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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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Q4 2024

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

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International Paper

international paper

Good morning and thank you for standing by. Welcome to International Paper's 4th Quarter 2024 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. And it is now my pleasure to turn the call over to Jose Maria Rodriguez Mace, Vice President, Investor Relations.

Thank you, Christa. Good morning and good afternoon, and thank

you for joining International Paper's 4th quarter and full year 2024 earnings call. Our speakers this morning are Andy Silvernet, Chairman and Chief Executive Officer and stepping in today for our Chief Financial Officer, Tim Nichols, who is in London for DS Smith Day 1 is Finance Vice President, Mark Nellison. 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 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. Our website also contains copies of the Q4 and full year earnings press release and today's presentation slides. And finally, I would like to note that all financial materials in these presentations reflect only the current IP portfolio.

Thank you, Adai, and congratulations on your new role as Vice President of Investor Relations, and congratulations to Mark Nellison who's moving from IR to the lead financial role in our North American Packaging Solutions business. And Mark, thanks for pinch hitting for Tim as he's getting us ready here for day 1 with D. S. Smith. With that, good morning and good afternoon everybody.

I'm going to begin on Slide 3. I'm excited to share that today D. S. Smith appeared before the court in the UK to get final approval and we officially expect to close the D. S.

Smith transaction at the end of the day tomorrow, U. S. Time, Friday, January 31. As you know, last week, the competition authorities of the European Commission approved the proposed acquisition of DS Smith by International Paper with conditions. The EC identified minimal concerns about the acquisition's impact on competition in certain areas.

To resolve those concerns, we have agreed to divest 5 box plants in Northern France, Northern Spain and Portugal within the next 6 months. We would have preferred to retain all facilities in the IP family and we truly appreciate the contributions for the team and the team members of these 5 plants. We're committed to identifying suitable buyers who can offer a viable future for these teams. Each of these locations is attractive and we expect significant interest from potential buyers. I'm looking forward to welcoming Dia Smith to IP on Monday, February 3.

Together with our customers, we're creating the global leader in sustainable packaging solutions and we're focused on the attractive and growing markets in North America and EMEA. I'm excited about the potential to unlock value for our stakeholders. We'll do a deep dive on the path forward for DS Smith at our Investor Day in March. Now transitioning to Slide 4. We are building a performance driven customer centric culture at IP to fill our purpose, a culture that will enable us to create significant value for our employees, customers and shareholders.

That work begins with strong alignment around a very clear and compelling strategy and that strategy stems from our mission and our values of safety, ethics and excellence. Most importantly, our teams will put safety above all else. We will drive profitable market share growth by being the low cost producer and the most reliable and innovative sustainable packaging provider in North America to EMEA. A disciplined eightytwenty mindset will permeate everything we do. By focusing on the critical few, we are aligning resources, reducing complexity, removing costs and delighting customers.

These efforts are all focused to deliver superior value for all of our stakeholders. I'm now moving to Slide 5. We're making progress and taking actions on our path to achieve $4,000,000,000 of EBITDA medium term. This does not include the D. S.

Smith base earnings or synergies. Again, we're going to talk about those things in detail at our Investor Day in March. As I've shared in the past, roughly $1,200,000,000 of the improvement that we are targeting is going to come from cost out. This number is net of inflation. So the way to think about it is that we have to take out roughly $1,600,000,000 of cost.

As we've talked about on the Q3 call, we started to do the heavy lifting and we're making the right choices to take cost out of the system. Those impacts will ramp up through the year with actions already announced and more to come. We've zeroed up the corporate organization, we're aligning resources to the businesses and we're having a lean, effective and efficient corporate staff. As a result, we expect our costs will be reduced by $120,000,000 annually. We have taken the difficult actions to close 5 box plants in our global cellulose fibers mill in Georgetown.

We estimate that these combined will remove roughly another $110,000,000 of cost from our run rate. As I mentioned last quarter, there are 2 regions where we're doing eightytwenty pilots. We're now calling these lighthouses. We have delivered 20% plus productivity gains and we will scale that optimization method to another 22 box plants in 2025. As we look into 2025 and beyond, we'll continue to be laser focused on improving reliability at our mills and optimizing our mill and box system so we deliver structural cost reduction.

