International Paper Q4 2024 Earnings Report

International Paper EPS Results

• Actual EPS: -$0.02
• Consensus EPS: $0.03
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: N/A

International Paper Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $4.71 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

International Paper Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 10:00AM ET

International Paper (NYSE:IP) Company produces and sells renewable fiber-based packaging and pulp products in North America, Latin America, Europe, and North Africa. It operates through two segments, Industrial Packaging and Global Cellulose Fibers. The company offers linerboard, medium, whitetop, recycled linerboard, recycled medium and saturating kraft; and pulp for a range of applications, such as diapers, towel and tissue products, feminine care, incontinence, and other personal care products, as well as specialty pulps for use in textiles, construction materials, paints, coatings, and others. It sells its products directly to end users and converters, as well as through agents, resellers, and distributors. The company was founded in 1898 and is headquartered in Memphis, Tennessee.

International Paper Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning and thank you for standing by. Welcome to International Paper's 4th Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, you will have an opportunity to ask questions. And it is now my pleasure to turn the call over to Jose Maria Rodriguez Mace, Vice President, Investor Relations.

[Operator]

Sir, the floor is yours.

[Jose Maria Rodriguez Meis, VP & General manager at International Paper Company]

Thank you, Christa. Good morning and good afternoon, and thank

[Jose Maria Rodriguez Meis, VP & General manager at International Paper Company]

you for joining International Paper's 4th quarter and full year 2024 earnings call. Our speakers this morning are Andy Silvernet, Chairman and Chief Executive Officer and stepping in today for our Chief Financial Officer, Tim Nichols, who is in London for DS Smith Day 1 is Finance Vice President, Mark Nellison. There is important information at the beginning of our presentation, including certain legal disclaimers. For example, during this call, we will make forward looking statements that are subject to risks and uncertainties. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements can be found in our press releases and reports filed with the U.

[Jose Maria Rodriguez Meis, VP & General manager at International Paper Company]

S. Securities and Exchange Commission. We will also present certain non U. S. GAAP financial information.

[Jose Maria Rodriguez Meis, VP & General manager at International Paper Company]

A reconciliation of those figures to U. S. GAAP financial measures is available on our website. Our website also contains copies of the Q4 and full year earnings press release and today's presentation slides. And finally, I would like to note that all financial materials in these presentations reflect only the current IP portfolio.

[Jose Maria Rodriguez Meis, VP & General manager at International Paper Company]

I will now turn the call over to Andy.

[Andy Silvernail, CEO at International Paper Company]

Thank you, Adai, and congratulations on your new role as Vice President of Investor Relations, and congratulations to Mark Nellison who's moving from IR to the lead financial role in our North American Packaging Solutions business. And Mark, thanks for pinch hitting for Tim as he's getting us ready here for day 1 with D. S. Smith. With that, good morning and good afternoon everybody.

[Andy Silvernail, CEO at International Paper Company]

I'm going to begin on Slide 3. I'm excited to share that today D. S. Smith appeared before the court in the UK to get final approval and we officially expect to close the D. S.

[Andy Silvernail, CEO at International Paper Company]

Smith transaction at the end of the day tomorrow, U. S. Time, Friday, January 31. As you know, last week, the competition authorities of the European Commission approved the proposed acquisition of DS Smith by International Paper with conditions. The EC identified minimal concerns about the acquisition's impact on competition in certain areas.

[Andy Silvernail, CEO at International Paper Company]

To resolve those concerns, we have agreed to divest 5 box plants in Northern France, Northern Spain and Portugal within the next 6 months. We would have preferred to retain all facilities in the IP family and we truly appreciate the contributions for the team and the team members of these 5 plants. We're committed to identifying suitable buyers who can offer a viable future for these teams. Each of these locations is attractive and we expect significant interest from potential buyers. I'm looking forward to welcoming Dia Smith to IP on Monday, February 3.

