Summary of International Paper Company (IP) 2025 Conference Company Overview - **Company**: International Paper Company (IP) - **Date of Conference**: September 04, 2025 - **Speaker**: Andy Silvernail, CEO Key Points Industry and Market Conditions - **US Market Performance**: Initially expected to grow by 1%, but projected to decline by 2%, indicating a 3-point swing in market expectations [6][12] - **Structural Market Changes**: No significant structural changes in the market; however, trade tariffs and housing market conditions are impacting demand [9][11][12] - **European Market Challenges**: The conflict in Ukraine and trade tariffs are significant headwinds, with an estimated $350 million impact on volume and price [13][55] Company Strategy and Restructuring - **Focus on Packaging**: International Paper is transitioning to being solely a packaging company, moving away from a broad-based fiber company model [20][21] - **Restructuring Actions**: Key actions include the sale of GCF, closure of Savannah and Riceboro, and investment in Riverdale, aimed at improving asset quality and competitive positioning [19][20][25] - **Cost Reduction Goals**: Targeting $500 to $600 million in cost reductions in Europe, with a focus on optimizing operations and exiting non-strategic assets [59][62] Financial Performance and Projections - **Profit Impact**: If market growth had met expectations, profits could have exceeded half a billion dollars; current losses attributed to volume declines in the US and price softness in Europe [16][17] - **Long-term Outlook**: The company is positioned for recovery as market conditions improve, particularly in housing and economic growth [79][81] Sales and Customer Engagement - **Sales Incentives**: Changes in sales incentives are being implemented to align performance with compensation, moving away from volume chasing to a focus on quality and profitability [34][36][38] - **Customer Relationships**: Emphasis on building strong, service-oriented relationships with customers to increase stickiness and reduce switching costs [42][43][46] Operational Efficiency - **Local Market Focus**: The business operates hyper-locally, with a focus on service quality, on-time delivery, and responsiveness to customer needs [39][40][41] - **Asset Management**: The company is moving away from underperforming assets and investing in high-quality, strategically advantageous assets [24][25][69] Future Plans - **Continued Restructuring in Europe**: The restructuring process in Europe will mirror the US approach, focusing on integration and optimization without significant new capital investments [56][58][70] - **Market Positioning**: The company aims to maintain a tight operational structure to better navigate market cycles, prioritizing high-quality assets and customer relationships [81] Additional Insights - **Service as a Competitive Advantage**: High service levels are critical for customer retention and operational success, with a focus on embedding within customer operations to drive mutual value [42][46] - **Innovation in Europe**: The European market is characterized by higher innovation and service intensity, necessitating a focused approach to resource allocation [77] This summary encapsulates the key discussions and strategic directions outlined during the conference, highlighting the challenges and opportunities facing International Paper in both the US and European markets.

Core Insights - International Paper Company is at a turning point, shifting towards markets with better price power and stable demand by selectively choosing its business focus [1] Company Analysis - The company has a century-long history and is adapting its strategy to enhance profitability and market positioning [1] - The focus is primarily on small- to mid-cap companies, although large-cap companies are also analyzed for a broader market perspective [1]

Core Insights - Kraton Corporation has executed agreements with International Paper to ensure uninterrupted site services at its Savannah, Georgia facility, highlighting a commitment to supply reliability and operational continuity in the pine chemicals industry [1][2][3] Company Overview - Kraton Corporation is a leading global producer of specialty polymers and high-value biobased products derived from renewable resources, with applications in various sectors including adhesives, coatings, and automotive [6] - The company is the largest global provider in the pine chemicals industry, offering a range of specialty products sold into multiple markets [6] Partnership Details - International Paper will continue to provide essential site services to Kraton, enabling uninterrupted production and delivery of critical pine chemical products, which supports Kraton's infrastructure investments at the Savannah facility [2][4] - The partnership aims to strengthen the pine chemicals value chain and ensure stable supply to customers across key global markets [3][4] Strategic Focus - Kraton is focused on delivering high-performance, sustainable solutions and maintaining its leadership in the bio-based chemical industry [4] - The agreements reflect a shared vision between Kraton and International Paper to enhance resilience and growth within the pine chemicals sector [2][3]

Group 1 - International Paper announced the sale of its global cellulose fibers business for $1.5 billion to private equity firm American Industrial Partners [1]

International Paper said it will sell its global cellulose fibers business to American Industrial Partners for $1.5 billion https://t.co/aZxW0jkNzY ...