In 2024, our operating performance and lack of productivity cost us $350,000,000 unlocking this performance will free resources, allow us to optimize our overall structure and drive profitable growth. We are also speeding up capital investment opportunities that we believe will deliver significant cost reduction. And to that extent, we have initiated a complete overhaul of our capital investment process to simplify and significantly reduce from time from idea to execution. If we turn to the commercial improvements, we expect these commercial improvements to contribute roughly $800,000,000 to our $4,000,000,000 target. Our go to market value over volume reset is essentially complete.

We expect the final unfavorable impact to volume to be behind us later this year. Volume has tracked to our plan for the past 3 quarters and since we started looking at January and we have a clear pipeline forward. We have developed a new compensation plan for our sales force to better align incentives to strategy. This plan will also support our goal of attracting and retaining the best commercial talent in the industry. We continue to add new sales associates as we enhance our commercial capabilities and move to a customer centric culture.

This renewed focus on customer experience has already resulted in significant quality and on time delivery improvements in our packaging business, which is validated by both internal and external data. This is true in general across the overall business and specifically at our eightytwenty lighthouses. We also have an ambitious pipeline of capital projects that both facilitate the regional optimization of our box system and deliver profitable market share growth. And I'll share an example here on the coming slide. Before we move on, let me say that I'm proud of our team and the solid progress we're making.

We have a lot of work to do. There's absolutely no doubt about that. But the fundamentals in place are for a performance driven customer centric culture and those things are starting to show. We have the right strategy and execution roadmap. Now comes the hard part and it will not be linear.

We need to demonstrate the ability to execute with excellence. Our success and our destiny lie in our control. Our actions are aimed to drive transformational improvements at IP and create significant value for our shareholders. I'm now on to Slide 6. I'm excited to share we are investing in a greenfield state of the art corrugated box facility in Waterloo, Iowa.

This is a great example of the investments we're making as we continue with our ambitious plans to optimize our mill to box system and generate attractive returns. This world class box plant is designed to deliver on our strategy, 20% lower cost, designed in product quality and just in time service. All of this is aligned to a geography and end markets where we are positioned to win. The facility will be strategically located close to some of our best customers specifically in the protein segment, while being in a freight advantage distance from one of our mills. The plan is to start construction this year and targeting for a start up in 2026.

So again, it's a best in class facility designed specifically to delight our customers, achieve a low cost position and drive profitable growth. In addition to Waterloo, we're also acquiring a bulk plant in West Monroe, Louisiana. This additional capacity and expanded capabilities will allow us to grow our specialty business in an attractive market. As you know, bulk is a business where we are differentiated and have a very good performance track record. We're anticipating closing this deal tomorrow.

So now let's turn to our full year performance. First, I'll share some highlights and then I'll turn it over to Mark to walk you through the details. I'm now on Slide 8. Our full year results came in line with our outlook. Relative to prior year performance, higher pricing was more than offset by higher costs and expected volume losses from our commercial strategy, just as we expected.

We have seen significant price improvements in our North American Packaging business from our go to market execution and favorable price index moves. Volume came in lower, but very much in line with our expectations. And again, we're seeing that in January. This period over period volume declines from our packaging contract restructuring is playing out in line with our predictions, which is giving us good line of sight and when we'll see inflection point to profitable market share growth. Costs were higher due to employee incentive compensation and were impacted by reliability issues at some of our mills.

As I shared before, we are laser focused on improving reliability and taking cost out of the system. As we look to 2025, I want to note that we're not going to go into detail on the outlook for this year. As you may recall, while our combination with DS Smith remains pending, certain UK rules constrain our ability to provide a profit forecast. Even though we are looking forward to closing the transaction tomorrow, today we are still subject to those rules which limit what I can say. Our plan is to provide you with our outlook and a detailed roadmap at our Investor Day coming up in March.

But at a high level, 2025 is expected to be a transformational year. During the 1st few months, we anticipate earnings will continue with the stabilization trend and then we expect our earnings to progressively ramp from a combination of the cost actions already announced, further improvements throughout the year, sequentially improving commercial wins and overall benefits of our eightytwenty implementation. With that, I'm going to turn it over to Mark, who's going to provide more details on our Q4 performance and outlook.

