just on the cost outside of it, where I was going with that, Andy.

I think that's trying to parse it too finely, right? Because you really need to look at cost as a total. I would break it down between input costs and structural costs, and that's how we have it broken down by line item in the decks. You can see kind of all that. To ascribe a specific number to a specific action, I don't think is the right thing to do because these things are tied together in all the different work that we're doing. As is specific to 2027, again, we'll guide 2027 when we do the fourth quarter call at the end of January.

Okay. Appreciate the thoughts on that. Let me try a different area or topic. Looking to the fourth quarter, you guided to what you should do from a volume standpoint in North America and where you think the market is, and you are dealing with significant inflation and raising pricing, and we understand that point. What impact do you think is occurring to your volume or maybe the market as a whole from the impact of pricing on demand? As you think about the next couple of years in North America from a demand standpoint, what do you think the algorithm looks like? If traditionally we grew 1.5%, how much do we shave off because of inflation at the consumer level or GLP-1s? What can that growth rate look like given all the work that you are doing to try to raise pricing, understandably?

Thanks, George. Appreciate that. A few things in there that I think are important. Number one, I think the question is what do we believe kind of the long-term demand profile looks like in the business? Our view is it is somewhere in the neighborhood of a half a point to a point of volume growth. That is our view. Right now because of the inflation that is out there and the pressure on that mid-level and lower-level consumer, we expect the markets to be pretty flattish. That is our expectation as we stand here right now. But they certainly are pressuring it. If you think about that K-shaped economy that all of us have talked about so much, the bottom of the K is hurting. There is no doubt about it. And those folks are making really specific choices about their goods purchases.

I think, as I kind of think about the near term, the next quarter into the early certainly part of 2027, all indicators would say that folks are going to continue to be under pressure as we think about elevated energy costs, whether it is oil, it is natural gas, right? It is diesel. You pick it. There is no reason at this stage to believe that that is going to fall off in a meaningful way, and that is how we are planning the business is to expect that we will be living in an elevated level. To be clear, right? The gyrations around the energy equation have been really incredible since February. If you go to look at the ups and downs, and obviously we are all reading the news and hearing about what may or may not happen post-election in the Gulf.

Obviously, we have no control over that, but that volatility is what we are managing, and I think managing quite well, actually. But I expect there to be continued pressure on the consumer-

Which will create pressure on the customer. We need to continue to drive cost out of our system and raise prices appropriately as the market forms and how we think about the business. That is how I would characterize it.

Well, we would have liked a little bit more color on the cost outs. You are certainly doing a really good job on that, both in terms of EMEA and North America.

You did a great job there of managing against that and-

We will mark the progress in 2027. Thanks very much.

Your next question comes from the line of Detlef Winckelmann with JPMorgan. Please go ahead.

Hi, guys. Good morning. Maybe to start just with your free cash flow guidance that you have given us. I know it is now down to, call it, $100 million- $200 million. Are you able to talk through the moving parts? Because if I am looking at it, obviously we have got an EBITDA line item, we have got tax and interest, we have got your CapEx guidance, but there still seems to be a bit of a gap of, call it, I don't know, $300 million- $400 million. Is that just working capital? Anything else I might be missing on that side? Then I have got one follow-up, if you don't mind.

Yeah. I think that is the one filler. For us, particularly in the third quarter, what you saw in our free cash flow number was the catch up on inventory and the build that we have been trying to. That did not happen. Remember, we had a huge turnaround quarter in the second quarter. Normally, we would be preparing for that and building inventory in the first quarter. We were unable to do that because of the winter storm. So the third quarter is really the catch-up quarter for us from an inventory perspective. So working capital was a big draw. As you think to the fourth quarter, two perspectives, Detlef.

One is the outlook change, which is I'd say fundamentally driven off of the direct result of the lower earnings outlook for the business for the year based on the things that we've already discussed on the call. In terms of cash flow itself for the fourth quarter, I would characterize it as stronger operating results, generally speaking, with a big working capital swing back to the positive, now that we've got that inventory build behind us. This will probably be the lowest CapEx quarter for us for the year. All those events sort of combined a much stronger free cash flow profile in the fourth quarter.

Okay, great. Thanks. Maybe just one technical question in terms of EMEA. Nothing regarding the outlook, just in terms of where do you have your carrying value for EMEA now? My calculations are saying it's about $3.6 billion, but I just want to confirm.

No. Let's get back to you to make sure we get that accurately, but that number's going to be very low. Yeah.

Your next question comes from the line of Anthony Pettinari with Citi. Please go ahead.

Hey, just following up on CapEx. I understand you're not giving guidance on 2027, but as IP becomes kind of North American standalone, I was just wondering if you could kind of talk about sort of the CapEx needs of the North American business as you see it. At the Analyst Day, I think you gave kind of a 6.5% of sales kind of-

Benchmark out there. But I'm just wondering how we should think in the future about where you are from kind of a CapEx cycle perspective.

Yeah, Anthony, I think the 6.5% you're remembering was specific to Europe, to EMEA. We've said that we're going to be elevated in North America here for a couple more years. I think that the range that we're in right now, we should expect to see this year, next year, and we'll figure out 2028 based on the capitalization needs and the opportunities. But I would say generally, the range that we're going to have this year will be similar in 2027 for North America.

Okay. That's very helpful. Then just as a follow-up, I don't know if I missed this, but how much of a headwind was West Coast ag on volumes in the quarter? Did you mention how volumes have been in October from a North American box side?

Yeah. We haven't broken out the impact of West Coast ag specifically. We've just noted it in more general terms. We see it within our book of business customer by customer, so we can kind of see it like that. But we haven't aggregated it as a singular piece and said it's X percent. So we haven't broken that out to that discrete a level. As you look right now, what I would say is, look, things are generally kind of similar in the U.S. as I look through the month. It just doesn't look a whole lot different. It feels like the consumer and therefore the customer is generally cautious in dealing with inflation.

The next question comes from the line of Hillary Cacanando with Deutsche Bank. Please go ahead.

Hi. Thank you for taking my question. In terms of pricing, when would you expect to have substantially all of the September price increase reflected in box pricing?

Yeah, Hillary, this is Lance. For us, it is probably fully realized, it is probably the beginning of Q2, end of Q1, something like that. Takes us about four or five months to fully realize and work it through.

Got it. Thank you. In terms of the expectation to have outperformance versus the industry, is it primarily share gains or is there like a mixed component there as well?

It is mostly share gains. So it is business that we have won in prior periods that are now flowing through between large and small customers. So it has been pretty consistent there.

International Paper (IP) Q3 2026 Earnings Call Transcript

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