[Andy Silvernail, CEO at International Paper Company]

Together with our customers, we're creating the global leader in sustainable packaging solutions and we're focused on the attractive and growing markets in North America and EMEA. I'm excited about the potential to unlock value for our stakeholders. We'll do a deep dive on the path forward for DS Smith at our Investor Day in March. Now transitioning to Slide 4. We are building a performance driven customer centric culture at IP to fill our purpose, a culture that will enable us to create significant value for our employees, customers and shareholders.

[Andy Silvernail, CEO at International Paper Company]

That work begins with strong alignment around a very clear and compelling strategy and that strategy stems from our mission and our values of safety, ethics and excellence. Most importantly, our teams will put safety above all else. We will drive profitable market share growth by being the low cost producer and the most reliable and innovative sustainable packaging provider in North America to EMEA. A disciplined eightytwenty mindset will permeate everything we do. By focusing on the critical few, we are aligning resources, reducing complexity, removing costs and delighting customers.

[Andy Silvernail, CEO at International Paper Company]

These efforts are all focused to deliver superior value for all of our stakeholders. I'm now moving to Slide 5. We're making progress and taking actions on our path to achieve $4,000,000,000 of EBITDA medium term. This does not include the D. S.

[Andy Silvernail, CEO at International Paper Company]

Smith base earnings or synergies. Again, we're going to talk about those things in detail at our Investor Day in March. As I've shared in the past, roughly $1,200,000,000 of the improvement that we are targeting is going to come from cost out. This number is net of inflation. So the way to think about it is that we have to take out roughly $1,600,000,000 of cost.

[Andy Silvernail, CEO at International Paper Company]

As we've talked about on the Q3 call, we started to do the heavy lifting and we're making the right choices to take cost out of the system. Those impacts will ramp up through the year with actions already announced and more to come. We've zeroed up the corporate organization, we're aligning resources to the businesses and we're having a lean, effective and efficient corporate staff. As a result, we expect our costs will be reduced by $120,000,000 annually. We have taken the difficult actions to close 5 box plants in our global cellulose fibers mill in Georgetown.

[Andy Silvernail, CEO at International Paper Company]

We estimate that these combined will remove roughly another $110,000,000 of cost from our run rate. As I mentioned last quarter, there are 2 regions where we're doing eightytwenty pilots. We're now calling these lighthouses. We have delivered 20% plus productivity gains and we will scale that optimization method to another 22 box plants in 2025. As we look into 2025 and beyond, we'll continue to be laser focused on improving reliability at our mills and optimizing our mill and box system so we deliver structural cost reduction.

[Andy Silvernail, CEO at International Paper Company]

In 2024, our operating performance and lack of productivity cost us $350,000,000 unlocking this performance will free resources, allow us to optimize our overall structure and drive profitable growth. We are also speeding up capital investment opportunities that we believe will deliver significant cost reduction. And to that extent, we have initiated a complete overhaul of our capital investment process to simplify and significantly reduce from time from idea to execution. If we turn to the commercial improvements, we expect these commercial improvements to contribute roughly $800,000,000 to our $4,000,000,000 target. Our go to market value over volume reset is essentially complete.

[Andy Silvernail, CEO at International Paper Company]

We expect the final unfavorable impact to volume to be behind us later this year. Volume has tracked to our plan for the past 3 quarters and since we started looking at January and we have a clear pipeline forward. We have developed a new compensation plan for our sales force to better align incentives to strategy. This plan will also support our goal of attracting and retaining the best commercial talent in the industry. We continue to add new sales associates as we enhance our commercial capabilities and move to a customer centric culture.

[Andy Silvernail, CEO at International Paper Company]

This renewed focus on customer experience has already resulted in significant quality and on time delivery improvements in our packaging business, which is validated by both internal and external data. This is true in general across the overall business and specifically at our eightytwenty lighthouses. We also have an ambitious pipeline of capital projects that both facilitate the regional optimization of our box system and deliver profitable market share growth. And I'll share an example here on the coming slide. Before we move on, let me say that I'm proud of our team and the solid progress we're making.

[Andy Silvernail, CEO at International Paper Company]

We have a lot of work to do. There's absolutely no doubt about that. But the fundamentals in place are for a performance driven customer centric culture and those things are starting to show. We have the right strategy and execution roadmap. Now comes the hard part and it will not be linear.