Thank you, Andy. So turning to our Q4 key financials on Slide 9. Operating earnings per share came in slightly better than the outlook we provided last quarter. Our EBITDA margin came in slightly better sequentially and overall we see stable to improving results on a sequential basis. Our free cash flow was impacted primarily by changes in working capital as well as sequentially higher capital spending and D.

S. Smith related transaction costs. We can turn to slide 10 and I can provide more details about the 4th quarter as we walk through the sequential earnings bridges. 4th quarter adjusted operating earnings per share was negative $0.02 as compared to $0.44 in the 3rd quarter. As expected, accelerated depreciation expense was a significant impact in the 4th quarter due to previously announced facility closures accounting for $0.56 per share.

Price and mix was higher by $0.12 per share driven by the flow through of prior price index movements and mix benefits in our packaging business. Volume was unfavorable by $0.08 per share due to 2 fewer shipping days in North America Box as well as some volume trade offs related to commercial contract restructuring actions. Deploying our commercial strategies across the portfolio continued to impact volumes as we closed out the year as we expected. Operations and cost was unfavorable by $0.11 per share sequentially. This is largely the impact of seasonally higher costs as well as a step down in insurance recovery related to the Ixak box plant fire and some reliability events in our mill system across both businesses.

Maintenance outages were higher by $6,000,000 or $0.01 per share in the Q4 and input costs were favorable by $0.06 per share sequentially mainly driven by lower costs for OCC and Wood. And finally, corporate items favorably impacted earnings by $0.12 per share sequentially, primarily due to lower taxes. Turning to the segments and starting with the Industrial Packaging's 4th quarter results in flat 11. Price and mix was higher by $63,000,000 due to the realization of approximately $40,000,000 of benefits from prior index movement along with additional benefits from our containerboard export and open market sales. We saw a mix improvement in both North America and Europe.

Volume was lower by $24,000,000 sequentially due to 2 fewer shipping days in the Q4. In addition, we made choices based on our box go to market strategy that negatively impacted our volume as expected, but this will allow us to improve our margins and mix over the long term. Operations to cost was $22,000,000 unfavorable sequentially, primarily

the impact of seasonally higher costs, a step down in the ICSTAC insurance proceeds, which we received $25,000,000 in the 3rd quarter to $12,000,000 in the 4th quarter and some reliability events in our mill system. Planned maintenance outages were lower by $22,000,000 sequentially and input costs were $20,000,000 favorable primarily due to lower OCC and wood costs. And accelerated depreciation decreased earnings by $9,000,000 due to the 5 packaging facility closures in the 4th quarter. Moving on to Q4 results for Global Cellus Fibers on slide 12. Price and mix was sequentially lower by $13,000,000 due to price index movement.

Volume sequentially was lower by $8,000,000 in the quarter due to the Georgetown mill closure in early December as well as a pull forward of orders in the prior quarter as customers anticipated a potential port strike. Operations to cost was unfavorable sequentially by $23,000,000 which includes unabsorbed fixed costs from the Georgetown mill closure, some reliability issues and higher seasonal costs. Planned maintenance outages were higher in the 4th quarter by $28,000,000 and input costs were $4,000,000 favorable primarily driven by lower wood costs. And finally, accelerated depreciation decreased earnings by $222,000,000 mostly due to the Georgetown Mill closure in the 4th quarter. Turning to slide 13.

Before we get into the details, I would remind everyone that accelerated depreciation is included in operating earnings and is called out for each business. In summary, adjusted earnings for our Industrial Packaging segment are expected to be higher sequentially by $52,000,000 This includes a non repeat of accelerated DNA expense. Adjusted earnings for Global Solus Fibers are expected to be higher sequentially by approximately 2 $20,000,000 and this also includes a non repeat of accelerated depreciation expense in the prior quarter. Now let me give you a breakdown by business segment. I'll start with Industrial Packaging.

