International Paper(IP) - 2025 Q1 - Quarterly Results

First Quarter 2025 Performance Overview International Paper reported a net loss in Q1 2025 despite higher sales driven by the DS Smith acquisition, as the company progressed its transformation and 80/20 strategy amidst softer market demand and significant one-time costs Financial Highlights International Paper reported a net loss of $(105) million, or $(0.24) per share, for the first quarter of 2025, a significant downturn from the net earnings of $56 million in the prior year's quarter; however, adjusted operating earnings were positive at $101 million, or $0.23 per share, with net sales seeing a substantial increase to $5.9 billion primarily driven by the acquisition of DS Smith, while free cash flow was negative at $(618) million, heavily impacted by transaction costs and incentive payouts Q1 2025 Key Financial Metrics (In millions) | | First Quarter 2025 | First Quarter 2024 | Fourth Quarter 2024 | | :--- | :--- | :--- | :--- | | Net Sales | $5,901 | $4,619 | $4,580 | | Net Earnings (Loss) | $(105) | $56 | $(147) | | Adjusted Operating Earnings | $101 | $61 | $(7) | | Cash Provided By (Used For) Operations | $(288) | $395 | $397 | | Free Cash Flow | $(618) | $144 | $137 | Earnings Per Share (EPS) Comparison | | First Quarter 2025 | First Quarter 2024 | Fourth Quarter 2024 | | :--- | :--- | :--- | :--- | | Net Earnings (Loss) Per Share | $(0.24) | $0.16 | $(0.42) | | Adjusted Operating Earnings Per Share | $0.23 | $0.17 | $(0.02) | - First quarter net earnings include a significant pre-tax charge of $271 million for accelerated depreciation and restructuring related to the closure of the Red River containerboard mill[3] CEO Commentary and Strategy The CEO, Andy Silvernail, highlighted the company's progress in its first year of transformation, emphasizing the deployment of the 80/20 strategy to focus on key customers and the successful integration of DS Smith, noting that while the acquisition and cost-saving initiatives drove higher sales and earnings, overall market demand was softer than expected, leading the company to focus on controllable actions, such as accelerating 80/20 execution, to navigate the uncertain macroeconomic environment - The company deployed an 80/20 strategy, focusing on its most valuable customers and aligning resources accordingly[4] - Q1 2025 results were primarily driven by the DS Smith acquisition, sales price increases, and cost-out initiatives[4] - Market demand was softer than anticipated in both North American and EMEA regions[4] - Free cash flow was temporarily impacted by transformation costs and incentive compensation payouts[4] Segment Information Following the DS Smith acquisition, International Paper reorganized its segments into Packaging Solutions North America, Packaging Solutions EMEA, and Global Cellulose Fibers, with the EMEA segment showing significant growth while other segments experienced mixed results due to specific operational impacts Segment Restructuring Following the acquisition of DS Smith on January 31, 2025, International Paper has reorganized its business segments, with the new structure consisting of Packaging Solutions North America, Packaging Solutions EMEA, and Global Cellulose Fibers, where the Packaging Solutions EMEA segment now includes the legacy EMEA business and the newly acquired DS Smith EMEA operations, and prior period results have been recast to align with this new reporting structure - The acquisition of DS Smith was completed on January 31, 2025, prompting a change in the company's organizational and reporting structure[9] - The new reporting segments are Packaging Solutions North America, Packaging Solutions EMEA, and Global Cellulose Fibers[9] Business Segment Results In Q1 2025, the Packaging Solutions EMEA segment's net sales and operating profit surged due to the DS Smith acquisition, while Packaging Solutions North America saw higher sales but a decrease in operating profit, largely due to accelerated depreciation from a mill closure, and the Global Cellulose Fibers segment returned to profitability, recovering from a significant loss in the previous quarter that was also impacted by accelerated depreciation Segment Net Sales and Operating Profit (in millions) | | First Quarter 2025 | Fourth Quarter 2024 | First Quarter 2024 | | :--- | :--- | :--- | :--- | | Net Sales | | | | | Packaging Solutions North America | $3,702 | $3,539 | $3,486 | | Packaging Solutions EMEA | $1,550 | $357 | $348 | | Global Cellulose Fibers | $643 | $662 | $704 | | Operating Profit (Loss) | | | | | Packaging Solutions North America | $142 | $228 | $192 | | Packaging Solutions EMEA | $46 | $19 | $24 | | Global Cellulose Fibers | $17 | $(250) | $(47) | - Packaging Solutions North America's operating profit was impacted by $193 million of accelerated depreciation from the Red River mill closure[14] - Packaging Solutions EMEA's results include $1.2 billion in net sales and $13 million in operating profit from the newly acquired DS Smith EMEA business[15] - Global Cellulose Fibers' operating profit improved significantly, swinging to a $17 million profit from a $(250) million loss in Q4 2024, which included $215 million of accelerated depreciation[16] Financial Statements and Reconciliations The company's Q1 2025 financial statements reflect a net loss and negative cash flow, significantly impacted by special charges related to the DS Smith acquisition and restructuring, which also led to a substantial expansion of the balance sheet Effects of Net Special Items The company recorded a net after-tax charge of $204 million ($0.46 per share) from special items in Q1 2025, primarily driven by costs associated with the DS Smith acquisition ($221 million pre-tax) and severance and