International Paper Q1 Earnings Call Highlights

Key Points

• International Paper cut its 2026 targets, guiding Packaging Solutions North America to $2.35–$2.5 billion adjusted EBITDA and Packaging Solutions EMEA to $900 million–$1 billion, with enterprise adjusted EBITDA of $3.2–$3.5 billion and free cash flow of about $300–$500 million while expecting a roughly $650 million second‑half step‑up.
• Operationally North America outperformed the industry on volumes (≈2.5% per‑day growth vs. a 0.3% industry decline), but weather, reliability and input‑cost pressures — including a roughly $53 million winter‑storm EBITDA hit — weighed on margins as the company accelerates cost reductions, investments and the bolt‑on NORPAC acquisition.
• Management remains on track to split the North America and EMEA businesses into two public companies within the next 12–15 months, with IP retaining about a 20% stake post‑separation and plans for the EMEA business to be dual‑listed and investment‑grade rated.

International Paper NYSE: IP executives emphasized operational execution, cost discipline, and portfolio reshaping as macroeconomic volatility weighed on first-quarter 2026 results and prompted updated full-year outlooks for both North America and EMEA.

Chairman and CEO Andy Silvernail said the quarter “reinforced the importance of controlling the controllables in a dynamic operating environment,” citing inflationary pressures and weather-related disruptions. CFO Lance Loeffler added that while earnings came in below management’s expectations, the company is “laser-focused on accelerating cost reductions in both regions,” pursuing investments, and “winning share intelligently.”

Volume outperformance in North America, but reliability and costs remain a focus

Silvernail highlighted share gains in North America, saying the company delivered above-market growth for the third straight quarter as planned customer wins came through. On a per-day basis, North American box volumes increased 2.5% year-over-year in the first quarter, compared with a 0.3% decline for the overall industry—an outperformance of nearly 3%, he said.

Looking to the second quarter, Silvernail said International Paper expects North American volumes to rise about 3% while the industry is “tracking flat.” For the full year, the company still expects to outperform the industry by about 2%. However, the company revised its 2026 industry demand outlook to approximately flat year-over-year, compared with its prior assumption of flat to up 1%.

Operationally, Silvernail said mill and box plant productivity is improving as strategic investments and “Lighthouse” operating practices take hold, though improvements have not been “fast enough or consistent enough to offset the macro pressures.” He said North American mill reliability has “inflected positively,” but the company needs to accelerate progress to reach best-in-class performance.

First-quarter financials included storm impacts and one-time items

At the enterprise level, International Paper reported adjusted EBIT of $188 million and adjusted EBITDA of $677 million, with margins of 11.3%. Loeffler said adjusted EBIT benefited from the absence of accelerated depreciation seen in prior periods.

Free cash flow was $94 million, which included a one-time $280 million tax refund. Silvernail noted the company also received $1.1 billion from the sale of its GCF business during the quarter and used the proceeds to pay down $660 million of debt.

In Packaging Solutions North America, Loeffler said first-quarter adjusted EBITDA was $477 million. Compared with the fourth quarter, price and mix was favorable by $24 million, while volume was $52 million unfavorable due to normal seasonal declines and lower export sales as the company repositioned containerboard into the domestic market. Operations and costs were $29 million unfavorable, driven by an approximately $18 million winter storm impact and elevated costs tied to reliability challenges, partially offset by a $15 million benefit from improved mill performance.

Input costs were $43 million unfavorable, primarily due to a regional spike in natural gas prices and utility costs related to the storm. In total, Loeffler said the January winter storm drove about $53 million of unfavorable EBITDA impact across operations, costs, and inputs.

Updated outlooks: lower 2026 EBITDA targets, second-half step-up expected

For the second quarter, Loeffler guided Packaging Solutions North America adjusted EBITDA to approximately $380 million to $410 million. He said price and mix should improve on product mix but will be partially offset by the impact of a $20-per-ton price decrease published in February. He noted that published price increases of $40 per ton in March and $30 per ton in April are expected to benefit results beginning in the third quarter due to normal realization lags.