We expect price and mix to decrease earnings by $5,000,000 sequentially from lower export pricing to date and unfavorable seasonal mix impact. Volume is expected to increase earnings by $10,000,000 due to 2 more shipping days primarily. We expect operations and costs to increase earnings by $30,000,000 This includes benefits from our box plan optimization as well as non repeats related to incentive compensation and other items from the prior quarter. It also includes the unfavorable impact of wage inflation. We expect accelerated depreciation will increase earnings for the Packaging business by approximately $11,000,000 because of the expense related to the 5 Packaging facility closures that occurred in the 4th quarter.

Lower maintenance outage expense is expected to increase earnings by $6,000,000 And lastly, we expect input costs to remain flat overall with higher energy costs offsetting lower OCC prices. Switching to Global Cellulose Fibers, we expect price and mix to decrease earnings by approximately $10,000,000 as a result of prior index movement. Volume is expected to be stable and we expect operations to cost to increase earnings by approximately $35,000,000 This includes improved performance and reliability as well as non repeats related to incentive compensation and other items from the prior quarter. We expect accelerated depreciation will increase earnings for the pulp business by approximately $222,000,000 because of the expense related to the closure of Georgetown Mill in the 4th quarter. Higher plant maintenance saudges expense is expected to decrease earnings in the 4th quarter by approximately $26,000,000,000 And lastly, input costs are expected to be stable.

With that, let me turn it back over to Andy.

Thanks, Mark. We'll now turn to slide 14. I'm excited to remind everybody that we'll be hosting our Investor Day in New York on March 25, where we'll provide an in-depth review of our strategy, business and financial objectives for the new IP. We'll share our progress on DS Smith integration and outlook, the detailed plan for North American packaging and how eightytwenty deployment across the company will help drive profitable growth. Our goal is to provide a very detailed, clear and time based path forward.

With that, operator, let's now pause and take questions.

Thank you. And your first question comes from the line of Mark Weintraub with Seaport Research Partners. Please go ahead.

Thank you. I appreciate in the comments you made it clear that the volumes in the Q4 were pretty much in line with what you had expected. Obviously, they were pretty big year over year declines. And I think that in the past, you've talked about that there would still be negative year over year for the maybe through the middle of next year and then things stabilize and potentially move positive in the second half. Is that still kind of a reasonable game plan?

Yes. Mark, first of all, good morning. Absolutely. So, while we certainly don't like the reality of the results in the Q4, it is exactly what we had expected. And so when I when you look at the volume drops off on year over year, it is when you net out kind of wins and losses, 100% of what we're seeing is the expected from the contract process that we've been going through in the last 18 months to 2 years.

And so it's right on track. And I think importantly, right, as we look at January, January is right on track in terms of what we're seeing for day rates. And so what you should expect to see is that bottom of the Q3 and Q4, it will step up meaning a less year over year loss in the Q1. Yes, less year over year loss again sequentially in the Q2. Then as we get into the back half, when exactly we break that 0 point.

I don't know if it's going to be exactly the Q3 or not, but it's somewhere in there. But in that second half, we expect to crest these choices. So, I'm going to knock on wood, but that feels good. The other thing I'd add to that, Mark, is if you look at the investment that we've been making on the box plant side for reliability, I think it's very importantly that is now showing up in internal and external data. So if you look at the data from our on time delivery metrics, our service metrics and then you also look at we do a 3rd party validated NPS.

I also saw another 3rd party benchmark last week. We have clearly moved very significantly from a service perspective in the minds of our customer. And the reason that's important is we're now starting to quote pieces of business that we didn't have the opportunity to quote a year ago. And so we've got some pretty decent sized chunks of business. Not much of it is baked into our expectations for the year, but we've got some pretty decent sized chunks of contracts that are now rolling off where we think we're putting a very attractive value proposition.

So we're moving from a very defensive posture relative to the commercial side of the business to slowly moving to an offensive posture. And I want to say slowly because we still have to finish digging out that hole and we've got to win some of these businesses. But I like where we are relative to our plan. When you look into our sales pipeline, that pipeline and what's happening on a day basis is now showing signs of congruity. And I like the fact that we're starting to quote some business, that we didn't have the opportunity in the last year or 2.