[Andy Silvernail, CEO at International Paper Company]

We need to demonstrate the ability to execute with excellence. Our success and our destiny lie in our control. Our actions are aimed to drive transformational improvements at IP and create significant value for our shareholders. I'm now on to Slide 6. I'm excited to share we are investing in a greenfield state of the art corrugated box facility in Waterloo, Iowa.

[Andy Silvernail, CEO at International Paper Company]

This is a great example of the investments we're making as we continue with our ambitious plans to optimize our mill to box system and generate attractive returns. This world class box plant is designed to deliver on our strategy, 20% lower cost, designed in product quality and just in time service. All of this is aligned to a geography and end markets where we are positioned to win. The facility will be strategically located close to some of our best customers specifically in the protein segment, while being in a freight advantage distance from one of our mills. The plan is to start construction this year and targeting for a start up in 2026.

[Andy Silvernail, CEO at International Paper Company]

So again, it's a best in class facility designed specifically to delight our customers, achieve a low cost position and drive profitable growth. In addition to Waterloo, we're also acquiring a bulk plant in West Monroe, Louisiana. This additional capacity and expanded capabilities will allow us to grow our specialty business in an attractive market. As you know, bulk is a business where we are differentiated and have a very good performance track record. We're anticipating closing this deal tomorrow.

[Andy Silvernail, CEO at International Paper Company]

So now let's turn to our full year performance. First, I'll share some highlights and then I'll turn it over to Mark to walk you through the details. I'm now on Slide 8. Our full year results came in line with our outlook. Relative to prior year performance, higher pricing was more than offset by higher costs and expected volume losses from our commercial strategy, just as we expected.

[Andy Silvernail, CEO at International Paper Company]

We have seen significant price improvements in our North American Packaging business from our go to market execution and favorable price index moves. Volume came in lower, but very much in line with our expectations. And again, we're seeing that in January. This period over period volume declines from our packaging contract restructuring is playing out in line with our predictions, which is giving us good line of sight and when we'll see inflection point to profitable market share growth. Costs were higher due to employee incentive compensation and were impacted by reliability issues at some of our mills.

[Andy Silvernail, CEO at International Paper Company]

As I shared before, we are laser focused on improving reliability and taking cost out of the system. As we look to 2025, I want to note that we're not going to go into detail on the outlook for this year. As you may recall, while our combination with DS Smith remains pending, certain UK rules constrain our ability to provide a profit forecast. Even though we are looking forward to closing the transaction tomorrow, today we are still subject to those rules which limit what I can say. Our plan is to provide you with our outlook and a detailed roadmap at our Investor Day coming up in March.

[Andy Silvernail, CEO at International Paper Company]

But at a high level, 2025 is expected to be a transformational year. During the 1st few months, we anticipate earnings will continue with the stabilization trend and then we expect our earnings to progressively ramp from a combination of the cost actions already announced, further improvements throughout the year, sequentially improving commercial wins and overall benefits of our eightytwenty implementation. With that, I'm going to turn it over to Mark, who's going to provide more details on our Q4 performance and outlook.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Thank you, Andy. So turning to our Q4 key financials on Slide 9. Operating earnings per share came in slightly better than the outlook we provided last quarter. Our EBITDA margin came in slightly better sequentially and overall we see stable to improving results on a sequential basis. Our free cash flow was impacted primarily by changes in working capital as well as sequentially higher capital spending and D.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

