International Paper CoFollowinternationalpaper.com
Sentiment Score: -33
Sentiment Change: -1
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International Paper Co Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- EBITDA margins came in slightly better sequentially.
- The company is investing in a greenfield state-of-the-art corrugated box facility in Waterloo, Iowa.
- The company is moving from a defensive posture to an offensive posture.
- Volume has tracked to the plan for the past three quarters and since January, and the company has a clear pipeline forward.
- Volume was lower by $24 million sequentially due to two fewer shipping days in Q4.
- The company made choices based on its box go-to-market strategy that negatively impacted its volume as expected.
- The company expects operations and costs to increase earnings by $30 million, including the unfavorable impact of wage inflation.
- Higher pricing was more than offset by higher costs and expected volume losses from the commercial strategy.
- Higher planned maintenance outages expense is expected to decrease earnings in Q4 by approximately $26 million.
- Operations and costs are expected to increase earnings by $30 million.
- The company expects commercial improvement to contribute roughly $800 million to its $4-billion target.
- The company expects to improve margins and mix over the long-term.
Q&A Highlights from International Paper Co Earnings Call Q4 2024
- Analyst asked about the company's plan for the next two years, specifically regarding negative year-over-year results.
- The company expects negative year-over-year results through the middle of next year, but believes that the situation is on track and will stabilize and potentially move positive in the second half of 2023. The company has been making investments in reliability and service metrics, which have shown positive results, and is now quoting pieces of business that it didn't have the opportunity to quote a year ago.
- The company expects negative year-over-year results through the middle of next year, but believes that the situation is on track and will stabilize and potentially move positive in the second half of 2023. The company has been making investments in reliability and service metrics, which have shown positive results, and is now quoting pieces of business that it didn't have the opportunity to quote a year ago.
- Analyst asked about the company's capital expenditure and maintenance spending levels.
- The company is targeting $1.2 billion in capital expenditure and maintenance spending, which matches what they believe the organization can effectively execute and where they are relative to the turnaround of the business. However, they plan to invest aggressively over the next few years, with a combination of factors contributing to the decision, including closing the gap on non-strategic assets and incrementally increasing spending. The company's demand for packaging business over a cycle is about 1% to 1.5% volume increase, and investment trends and profit trends have been highly volatile, leading to the decision to cut off volatility and stay in the board on the top side and on the bottom side. The company is also looking to consistently invest in being great and fill the hole they have, with a focus on core Integrated Packaging business, which has less volatility compared to other parts of the business.
- The company is targeting $1.2 billion in capital expenditure and maintenance spending, which matches what they believe the organization can effectively execute and where they are relative to the turnaround of the business. However, they plan to invest aggressively over the next few years, with a combination of factors contributing to the decision, including closing the gap on non-strategic assets and incrementally increasing spending. The company's demand for packaging business over a cycle is about 1% to 1.5% volume increase, and investment trends and profit trends have been highly volatile, leading to the decision to cut off volatility and stay in the board on the top side and on the bottom side. The company is also looking to consistently invest in being great and fill the hole they have, with a focus on core Integrated Packaging business, which has less volatility compared to other parts of the business.
- Analyst asked about the company's plan to transfer production, close mills, and realign capacity.
- The company is evaluating assets and locations and needs to do that the right way at the right time. They have a wide band of core earnings across the spectrum of their business, and some parts of their business are not as profitable or even negative. They need to align those parts with assets that have poor returns, and there is no path to success for those parts. The company needs to move their investment to customers, products, and assets that will allow them to win, and they have been doing so before. They plan to continue to move down this path, focusing on greenfields, brownfields, and lighthouses in the places where they don't have enough capacity. They also need to focus on niches of sub-niches of markets where they are good and can win in that sub-niche. In other places where it doesn't make economic sense, they need to make other decisions. On the mill side, they need to invest on a consistent basis in mills, keeping them primed, and making decisions based on the age and competitiveness of the mills. They need to balance the needs of their stakeholders, including their people, customers, and shareholders, to create a highly dependent system of stakeholders that drives profitable growth.