Great. And maybe kind of following up along the lines of the response to the question. I think you also mentioned like a $350,000,000 lack of productivity, reliability type of things. Can you maybe provide more color on specifically what you meant by that? And do we get that back?

And what are the actions that are being taken currently?

Yes. So Mark, actually, I think this is a linchpin, right? So, going back to my days at Danaher running a sub plant, sub manufacturing plant, right? You're always looking for the bottlenecks to the key of your strategy or the key of your execution. And so, it took me a little while to get in and understand kind of exactly what was going on, but I'll simplify in 2 ways.

One is, we've been living in a world of lax capacity for too long. And because of that, it makes you soft, right? It's like an athlete who sits on the couch for a couple of years. It makes you soft. And so as we have started to push part of our operations, when I say that pushing them in terms of moving volume to assets that we need to have be A plus we're pushing that.

And so and what that's showing is it's showing the mill capability. And we've got a few mills that we've got some serious work to do. And when you add that up, that's darn near a couple of $100,000,000 a year in potential, right? So, you're having to keep way too much cost in your system, because frankly, when you go back and you do the root cause analysis, which we have, it comes back to 2 things. It comes back to underspending for a very long period of time.

It's not a year or 2, right? It's underspending on basic reliability stuff in the mills. And so as you can imagine, right, you're kind of your plan is constantly changing. The bogey is changing for those teams, and they're having to run rough shot. And the second thing, right, we are we have experienced that everybody in our industry and everybody in manufacturing is experiencing is a pretty significant changeover of people.

And so as experience starts to change in those mills and you combine those two things together, it can make it less reliable day to day. And so our focus is very much on maintenance investment and reliability spend, capital and expense, and it is on rapid training for leaders, who are new to a position. And so you've really got to focus there. And the good part about that, right, is you can count this. And what I mean by that is you can see the amount of if you think of kind of mill performance as the benchmark of where you are in terms of your ability to absorb the overhead and produce, we can see this pretty tightly.

And so making those investments and that's a linchpin to the rest of our strategy of getting cost out of the system. The second part to it really comes around productivity. And what I mean by that is in any manufacturing world, the goal should be to offset your what I'll call internal productivity. So I don't mean input costs, right? I'm talking about wage, maintenance, those pieces of normal inflation.

You've got to drive to offset that. And in my experience, we've been able to do that in the companies that I've worked for. We're seeing it already in some of the very focused work that we're doing. I'll use the box plant lighthouses or now we call them pilots and I'll call them lighthouses as the example. But as you know, this is a very high contribution margin business.

And so as you drive productivity, you can take significant cost out and or as you move volume over a different set of assets, the contribution margins are just really high. That's something we haven't done. Again, that's when you think about keeping too much capacity, that ends up as EDT, that's how it shows up. And so we believe that absolutely you can go after that. You don't look, you're not going to get it overnight.

But in the timeframes that we're talking about in terms of both driving the day to day excellence of execution and then having the productivity flywheel moving, it's $300,000,000 to $400,000,000 It's a lot of money. And so yes, we can get it back.

Your next question comes from the line of Phil Ng with Jefferies. Please go ahead.

Hey, Andy. Appreciate all the great color.

Good morning. I thought slide deck was pretty awesome. It had a lot of great color in terms of things that you guys have done already on the cost commercial action side of things. You also gave us a look at what's still to come more on the to do list with items like mill and boxes and structural cost out efforts, reducing organizational complexity and expanding the sales force. So Appreciate in 1Q is kind of a stabilization period and you kind of pointed out earnings momentum, transformation 2025.

So kind of help us think through how that could kind of layer through this year, some of these actions, whether it's on the cost or commercial side and think about the earnings momentum as the year progresses? You talked about the $300,000,000 to $400,000,000 that you was a drag. I mean how quickly can we get some of that back I guess?

Yes. So Phil, great question. I think as we think about this year playing out that the cost up that we announced last quarter, as you can imagine, right, making that real through the Q4 of the year, that then starts to layer in throughout the year. And so you should see that kind of sequentially ramped as people who are no longer going to be with the company assets that have been closed. As you know, you don't just close an asset and all the costs go away.