other restructuring costs ($83 million pre-tax), which were partially offset by a gain on the sale of fixed assets Net Special Items (in millions) | | First Quarter 2025 (Before Tax) | First Quarter 2025 (After Tax) | | :--- | :--- | :--- | | DS Smith combination costs | $221 | $183 | | Severance and other costs | $83 | $63 | | Global Cellulose Fibers strategic options costs | $12 | $9 | | Net (gain) loss on sale of fixed assets | $(67) | $(51) | | Total special items, net | $249 | $204 | Consolidated Statement of Operations For the first quarter of 2025, International Paper reported net sales of $5.9 billion and a net loss of $(105) million, compared to net sales of $4.6 billion and net income of $56 million in the same period last year, with the loss primarily due to increased costs, including $571 million in depreciation and amortization (up from $278 million YoY) and $83 million in restructuring charges Consolidated Statement of Operations (in millions) | | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net Sales | $5,901 | $4,619 | | Cost of products sold | $4,259 | $3,424 | | Depreciation and amortization | $571 | $278 | | Restructuring charges, net | $83 | $3 | | Earnings (Loss) Before Income Taxes | $(135) | $85 | | Net Earnings (Loss) | $(105) | $56 | Consolidated Balance Sheet The company's balance sheet expanded significantly as of March 31, 2025, due to the DS Smith acquisition, with total assets growing to $41.2 billion from $22.8 billion at the end of 2024, reflected in substantial rises in Goodwill (to $7.2 billion), Intangibles (to $4.6 billion), and Net Plants, Properties, and Equipment (to $16.0 billion), and correspondingly, total liabilities also increased, with long-term debt rising to $9.2 billion Balance Sheet Highlights (in millions) | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $41,168 | $22,800 | | Goodwill | $7,242 | $3,038 | | Intangibles, Net | $4,585 | $145 | | Total Liabilities | $23,076 | $14,627 | | Long-Term Debt | $9,175 | $5,368 | | Total Equity | $18,092 | $8,173 | Consolidated Statement of Cash Flows In Q1 2025, the company experienced a net cash outflow from operating activities of $(288) million, a stark contrast to the $395 million inflow in Q1 2024, primarily driven by transaction costs for the DS Smith acquisition and annual incentive compensation payouts, totaling approximately $670 million, while capital expenditures increased to $330 million, contributing to a negative free cash flow of $(618) million Cash Flow Summary (in millions) | | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Cash Provided By (Used For) Operating Activities | $(288) | $395 | | Invested in capital projects | $(330) | $(251) | | Cash Provided By (Used For) Investment Activities | $237 | $(247) | | Cash Provided By (Used for) Financing Activities | $21 | $(191) | | Change in Cash and Temporary Investments | $(14) | $(43) | - Cash from operations was negatively impacted by approximately $670 million due to the timing of annual incentive compensation payout and transaction costs for the DS Smith acquisition[17] GAAP to Non-GAAP Reconciliations The company provides reconciliations for its non-GAAP measures to the most comparable GAAP figures, where for Q1 2025, the GAAP Net Loss of $(105) million was adjusted for $249 million in net special items and $3 million in non-operating pension expense to arrive at an Adjusted Operating Earnings of $101 million, and similarly, Free Cash Flow of $(618) million is reconciled from Cash Provided by (Used For) Operating Activities of $(288) million less capital investments of $330 million Reconciliation of Net Earnings (Loss) to Adjusted Operating Earnings (Q1 2025, in millions) | | Amount | | :--- | :--- | | Net Earnings (Loss) | $(105) | | Add back: Non-operating pension expense | $3 | | Add back: Net special items expense | $249 | | Income taxes - Non-operating pension and special items | $(46) | | Adjusted Operating Earnings | $101 | Reconciliation of Cash Provided by Operations to Free Cash Flow (Q1 2025, in millions) | | Amount | | :--- | :--- | | Cash Provided By (Used For) Operating Activities | $(288) | | Adjustments: Cash invested in capital projects | $(330) | | Free Cash Flow | $(618) | Other Information This section provides details on the Q1 earnings webcast and includes a cautionary statement regarding forward-looking statements, highlighting key risks and uncertainties Earnings Webcast The company hosted a webcast and teleconference on April 30, 2025, at 10 a.m. ET to discuss the first-quarter earnings and current market conditions, with replay information for both the webcast and an audio-only version provided - An earnings webcast was held on April 30, 2025, at 10 a.m. ET[21] - Dial-in numbers and a conference ID were provided for teleconference participation, with an audio replay available for ninety days[22] Cautionary Statement Regarding Forward-Looking Statements This section provides a standard legal disclaimer regarding forward-looking statements made in the press release, cautioning that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, with key risks highlighted including the ability to successfully integrate the DS Smith acquisition, challenging macroeconomic conditions, inflationary pressures, changes in interest rates, and the company's level of indebtedness - The press release contains forward-looking statements that are not guarantees of future performance and are subject to risks and uncertainties[24] - Key risk factors include the ability to consummate and achieve benefits from the DS Smith acquisition, challenging economic conditions, supply chain disruptions, and the level of indebtedness[24] - The company undertakes no obligation to publicly update any forward-looking statements[25]