Group 1: Acquisition Announcement - American Industrial Partners (AIP) has signed a definitive agreement to acquire the Global Cellulose Fibers (GCF) division of International Paper, focusing on absorbent fluff pulp for personal care products [1][3] - The transaction is expected to close in Q4 2025, subject to customary closing conditions and regulatory approvals [3] Group 2: Company Overview - GCF is a leading producer of absorbent fluff pulp, softwood pulp, and modified fibers, with manufacturing facilities in the U.S., Canada, and Poland [2][5] - In 2024, GCF generated approximately $2.5 billion in annual revenue and employs around 3,300 associates [2][5] Group 3: Market Position and Growth Potential - GCF is well-positioned for future growth due to durable demand tailwinds such as population growth, rising incomes, and increasing customer preferences for product absorbency and comfort [2][3] - The company benefits from a sustainable wood basket, strong end markets, industry-leading quality, and long-term customer relationships [3]

Core Viewpoint - International Paper is undergoing significant strategic changes, including the sale of its Global Cellulose Fibers business to American Industrial Partners for $1.5 billion, aimed at enhancing its focus on sustainable packaging solutions and improving its cost position [2][3]. Group 1: Sale of Global Cellulose Fibers Business - The sale of the Global Cellulose Fibers (GCF) business is valued at $1.5 billion, with adjustments including preferred stock issuance of $190 million [2]. - The GCF business generated $2.8 billion in revenue in 2024 and employs 3,300 people across nine manufacturing facilities [3]. - The transaction is expected to close by the end of the year, pending regulatory approvals [2]. Group 2: Strategic Changes in North America - International Paper is investing $250 million to convert the 16 machine at the Riverdale mill in Selma, Alabama, to produce containerboard [6]. - The company will permanently close the Savannah containerboard mill, Savannah packaging facility, and Riceboro mills, resulting in a net reduction of approximately one million tons in annual containerboard capacity [7]. - These changes will impact around 1,100 hourly and salaried positions, with the company committed to providing severance packages and outplacement assistance [4][5]. Group 3: Management Insights - The CEO of International Paper expressed confidence in the transition of GCF to AIP, highlighting the business's alignment with strategic customers and its potential for long-term success [3]. - AIP's partner noted GCF's strong position for future growth, supported by sustainable resources and long-term customer relationships [3].

Group 1 - The decline in corrugated cardboard sales is seen as a non-traditional economic indicator, suggesting potential retail demand adjustments in the near future [1] - U.S. cardboard shipments have reached their lowest second-quarter level since 2015, with a reported 5% year-over-year decline in daily shipments from International Paper [1] - Smurfit Kappa Group reported a 4.5% drop in North American corrugated cardboard sales, the largest decline across all its operational regions [1] Group 2 - The seasonal nature of the cardboard industry allows it to reflect real-time purchasing and manufacturing activities, serving as an early warning signal for retail spending [2] - The uncertainty surrounding tariffs has led companies to hesitate in stockpiling large volumes of packaging materials, impacting packaging demand [2] - FedEx and UPS have not updated their annual guidance due to the unclear situation, with UPS noting that consumer confidence is at a near historical low [2] Group 3 - There is a lack of organic growth in consumer goods, with promotions like "buy two, get one free" indicating weak demand [3] - Low housing transaction volumes are leading to decreased purchases of large items that require packaging, such as refrigerators and sofas [3] - The surge in packaging demand during the early COVID-19 pandemic was a temporary phenomenon, and the industry continues to face challenges from high costs and outdated facilities [3] Group 4 - The closure of a factory by International Paper has significant local economic impacts, including school closures due to reduced tax revenue [4] - There is hope that a revival in U.S. manufacturing could boost local product transportation and packaging demand, but this is contingent on offsetting the effects of reduced imports [4] - The overall outlook for cardboard manufacturers remains pessimistic, with all tracked indicators pointing towards a challenging environment [4]