There's a tail to that. And so we have to move into that tail. That gets better as the year goes on. And then we have an expectation that we're going to continue to drive cost aggressively as we go through the year. And you should expect us that the thing that I would be looking for if I'm new is a quarterly drumbeat of actions, right?

That that's what you're going to see and obviously it needs to show up in the P and L and in the balance sheet and ultimately cash flow. And so on the cost side, right, we've got a roadmap that we've laid out. We've had to be pretty selective about how we could talk about that with all of you because of the DS Smith process. That restraint comes off. And so at the Investor Day, the intention is to show a much more clear roadmap, obviously, being respectful of all of our stakeholders in the process.

So you should expect to see that ramp. And then on the commercial side, really if you look at what's baked in right now on the commercial side is the pricing that we have today, right? We haven't adjusted for any future index changes. We have no idea, right, what's going to happen with that. So we don't have any expectation there.

So it's the prices that we're going to market with today. Plus if you kind of think through our expected pipeline, so there is no kind of major expectation of giant wins that's in our outlook for this year. So just to be clear. So the reality of that and you guys know this as well as anybody, turnarounds take time and they are not linear. And so if you think of it as a run chart, right?

As you go into one of our mills and you see process run charts all the time, right? The tolerances are wide right now. There's a lot of variation and our job is to squeeze that variation in every way, right? We're trying to squeeze the variation in what causes kind of these wild changes, to in parts of our business that frankly we don't think should be as volatile. We're making changes to those things.

And then you've got to execute. And when I said in my prepared remarks, this is where the hard work begins. I mean, this is where you are in the muck. You have to be. These things happen at a box plant, at a mill, right?

They don't happen in the ether. And so really getting to incredibly disciplined cause and effect where I'm pulling a certain lever and that is going to take a cost out or it's going to win a customer. That's where we are. And so, we certainly have a plan for how that ramps throughout the year. I'm very aware, look, I've looked at hundreds of businesses and business plans over the years.

And whenever you see an aggressive track like this, you have to discount it, right? You have to be smart about that. So, we have to make consistent progress quarter over quarter. We need to exit this year substantially better than where we ran last year and where we ran this year. A couple of things that I see as really encouraging.

So if you look at the North American Packaging Solutions business exclusively and you look at where they're tracking relative to where Tom Hammack and team said they would be tracking on the commercial side, we feel really good. On the investments that we've made into the box plant business and the expected improvements on service improvements, has absolutely shown up. I mean, we have moved an entire standard deviation in performance and customer service performance in the last year. And that is a big deal. And so we've seen that and we've also seen what that means to specific customers.

I'm spending time with specific customers talking about their experience with us. We're now getting on-site with customers and doing joint innovation sessions. But we're pushing we're starting to push those envelopes more than we have in the past. But this is where look, this is where it's a nice flight. That's the end of the day.

That's what this is. We're in execution mode now.

I guess, you gave us a roadmap today in terms of CapEx spend. It's great you're reinvesting in growth products for box plants. You're stepping up maintenance reliability and doing great things on the sales force front. Is this a level in terms of capital spend and maintenance operating spend that could be steady state from here? Or should we kind of accept that to step up the next few years as you kind of move forward?

Yes. So Phil, if I had a magic wand meaning, I had the ability to spend it meaning the performance of the business is where I wanted it to be and we had the capability to effectively spend the money, I would spend more. I would. And the reason we're targeting this 1.2% is it matches what we think the organization can actually effectively execute and where we are relative to the turnaround of the business. But look, I think as we perform, we will aggressively we will invest aggressively over the next few years.

And it's really kind of a combination of things, Phil. One is, we got to close the gap on a number of things that we've had. When you make decisions around non strategic assets and you incrementally increase spending, right? So, if you think of it both those things happen at the same time, what happens is you radically increase the spending on the strategic assets. It's not a small change.

It's you're not talking about 5% and 10% and 20%, you're talking about 20%, 30%, 40%, 50% in some areas. And we're going to have to do that for a few years because look, we dug a hole over a decade. We're not going to fill it in a quarter. And so we've got to make those choices. And a visual and maybe this will help folks is a visual that I've been using is think of the demand of the packaging business over a cycle.