S. Smith related transaction costs. We can turn to slide 10 and I can provide more details about the 4th quarter as we walk through the sequential earnings bridges. 4th quarter adjusted operating earnings per share was negative $0.02 as compared to $0.44 in the 3rd quarter. As expected, accelerated depreciation expense was a significant impact in the 4th quarter due to previously announced facility closures accounting for $0.56 per share.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Price and mix was higher by $0.12 per share driven by the flow through of prior price index movements and mix benefits in our packaging business. Volume was unfavorable by $0.08 per share due to 2 fewer shipping days in North America Box as well as some volume trade offs related to commercial contract restructuring actions. Deploying our commercial strategies across the portfolio continued to impact volumes as we closed out the year as we expected. Operations and cost was unfavorable by $0.11 per share sequentially. This is largely the impact of seasonally higher costs as well as a step down in insurance recovery related to the Ixak box plant fire and some reliability events in our mill system across both businesses.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Maintenance outages were higher by $6,000,000 or $0.01 per share in the Q4 and input costs were favorable by $0.06 per share sequentially mainly driven by lower costs for OCC and Wood. And finally, corporate items favorably impacted earnings by $0.12 per share sequentially, primarily due to lower taxes. Turning to the segments and starting with the Industrial Packaging's 4th quarter results in flat 11. Price and mix was higher by $63,000,000 due to the realization of approximately $40,000,000 of benefits from prior index movement along with additional benefits from our containerboard export and open market sales. We saw a mix improvement in both North America and Europe.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Volume was lower by $24,000,000 sequentially due to 2 fewer shipping days in the Q4. In addition, we made choices based on our box go to market strategy that negatively impacted our volume as expected, but this will allow us to improve our margins and mix over the long term. Operations to cost was $22,000,000 unfavorable sequentially, primarily

[Mark Nellessen, VP - Investor Relations at International Paper Company]

due to

[Mark Nellessen, VP - Investor Relations at International Paper Company]

the impact of seasonally higher costs, a step down in the ICSTAC insurance proceeds, which we received $25,000,000 in the 3rd quarter to $12,000,000 in the 4th quarter and some reliability events in our mill system. Planned maintenance outages were lower by $22,000,000 sequentially and input costs were $20,000,000 favorable primarily due to lower OCC and wood costs. And accelerated depreciation decreased earnings by $9,000,000 due to the 5 packaging facility closures in the 4th quarter. Moving on to Q4 results for Global Cellus Fibers on slide 12. Price and mix was sequentially lower by $13,000,000 due to price index movement.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Volume sequentially was lower by $8,000,000 in the quarter due to the Georgetown mill closure in early December as well as a pull forward of orders in the prior quarter as customers anticipated a potential port strike. Operations to cost was unfavorable sequentially by $23,000,000 which includes unabsorbed fixed costs from the Georgetown mill closure, some reliability issues and higher seasonal costs. Planned maintenance outages were higher in the 4th quarter by $28,000,000 and input costs were $4,000,000 favorable primarily driven by lower wood costs. And finally, accelerated depreciation decreased earnings by $222,000,000 mostly due to the Georgetown Mill closure in the 4th quarter. Turning to slide 13.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Before we get into the details, I would remind everyone that accelerated depreciation is included in operating earnings and is called out for each business. In summary, adjusted earnings for our Industrial Packaging segment are expected to be higher sequentially by $52,000,000 This includes a non repeat of accelerated DNA expense. Adjusted earnings for Global Solus Fibers are expected to be higher sequentially by approximately 2 $20,000,000 and this also includes a non repeat of accelerated depreciation expense in the prior quarter. Now let me give you a breakdown by business segment. I'll start with Industrial Packaging.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

We expect price and mix to decrease earnings by $5,000,000 sequentially from lower export pricing to date and unfavorable seasonal mix impact. Volume is expected to increase earnings by $10,000,000 due to 2 more shipping days primarily. We expect operations and costs to increase earnings by $30,000,000 This includes benefits from our box plan optimization as well as non repeats related to incentive compensation and other items from the prior quarter. It also includes the unfavorable impact of wage inflation. We expect accelerated depreciation will increase earnings for the Packaging business by approximately $11,000,000 because of the expense related to the 5 Packaging facility closures that occurred in the 4th quarter.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

Lower maintenance outage expense is expected to increase earnings by $6,000,000 And lastly, we expect input costs to remain flat overall with higher energy costs offsetting lower OCC prices. Switching to Global Cellulose Fibers, we expect price and mix to decrease earnings by approximately $10,000,000 as a result of prior index movement. Volume is expected to be stable and we expect operations to cost to increase earnings by approximately $35,000,000 This includes improved performance and reliability as well as non repeats related to incentive compensation and other items from the prior quarter. We expect accelerated depreciation will increase earnings for the pulp business by approximately $222,000,000 because of the expense related to the closure of Georgetown Mill in the 4th quarter. Higher plant maintenance saudges expense is expected to decrease earnings in the 4th quarter by approximately $26,000,000,000 And lastly, input costs are expected to be stable.

