International Paper(IP) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, the company achieved approximately 37% year-over-year adjusted EBITDA growth in North America, with adjusted EBITDA for the fourth quarter reaching $560 million [23][26] - The full year 2025 net sales for the standalone International Paper are projected to exceed $15 billion, with approximately $2.3 billion of adjusted EBITDA expected to accelerate rapidly over the next 24 months [14] - The company expanded adjusted EBITDA margin by 230 basis points in 2025, despite facing $958 million in accelerated depreciation due to footprint optimization and higher depreciation related to the DS Smith acquisition [25] Business Line Data and Key Metrics Changes - North America saw significant progress with a $510 million run rate cost benefit achieved through the 80/20 plan, while EMEA is in the early stages of transformation with 20 site closures impacting approximately 1,400 roles [23][24] - The standalone EMEA Packaging business is projected to have full year 2025 net sales of approximately $8.5 billion and adjusted EBITDA of around $800 million [17] Market Data and Key Metrics Changes - North America is characterized by a high degree of supply integration and steady demand growth, while EMEA has more localized dynamics with relatively higher demand growth [11] - The company expects to outperform the industry in both regions, with North America projected to grow 3-4 percentage points above the underlying market [23][41] Company Strategy and Development Direction - The company plans to create two publicly traded, scaled regional packaging solution leaders in North America and EMEA, aiming to maximize long-term value for shareholders [5][10] - The 80/20 performance system will continue to guide the company's operations, focusing on simplifying, segmenting, resourcing, and growing to drive sustainable value creation [6][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the trajectory for 2026, projecting enterprise net sales of $24.1 billion to $24.9 billion and adjusted EBITDA of $3.5 billion to $3.7 billion [41] - The company anticipates that the separation will enable both businesses to accelerate progress toward maximizing long-term profitable growth through greater speed, agility, and differentiation [10][43] Other Important Information - The separation of the EMEA Packaging business is expected to be completed within 12-15 months, with plans for the new company to be listed on both the London and New York Stock Exchanges [20] - The company plans to invest approximately $400 million in EMEA throughout 2026 to fund ongoing transformation and 80/20 implementation [22] Q&A Session Summary Question: Can you provide details on the Free Cash Flow guidance? - The Free Cash Flow guidance of $300 million to $500 million does not include price impacts, and a price letter has been sent to customers [46][47] Question: How should we think about corporate costs relative to the guidance? - The guidance includes corporate costs, and there will not be a significant overall increase in corporate costs post-separation [58][61] Question: Why is the separation process expected to take 12-15 months? - The timeline is due to the accounting complexities involved in the separation, which is primarily an accounting exercise [64][66] Question: What confidence does the company have in achieving the second half targets for 2026? - The company has confidence due to actions already taken and the expectation that costs will normalize, leading to improved performance [70][72] Question: Can you discuss the relative profitability of new wins versus lost business? - The company has maintained pricing discipline and is confident that the new volume wins are of high quality and profitability [81][83]