So if you just think of it as a what does demand really look like of a packaging business over a cycle. It's about 1%, 1.5% volume increase through a cycle. And that changes kind of a plus 2 plus two points to that, so call it plus 3 to minus 1 or so or minus 2 or so, somewhere in that range. That's kind of the range in any given year of actual consumer demand. And when I say consumer, consumer and industrial demand of our product.

But investment trends, profit trends historically have been highly volatile, right? And then people react to that and they make the investment trends even more volatile. If you think in a very simple way of what we're trying to do right here is we're trying to cut off volatility. We're trying to sand the board on the top side and on the bottom side, right, to take volatility out. And when you look at GCF as an example, I love the GCF business, but it's volatile.

It's more volatile than our core Packaging business. There are other parts of our business that are relatively low profit that are pretty volatile. And as you start to move towards your core Integrated Packaging business, that volatility goes down. And then if you match your investment plan with what your real trend line looks like you take out more volatility. When you chase the trend line with investment you our box plant managers, our mill managers, they can't plan to be successful if they're reacting in quarters.

They've got to have 18 months or so on the maintenance side and probably 3 years plus on the capital side. And that's got to be consistent. And we haven't allowed them to put them in a position to be successful. And I apologize for the length of this answer, but I can't tell you how passionate I am about this. We have to consistently invest in being great.

We have a hole to fill. We're going to fill that hole and we are going to be much more consistent in our capital investment. And everything flows with capital investment in this business. And what I mean by that, look I spent 3 days last week personally 3 days in a Kaizen event looking at our capital investment process. And I look, no offense to anybody, it's a ludicrous process, that we have right now.

And we are radically changing it in terms of time, in terms of responsibility, in terms of who has authority and signing responsibility and we will dramatically change that timeline. And in changing that timeline, we take the handcuffs off of our people and it's not just the dollars invested, right? It's because everybody is attached to that. You've got literally thousands of people who are chasing things that are unproductive and those people could be working with our customers on innovation. They could be working on productivity, right?

And we need to take the handcuffs off our people and allow them to freak and run. And so, sorry, that one gets me worked up. So, I'm pretty passionate about it.

Appreciate all the great color, Andy. Thank you.

Your next question comes from the line of Mike Roxlin with Truist Securities. Please go ahead.

Yes. Thank you, Andy, Mark, Jose for taking my questions. Congrats on all the progress and obviously, Andy congrats on the passion as well. And Mark, Jose, congrats on your enrolls. Just wanted to quickly follow-up on what Phil has mentioned in terms of the major portfolio coming up from a different angle.

You mentioned in the press release, one of your objectives for 2025 is to balance capacity to your demand. So I'm wondering from can you help us at least maybe speaking generalities again if you can, what type of capacity moves you have in mind? Is it more of what you've mentioned in previous responses in terms of transferring production? Is it a matter of maybe closing those at a higher cost in a situation where I'm going to require too much capital to fix at this point? Can you help us frame like what type of capacity realignment you're anticipating?

Yes. So Mike, I'm going to give you an answer that's going to be partially satisfying just because of the 2 things. 1, if we do have some minimal restrictions and also I think as we talk about assets and locations, we need to do that the right way at the right time. So, I have to be a little bit opaque around that. So, I apologize if that's just the right thing to do.

So, I want you to step back for a second and think of it. As you think of our entire business and you think of the quality of earnings across the spectrum of that business, right, it's pretty wide from one market segment and one product to another market segment and another product. Those core earnings are is a pretty wide band on that. When you look at a portion of our business that isn't as profitable or frankly maybe negative and then you align that against assets that really have pretty poor returns. When you put those two things together, that's a those are tough chunks of things to look at, right?

And when you put them together, there's no path to that being super successful. And so you got to move your investment to the customers, the products and the assets and the people, who are going to allow you to win. And that's the process that we've been going for. And when we talked about kind of a whole slew of that in the Q3, that's what that was all about. As we move through this year, we will absolutely continue to move down that path.

International Paper (IP) Q4 2024 Earnings Call Transcript

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