Tim S. Nicholls
Senior Vice President and Chief Financial Officer at International Paper
Great. Thank you, Mark. Good morning, everyone. If we turn to Slide four, the full year key financials. As Mark mentioned earlier, 2023 proved to be a challenging market environment, which impacted our financial performance. During much of the year, underlying demand for our products was lower, as consumers prioritize spending on services and essential goods. This trend was influenced by the pull forward of goods during the pandemic, as well as by inflationary pressures and rising interest rates that impacted the consumer. Demand for our products was further constrained by inventory destocking, as our customers and the broader supply chain worked through elevated inventories of their products.
The lower demand, combined with declining sales prices for our products and sticky cost inflation resulted in lower revenues and earnings in 2023, when compared to prior periods. Based on shipment trends across the markets we serve, we saw a demand trough in the first half of 2023, and then continued to see improvement throughout the year. In addition, we benefited from the Building a Better IP initiatives Mark just mentioned. And as a reminder, free cash flow for the year included a onetime use of cash totaling approximately $200 million, related to our timber monetization actions.
Now I'll turn to the fourth quarter key financials on Slide five. Operating earnings per share came in better than the outlook we provided in the third quarter. Our teams executed well, by optimizing costs and delivering commercial initiatives focused on margin and mix improvement. And as we announced in the third quarter, we closed our containerboard mill in Orange, Texas, and permanently idled two pulp machines in our mills in Riegelwood, North Carolina, and Pensacola, Florida. We expect the cost benefits from these closures to ramp throughout 2024. We are also encouraged to see that demand continue to recover across our portfolio in the fourth quarter, and we expect this trend to continue going forward.
Now turning to Slide six, I'll provide more details about the quarter as we walk through the sequential earnings bridge. Fourth quarter operating earnings per share was $0.41 as compared to $0.64 in the third quarter. Price and mix was lower by $0.18 per share, primarily due to index movements across our portfolio and lower export sales price. This was partially offset by margin and mix benefits from commercial initiatives in both businesses. Volume was favorable to earnings by $0.07 per share, as higher demand across our portfolio more than offset one less shipping day in our North American packaging business. We also had lower shipments of commodity pulp as we executed our strategy focused on improving mix and optimizing that business.
Operations & Costs was unfavorable by $0.12 per share sequentially. This is due to a nonrepeat of a favorable onetime item we called out in the third quarter related to lower cost of company paid benefits, totaling about $80 million or $0.18 per share. This nonrepeat was partially offset by our continued focus on reducing marginal cost and spending. We're accomplishing this by optimizing fiber and energy costs, reducing labor overtime and corporate overhead expenses, driving down supply chain costs and shifting to lower-cost suppliers.
We also had lower unabsorbed fixed costs related to less economic downtime as demand improved across our portfolio. Maintenance outages were higher by $30 million or $0.03 per share in the fourth quarter, and input costs were lower overall as increased pricing for OCC was offset by lower cost for energy, chemicals and wood. And finally, corporate items were impacted by a higher effective tax rate in the fourth quarter offsetting lower corporate expenses.
Turning to the segments and starting with Industrial Packaging on Slide seven. Price and mix was lower due to index movements, lower export prices and higher export mix as demand improved. This was partially offset by benefits from commercial initiatives focused on margin improvement in our box business.
Later in this presentation, Mark will talk more about this go-to-market strategy. Volume was higher despite one less shipping day in box. We saw sequentially higher daily shipments in our box business and higher volumes across our domestic and export containerboard channels. Operations & Costs was unfavorable sequentially due to the nonrepeat items that I mentioned earlier, which benefited the third quarter in this business by $68 million.
The majority of this was offset by lower economic downtime in the quarter as demand improved, and reflects the intense focus by our teams to reduce costs across our mills and box plants. Planned maintenance outages were lower by $22 million sequentially due to a seasonally lower outage schedule and our efforts to optimize outage spending across the mill system. Input costs were moderately lower primarily due to lower cost for energy and chemicals, partly offset by higher OCC costs.
Turning to Slide eight. We thought it would be helpful to share some additional perspective on segment trends for our North American packaging business, based on feedback from our customers. As shown on the previous slide, our U.S. box shipments in the fourth quarter were up approximately 3% sequentially, and we've continued to see demand growth in packaging since the trough in the March of 2023. E-commerce has been very resilient, with our shipments in 2023 up approximately 30% since 2019.
This continues to be an attractive channel for our consumers as evidenced during the past holiday season. International Paper has strategic customer relationships and a strong value proposition, with scale and geographic reach to support seasonal demand surges. Shipping & Distribution was significantly affected by inventory destocking efforts across its longer supply chains. As a result, we've seen improvement across the segment since the destocking phase ran its course. Food & Beverage has been relatively stable overall. The Fresh fruit -- fresh foods segment has benefited from solid performance across the food service channel and consumer shifts toward make at home meals in place of processed food and its convenience.
The Protein segment has been impacted by supply reductions in Beef & Poultry. International Paper is overweight in this segment, which has impacted our box shipment performance relative to the overall industry. We believe this is temporary and expect trends to improve in 2024. The Beverage segment has been under pressure as budget-conscious consumers have reduced consumption of specialty beverages, which tend to be more packaging-intensive.
On the other side of the spectrum, segments like durables and other nondurable consumer goods are more discretionary in nature and have been under pressure. Based on customer feedback and economic data like housing starts and consumer expectations, we expect demand in this packaging-intensive segment to improve.