- The company is evaluating assets and locations and needs to do that the right way at the right time. They have a wide band of core earnings across the spectrum of their business, and some parts of their business are not as profitable or even negative. They need to align those parts with assets that have poor returns, and there is no path to success for those parts. The company needs to move their investment to customers, products, and assets that will allow them to win, and they have been doing so before. They plan to continue to move down this path, focusing on greenfields, brownfields, and lighthouses in the places where they don't have enough capacity. They also need to focus on niches of sub-niches of markets where they are good and can win in that sub-niche. In other places where it doesn't make economic sense, they need to make other decisions. On the mill side, they need to invest on a consistent basis in mills, keeping them primed, and making decisions based on the age and competitiveness of the mills. They need to balance the needs of their stakeholders, including their people, customers, and shareholders, to create a highly dependent system of stakeholders that drives profitable growth.
- Analyst asked about the Waterloo greenfield box plant and the anticipated CapEx and return on investment.
- The company hasn't disclosed any information about the Waterloo greenfield box plant yet, but they expect to provide more details at the Investor Day. The plant is a large investment, and the company expects to drive cash on cash returns of about 20%. The total cost of the investment will include the value chain from an integrated perspective.
- The company hasn't disclosed any information about the Waterloo greenfield box plant yet, but they expect to provide more details at the Investor Day. The plant is a large investment, and the company expects to drive cash on cash returns of about 20%. The total cost of the investment will include the value chain from an integrated perspective.
- Analyst asked about the productivity improvements that the company expects to achieve as they scale their approach from their first two lighthouses to the incremental 22 in 2025.
- The company expects similar improvements in productivity as they scale their approach. The gains are not driven by dramatic capital investment but rather by the volume mix matrix, which involves isolating complexity and putting it in a few box plants while enabling lights-out production in other places. The company also plans to enable these improvements with CapEx, but the gains will not be linear, and some geographies may not see the same level of productivity improvements. The company plans to roll out this approach at lightning speed, but they need to be mindful of the changes and go hand in hand with their employees to make sure the changes are successful.
- The company expects similar improvements in productivity as they scale their approach. The gains are not driven by dramatic capital investment but rather by the volume mix matrix, which involves isolating complexity and putting it in a few box plants while enabling lights-out production in other places. The company also plans to enable these improvements with CapEx, but the gains will not be linear, and some geographies may not see the same level of productivity improvements. The company plans to roll out this approach at lightning speed, but they need to be mindful of the changes and go hand in hand with their employees to make sure the changes are successful.
- Analyst asked about the cost productivity potential of International Paper's Lighthouse strategy.
- The company is focused on improving mill reliability, which is expected to unlock $175 million to $200 million of cost productivity. The remaining productivity improvements will come from productivity gains in the mills and box plants, which are expected to offset internal inflation. The company aims to achieve 2% to 3% per year in productivity improvements, which will offset internal inflation and lead to long-term cost savings.
- The company is focused on improving mill reliability, which is expected to unlock $175 million to $200 million of cost productivity. The remaining productivity improvements will come from productivity gains in the mills and box plants, which are expected to offset internal inflation. The company aims to achieve 2% to 3% per year in productivity improvements, which will offset internal inflation and lead to long-term cost savings.
- Analyst asked about the volume absorption of the extra capacity created by closing box plants.
- The company has closed two box plants and consolidated the volume into other lighthouses, resulting in real productivity and cost savings. The company is also driving continuous improvement as it brings in the consolidated volume. The company aims to match the volume matrix correctly, making its businesses more effective, and then drive ongoing productivity improvements.
- The company has closed two box plants and consolidated the volume into other lighthouses, resulting in real productivity and cost savings. The company is also driving continuous improvement as it brings in the consolidated volume. The company aims to match the volume matrix correctly, making its businesses more effective, and then drive ongoing productivity improvements.
- Analyst asked about the company's plan to catch up on the $1.2 billion of underspend.
- The company is not falling behind, and they are making changes to reallocate the money towards strategic assets. The total timeframe to make up the hole is about three years, and the company is already making progress in this area.
- The company is not falling behind, and they are making changes to reallocate the money towards strategic assets. The total timeframe to make up the hole is about three years, and the company is already making progress in this area.
- Analyst asked about the report cards and sports cards in the Q1 Industrial Packaging view, specifically if price increases in January are included in the report.
- The company is not including price increases in January in the report, as they were not reflected in RISI or how the company should think about it.
- The company is not including price increases in January in the report, as they were not reflected in RISI or how the company should think about it.