Company Overview - International Paper is the global leader in sustainable packaging solutions with headquarters in Memphis, Tennessee, and EMEA headquarters in London, UK [3] - The company employs over 65,000 team members and operates in more than 30 countries [3] - Net sales for 2024 were reported at $18.6 billion [3] Recent Developments - CEO Andy Silvernail will present at the Jefferies 2025 Industrials Conference on September 4, 2025, at 8:10 a.m. Eastern Daylight Time [1] - A question-and-answer session will follow the presentation [1] - Interested parties can listen to the webcast via the company's website, with a replay available approximately three hours after the presentation [2] Strategic Moves - In 2025, International Paper acquired DS Smith, enhancing its position as an industry leader in the North American and EMEA regions [3]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q2 2025 and 2024, detailing the DS Smith Plc acquisition's impact and segment reorganization [Condensed Consolidated Financial Statements](index=3&type=section&id=Condensed%20Consolidated%20Financial%20Statements) Presents core financial statements, highlighting significant increases in net sales and total assets due to the DS Smith acquisition, alongside a net loss Condensed Consolidated Statement of Operations (Six Months Ended June 30) | Indicator (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net Sales | $12,668 | $9,353 | | Cost of products sold | $9,135 | $6,784 | | Earnings (Loss) Before Income Taxes | $(19) | $291 | | Net Earnings (Loss) | $(30) | $554 | | Diluted Earnings (Loss) Per Share | $(0.06) | $1.57 | Condensed Consolidated Balance Sheet (As of) | Indicator (In millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $9,499 | $6,424 | | Total Assets | $42,376 | $22,800 | | Total Current Liabilities | $7,121 | $4,258 | | Long-Term Debt | $9,694 | $5,368 | | Total Equity | $18,617 | $8,173 | Condensed Consolidated Statement of Cash Flows (Six Months Ended June 30) | Indicator (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Cash Provided By Operations | $188 | $760 | | Cash Used For Investment Activities | $(38) | $(446) | | Cash Used For Financing Activities | $(253) | $(365) | | Change in Cash and Temporary Investments | $(35) | $(64) | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations for financial statements, covering basis of presentation changes, acquisition accounting, and the company's new three-segment reporting structure - Following the acquisition of DS Smith Plc on January 31, 2025, the company reorganized its reporting segments into: **Packaging Solutions North America**, **Packaging Solutions EMEA**, and **Global Cellulose Fibers**[21](index=21&type=chunk)[137](index=137&type=chunk) - The acquisition of DS Smith was completed on January 31, 2025, for a total purchase consideration of approximately **$9.9 billion**[42](index=42&type=chunk)[43](index=43&type=chunk) Disaggregated Revenue by Segment (Six Months Ended June 30, 2025) | Segment (In millions) | Net Sales | | :--- | :--- | | Packaging Solutions North America | $7,562 | | Packaging Solutions EMEA | $3,841 | | Global Cellulose Fibers | $1,271 | | **Total** | **$12,668** | Provisional Purchase Price Allocation for DS Smith Acquisition (In millions) | Category | Provisional Fair Value | | :--- | :--- | | Total assets acquired | $18,145 | | Total liabilities assumed | $8,236 | | **Net assets acquired** | **$9,909** | | Goodwill | $4,091 | | Intangibles | $3,998 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2025 financial results, highlighting a $75 million net income driven by price increases and DS Smith's operations, and provides a Q3 2025 outlook [Executive Summary and Outlook](index=34&type=section&id=Executive%20Summary%20and%20Outlook) Q2 2025 net earnings reached $75 million, improving from Q1, driven by price increases and the DS Smith acquisition, with a generally positive Q3 outlook Q2 2025 Key Earnings Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Earnings (Loss) (in millions) | $75 | $(105) | $498 | | Diluted EPS | $0.14 | $(0.24) | $1.41 | | Adjusted Operating Earnings (in millions) | $105 | $101 | $193 | - The company is pursuing strategic options for its Global Cellulose Fibers business, but there is no assurance that this process will result in a transaction[159](index=159&type=chunk) - On June 30, 2025, the company completed the required divestiture of five European corrugated box plants to Palm Group of Germany for **€125 million** as a condition of the DS Smith acquisition[50](index=50&type=chunk)[160](index=160&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Analyzes consolidated income statement and segment performance for Q2 2025, showing net sales growth to $6.77 billion driven by DS Smith, and varied segment profitability Business Segment Operating Profit (Loss) - Q2 2025 vs Q1 2025 (in millions) | Segment | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Packaging