In summary, based on these trends, we believe industry box demand will grow approximately 3% in 2024. We understand the critical role corrugated packaging plays in bringing essential products to consumers, and we believe that IP is well positioned to grow with our customers over the long term.
Turning to Slide nine. I'll touch on what we're seeing across our Containerboard Export channel. Demand for kraft containerboard continued to improve through the fourth quarter and based on feedback from our customers, inventories appear to have normalized across all regions. In terms of segment performance, we are seeing solid demand in fresh fruit and vegetable markets, where we have a strategic customer relationship in Latin America and the Mediterranean.
Demand across the industrial segments in Europe and Asia remained soft due to the lower consumer demand for durables and nondurable products. We expect these segments to recover as the broader economy improves, and International Paper is well positioned to grow with these segments due to their performance requirements and need for heavyweight kraft linerboard.
Moving on to Global Cellulose Fibers on Slide 10. We'll take a look at the fourth quarter. Price and mix was lower due to price index movements, partially offset by benefits from higher fluff and specialty pulp mix. Volume was relatively flat overall, as higher demand for fluff and specialty pulp was offset by lower sales of commodity grades as we continue to focus on strategically aligning our business with the most attractive customers and segments.
Operations and cost was unfavorable sequentially due to the nonrepeat item I mentioned earlier, which benefited the third quarter in this business by $12 million. In addition, Ops & Costs included a planned turbine maintenance expense of $18 million. Planned maintenance outages were also higher in the fourth quarter by $35 million. And finally, input costs were lower by $7 million, primarily due to lower wood and chemical costs.
Turning to Slide 11. I'll talk about what we're seeing across the Fluff Pulp segment. Overall demand has continued to improve through the fourth quarter, and we expect this trend to continue this year. Inventories have normalized across much of our customer base. We are seeing most of the improvement to date from the developed economies driven by improved consumer demand, stabilizing inflation and more stable currencies. Demand in China and the Middle East has been stable, and we expect a normal seasonal decline in those regions in the first quarter due to Chinese New Year and Ramadan. Inventories are elevated, however, we expect them to normalize in the second quarter.
On Slide 12, I'll share a few comments about 2024. Given the fluid market environment, we have chosen not to provide a full year earnings outlook. However, we will share our view of demand trends and IP improvement initiatives as well as other financial assumptions. Overall, we believe the demand environment will continue to improve across our portfolio, and we have initiatives focused on improving mix and margins in both businesses. We expect the first quarter of 2024 will be an earnings trough due to seasonally low volumes, seasonally higher costs and unfavorable impacts from the January winter freeze.
Also, the majority of prior publication declines will flow through the first quarter. Regarding demand trends, we expect packaging and Fluff pulp markets to grow approximately 3% year-over-year. In 2024, our North American box business may trail the market as we continue to execute a go-to-market strategy focused on margin and mix improvement. Given International Paper's commercial and operational initiatives, we expect more than $400 million of benefits this year.
These initiatives should ramp up through the year and include cost reduction benefits from the closure of our containerboard mill in Orange, Texas, and two pulp machine closures at our mills in Riegelwood, North Carolina, and Pensacola, Florida. We also expect higher costs for OCC as demand continues to improve and general inflation on things like transportation, wages, employee benefits, materials and services. We plan to invest between $800 million and $1 billion in capital investments for general maintenance, cost improvement and enhanced capabilities in our box business. Other assumptions for items like corporate expense, interest expense and tax rate are included on Slide 30 in the appendix.
Turning to Slide 13. I'll outline our first quarter outlook. Before I get into the details on each of the businesses, the January winter freeze is expected to negatively impact earnings for the first quarter by approximately $40 million for the company. This impact is embedded in the numbers I will provide for each business. I'll start with Industrial Packaging. We expect price and mix to remain flat overall. The prior index movement in North America is expected to decrease earnings by approximately $67 million. However, we expect this to be offset by approximately $68 million of commercial benefits from contract restructuring in our North American box business. This is part of our box go-to-market strategy that Mark will discuss in a few minutes.
Volume is expected to decrease earnings by $25 million due to seasonally lower daily demand, partially offset by two more shipping days. Operations and costs is expected to decrease earnings by $30 million. This is due to seasonality and some cost inflation on wages and employee benefits. These increases should be partially offset by lower fixed costs resulting from the closure of our Orange mill. Higher maintenance outage expense is expected to decrease earnings by $31 million. And lastly, rising input costs are expected to decrease earnings by $20 million, driven by higher OCC and seasonally higher energy costs. Switching to Global Cellulose Fibers. We expect price and mix to increase earnings by $5 million as a result of our strategy to reduce exposure to commodity pulp.
Overall volume is expected to remain stable, as seasonally lower shipments during the Chinese New Year are being offset by improved demand in other regions. Operations and costs are expected to decrease earnings by $5 million due to seasonality and cost inflation. This is partially offset by the non-repeat of the turbine maintenance outage in the fourth quarter, and lower fixed costs resulting from the idling of our pulp machine in our Riegelwood mill. As you may recall, the machine in our Pensacola mill was already idled in the third quarter. Lower maintenance outage expense is expected to increase earnings by $16 million. And lastly, higher input costs are expected to decrease earnings by $5 million.
With that, I'll turn it back over to Mark.