For the full year, Loeffler said Packaging Solutions North America’s adjusted EBITDA outlook was lowered to $2.35 billion to $2.5 billion from $2.5 billion to $2.6 billion. He attributed the change to:

• Pricing: approximately $175 million of benefit from February, March, and April published pricing actions
• Macro environment: about $200 million of headwinds, including higher diesel and chemical costs, inflation in OCC and other raw materials, and lower demand
• Performance: about $75 million of headwinds, including reliability-related costs and “operational and commercial challenges” in the specialty business
• Winter weather: about $50 million of headwinds in the first quarter

Management reiterated expectations for a significant step-up in the second half. Loeffler said the company now expects to deliver $900 million of adjusted EBITDA in the first half and then improve by roughly $650 million in the second half, driven by pricing and seasonal volume/mix (about $300 million), 80/20 cost initiatives (about $150 million), lighter planned maintenance (about $150 million), and the completion of the Riverdale conversion and annual outage by the end of the second quarter (about $100 million of first-half impacts that won’t repeat).

In Packaging Solutions EMEA, first-quarter adjusted EBITDA was $208 million. Loeffler said second-quarter adjusted EBITDA is expected to be $150 million to $170 million as the region faces “peak margin compression” from higher paper costs arriving ahead of packaging pricing recovery, with pricing actions typically lagging by three to six months.

For full-year 2026, Packaging Solutions EMEA’s adjusted EBITDA target was reduced to $900 million to $1 billion from $1 billion to $1.1 billion. Loeffler said the roughly $100 million change is primarily commercial, reflecting lower expected volume and margin compression versus original assumptions, while cost impacts are net flat as higher oil-driven distribution costs are offset by favorable OCC and cost-out actions.

Investment plans, acquisitions, and EMEA cost actions

Silvernail said International Paper is “meaningfully” accelerating investment across North America through targeted acquisitions, greenfield facilities, strategic conversions, and more than 80 major investments across the mill and box system. He said the company is investing about 50% more per facility in 2025 through 2027 than the average of the prior three years.

He also discussed the company’s announced bolt-on acquisition of the NORPAC paper mill in Longview, Washington, calling it a “high-quality, top-quartile asset” that strengthens the company’s West Coast footprint and provides freight advantages. The mill includes three paper machines, two producing recycled lightweight containerboard. Silvernail said the company expects the investment to deliver “high teens or better returns over time” after integration.

In EMEA, Silvernail said the company increased run-rate cost savings to more than $200 million, up roughly $40 million from the prior quarter. He said 31 closures have been completed or are in process, resulting in net reductions of more than 2,800 positions, with additional opportunities under evaluation.

Separation planning continues; 2026 enterprise targets reiterated

Silvernail provided an update on the planned separation of the North America and EMEA businesses into two publicly traded companies. He said a small core team has made “meaningful progress” and the company remains on track to complete the separation within the previously announced 12- to 15-month timeframe, subject to approvals and conditions. Following the separation, International Paper expects to retain an approximately 20% ownership stake for roughly 12 to 18 months, and the EMEA packaging business is expected to be dual listed on the London Stock Exchange and the NYSE. He also said both companies are expected to have investment-grade credit ratings.

For 2026, Silvernail said the company’s updated outlook is:

• Packaging Solutions North America: $2.35 billion to $2.5 billion adjusted EBITDA
• Packaging Solutions EMEA: $900 million to $1 billion adjusted EBITDA
• Enterprise (including corporate): $3.2 billion to $3.5 billion adjusted EBITDA
• Free cash flow: approximately $300 million to $500 million

On the Q&A, Silvernail said the company’s path to its longer-term earnings goals includes incremental pricing flow-through into 2027, ongoing operating cost improvements, modest market growth assumptions, and continued share wins. He also acknowledged execution gaps, pointing to “transactional or transformation cost” and other items, and later said the impact from certain quasi one-time transformation and contract-related costs is “at least $100 million” this year.

About International Paper NYSE: IP

International Paper is a global producer of renewable fiber-based products, focused primarily on pulp, paper, and packaging. The company manufactures containerboard and corrugated packaging used for shipping and retail display, as well as a range of specialty papers and pulp products that serve industrial, consumer goods, and e-commerce customers. Its product portfolio is oriented toward large-scale packaging solutions, tissue and paper grades, and raw pulp for a variety of manufacturing uses.

Founded in 1898, International Paper is headquartered in Memphis, Tennessee, and is one of the largest and longest-established companies in the forest products sector.

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