Solutions North America | $277 | $142 | | Packaging Solutions EMEA | $(1) | $46 | | Global Cellulose Fibers | $(4) | $17 | - PS North America's Q2 profit improvement was driven by higher average sales prices for boxes and seasonally higher volumes[189](index=189&type=chunk)[191](index=191&type=chunk) - PS EMEA's Q2 results were impacted by a soft demand environment, though higher sales prices provided some offset[193](index=193&type=chunk)[195](index=195&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) Cash from operations decreased to $188 million due to DS Smith transaction costs, with full-year capital expenditures projected at $1.8-$1.9 billion, while liquidity remains adequate - Cash from operations decreased significantly to **$188 million** in the first half of 2025 from **$760 million** in H1 2024, mainly due to payments for DS Smith transaction costs (**$240 million**), severance (**$80 million**), and other items[199](index=199&type=chunk) - Full-year 2025 capital expenditures are projected to be between **$1.8 billion** and **$1.9 billion**[201](index=201&type=chunk) - The company maintains investment-grade credit ratings of **BBB (S&P)** and **Baa2 (Moody's)** and was in compliance with all debt covenants as of June 30, 2025[203](index=203&type=chunk)[204](index=204&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk exposure since December 31, 2024, with information incorporated by reference from the Annual Report - There have been no material changes in the Company's exposure to market risk since December 31, 2024[222](index=222&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of June 30, 2025, while integrating DS Smith may lead to future internal control changes - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[223](index=223&type=chunk) - The company is currently integrating the newly acquired DS Smith business into its systems and control environment, which may result in changes to internal controls[224](index=224&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) Refers to financial statement notes for details on material legal proceedings, including environmental liabilities, asbestos claims, and antitrust investigations - Material legal proceedings are detailed in Note 13 (Commitments and Contingencies) and Note 20 (Subsequent Events)[227](index=227&type=chunk) - A purported class action complaint was filed on July 29, 2025, against International Paper and other producers, alleging conspiracy to fix prices of containerboard products since November 2020[150](index=150&type=chunk) [Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the Annual Report, except for updated risks related to legal proceedings and the strategic review of the Global Cellulose Fibers business - The company faces risks from legal proceedings, including an Italian antitrust matter and a new U.S. class action lawsuit alleging price-fixing in the containerboard market[229](index=229&type=chunk)[230](index=230&type=chunk) - There are risks associated with the strategic review of the Global Cellulose Fibers business, including the possibility of no transaction occurring, diversion of management attention, and potential asset impairment charges[232](index=232&type=chunk)[233](index=233&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=49&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company acquired 18,748 shares from employees for tax withholding in Q2 2025, with no public repurchases, and **$2.96 billion** remaining authorized Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 14,573 | $53.35 | | May 2025 | 3,708 | $46.96 | | June 2025 | 467 | $50.14 | | **Total** | **18,748** | **N/A** | - All shares purchased were acquired from employees for tax withholding purposes; no shares were bought back under the public repurchase program[235](index=235&type=chunk) [Other Information](index=49&type=section&id=Item%205.%20Other%20Information) Discloses significant management changes effective April 1, 2025, including new roles for Timothy S. Nicholls and the appointment of Lance T. Loeffler as CFO - Effective April 1, 2025, Timothy S. Nicholls was promoted to lead the DS Smith business in EMEA, and Lance T. Loeffler was appointed as the new Senior Vice President and Chief Financial Officer[239](index=239&type=chunk)[244](index=244&type=chunk) - New CFO Lance T. Loeffler's compensation package includes an **$850,000** base salary, a target bonus of **100%** of base salary, a one-time inducement RSU grant of **$1.7 million**, and a 2025 long-term incentive grant of **$3.5 million**[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk) [Exhibits](index=52&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including employment agreements for key executives and Sarbanes-Oxley Act certifications - Filed exhibits include the employment offer letter for new CFO Lance T. Loeffler and certifications from the principal executive and financial officers[257](index=257&type=chunk)