INTERNATIONAL PAPER CO /NEW/ Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategy and Transformation: Andy Silvernail discussed building a performance-driven culture, using 80/20 approach to guide investments, simplifying the company, and focusing on being a low-cost producer and sustainable packaging solutions provider. Conducted 80/20 training with leaders, completed 80/20 segmentation, and entered implementation phase.
• Plant Closures and Initiatives: Announced five plant closures to optimize footprint, retain 100% of strategic customers, and invest in remaining facilities. Identified greenfield and brownfield box plant investments.
• GCF Strategic Review: Board authorized evaluating strategic options for GCF, engaged Morgan Stanley as advisor. Closing Georgetown mill to reduce complexity and costs.
• Early Wins: Examples include safety improvements using 80/20 analytics, double-digit productivity improvements in box plant pilots, corporate reorganization to focus on customers, and successful sourcing partnerships.
• DS Smith Acquisition: Expect to close in early first quarter, with Tim Nicholls as interim leader of combined EMEA teams. Hosted Investor Day on March 25, 2025.

Segment Performance

• Industrial Packaging: Third quarter adjusted operating earnings per share was $0.44. Price and mix was higher due to prior price index movements and Box Go-to-Market strategy benefits. Volume was lower sequentially due to seasonality and commercial contract restructuring. Operations and costs were unfavorable primarily due to lower volumes, seasonally higher labor costs, and reliability incidents. Expected to have higher earnings in fourth quarter with price increases sticking, lower costs from improved operations, and lower planned maintenance outages.
• Global Cellulose Fibers (GCF): Price and mix was sequentially higher due to price index movements. Volume was lower sequentially. Operations and costs were unfavorable due to reliability incidents and higher employee incentive compensation. Expected lower earnings in fourth quarter due to prior price index declines and higher planned maintenance outages.

Guidance

• Fourth quarter expected higher earnings in Industrial Packaging as price increases stick, costs improve, and maintenance outages lower.
• Fourth quarter expected lower earnings in GCF due to prior price index declines and higher planned maintenance outages.
• Significant accelerated depreciation expenses in fourth quarter due to facility closures, included in operating earnings.

Risks

• Regulatory approvals for DS Smith acquisition could impact timeline and integration.
• Market volatility in Europe affecting GCF performance.
• Challenges in fully integrating 80/20 approach across all parts of the company, including potential resistance to structural changes.

Question and Answer

Q: How is the progress on optimizing customer mix and sales incentive comp structure coming along?

A: Leakage has slowed, focusing on the 'big middle' of the market as the sweet spot, with 80/20 training and segmentation identifying opportunities.

Q: Talk about the 20%-30% productivity improvement in box plant pilots and deployment timeframe.

A: Productivity improvement drives better customer service, lower costs, and lower capital intensity. Rolling out to box plants and mills, with lighthouses planned in 2025 for best-in-class examples.

Q: Evaluate options for GCF and timeline for strategic review.

A: Evaluating sale and other options, most likely sale with interested parties, process ongoing with no specific timeline yet but will update investors upon completion.