International Paper ‘encouraged’ by demand recovery

Paper and packaging companies worldwide have faced demand issues all year, and in its third quarter earnings report, International Paper (IP) reports similar challenges, though the outlook may be improving.

The Memphis, Tennessee-based paper, pulp and packaging producer earned $4.6 billion in third-quarter net sales compared with $5.4 billion in the third quarter of 2022. Net sales essentially were flat quarter over quarter, with IP reporting $4.7 billion net sales in the second quarter of this year.

“Looking at our performance, we delivered on the earnings outlook we provided last quarter and we continued our efforts to drive out the highest marginal cost across our system,” IP Chairman and CEO Mark Sutton said during a third-quarter earnings call.

In its Industrial Packaging business segment, IP reports $3.8 billion in net sales, down from $4.4 billion in last year’s third quarter and virtually flat from this year’s second quarter. Its Global Cellulose Fibers segment posted net sales of $725 million, up from $698 million in the second quarter but down from $887 million in last year’s third quarter.

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The Industrial Packaging operating profit was $325 million in the third quarter compared with $304 million in the second quarter, and IP credits higher sales volumes for containerboard and lower planned outage costs as factors in the improved earnings despite lower sales prices for containerboard and corrugated boxes in North America.

Economic downtime was down considerably from the previous quarter, which IP says improved operating costs. In the third quarter, the company took 458,000 tons worth of downtime in its containerboard operations compared with 622,000 tons in the second quarter. That number, however, is still up from a year ago when IP took 398,000 tons worth of containerboard downtime in the third quarter of 2022. It is the fifth-straight quarter IP has taken downtime in its containerboard operations.

But IP is encouraged by a continuing demand recovery it’s seen across its portfolio and expects the trend to continue going forward.

“[Operations] and costs … benefited from lower economic downtime in the quarter as demand improved,” Chief Financial Officer Tim Nicholls said during the call. “Our mill system continued to run very reliably and our teams across the businesses remain focused on reducing the highest marginal cost and spending while further optimizing our entire supply chain to align with the customer demand environment.”

The company also reports higher containerboard shipments across its export channels because of the improved demand and notes that daily U.S. box shipments were stable sequentially.

“However, in this challenging macro environment, we are not satisfied with our absolute results,” Sutton said. “We are taking actions to structurally reduce fixed costs in our mill system while optimizing our supply chain and investing in our box capabilities to grow with customers.”

One of those investments is a $100 million box plant in Atglen, Pennsylvania, that opened in September. Sutton said the investment will allow IP to optimize its network of plants in the Northeast while providing additional capacity for future growth.

He notes other examples of IP’s focus on its box business, including adding converting lines in existing plants and upgrading older equipment.

“The investments we have made over the past two years in existing plants is the equivalent of adding almost three average size box plants to our system,” Sutton added. “We will supplement this strategy with additional investments in greenfield box plants and occasionally with bolt-on [mergers and acquisitions] where we can create additional value by addressing regional needs and enhancing our business.”

IP also recently announced the closure of its containerboard mill in Orange, Texas, as part of its focus on optimizing its box business. The closure will reduce IP’s containerboard capacity by about 800,000 tons and improve its annual earnings before interest, taxes, depreciation and amortization by about $140 million.

“Part of what allowed us to make [that] decision is the depth of this [demand] downturn and the duration and the fact that we need, over time, to change our product offering that we make boxes out of,” Sutton said. “We’re taking this opportunity to do a reset.”