[Mark Nellessen, VP - Investor Relations at International Paper Company]

With that, let me turn it back over to Andy.

[Andy Silvernail, CEO at International Paper Company]

Thanks, Mark. We'll now turn to slide 14. I'm excited to remind everybody that we'll be hosting our Investor Day in New York on March 25, where we'll provide an in-depth review of our strategy, business and financial objectives for the new IP. We'll share our progress on DS Smith integration and outlook, the detailed plan for North American packaging and how eightytwenty deployment across the company will help drive profitable growth. Our goal is to provide a very detailed, clear and time based path forward.

[Andy Silvernail, CEO at International Paper Company]

With that, operator, let's now pause and take questions.

[Operator]

Thank you. And your first question comes from the line of Mark Weintraub with Seaport Research Partners. Please go ahead.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Thank you. I appreciate in the comments you made it clear that the volumes in the Q4 were pretty much in line with what you had expected. Obviously, they were pretty big year over year declines. And I think that in the past, you've talked about that there would still be negative year over year for the maybe through the middle of next year and then things stabilize and potentially move positive in the second half. Is that still kind of a reasonable game plan?

[Andy Silvernail, CEO at International Paper Company]

Yes. Mark, first of all, good morning. Absolutely. So, while we certainly don't like the reality of the results in the Q4, it is exactly what we had expected. And so when I when you look at the volume drops off on year over year, it is when you net out kind of wins and losses, 100% of what we're seeing is the expected from the contract process that we've been going through in the last 18 months to 2 years.

[Andy Silvernail, CEO at International Paper Company]

And so it's right on track. And I think importantly, right, as we look at January, January is right on track in terms of what we're seeing for day rates. And so what you should expect to see is that bottom of the Q3 and Q4, it will step up meaning a less year over year loss in the Q1. Yes, less year over year loss again sequentially in the Q2. Then as we get into the back half, when exactly we break that 0 point.

[Andy Silvernail, CEO at International Paper Company]

I don't know if it's going to be exactly the Q3 or not, but it's somewhere in there. But in that second half, we expect to crest these choices. So, I'm going to knock on wood, but that feels good. The other thing I'd add to that, Mark, is if you look at the investment that we've been making on the box plant side for reliability, I think it's very importantly that is now showing up in internal and external data. So if you look at the data from our on time delivery metrics, our service metrics and then you also look at we do a 3rd party validated NPS.

[Andy Silvernail, CEO at International Paper Company]

I also saw another 3rd party benchmark last week. We have clearly moved very significantly from a service perspective in the minds of our customer. And the reason that's important is we're now starting to quote pieces of business that we didn't have the opportunity to quote a year ago. And so we've got some pretty decent sized chunks of business. Not much of it is baked into our expectations for the year, but we've got some pretty decent sized chunks of contracts that are now rolling off where we think we're putting a very attractive value proposition.

[Andy Silvernail, CEO at International Paper Company]

So we're moving from a very defensive posture relative to the commercial side of the business to slowly moving to an offensive posture. And I want to say slowly because we still have to finish digging out that hole and we've got to win some of these businesses. But I like where we are relative to our plan. When you look into our sales pipeline, that pipeline and what's happening on a day basis is now showing signs of congruity. And I like the fact that we're starting to quote some business, that we didn't have the opportunity in the last year or 2.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Great. And maybe kind of following up along the lines of the response to the question. I think you also mentioned like a $350,000,000 lack of productivity, reliability type of things. Can you maybe provide more color on specifically what you meant by that? And do we get that back?

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

And what are the actions that are being taken currently?

[Andy Silvernail, CEO at International Paper Company]

Yes. So Mark, actually, I think this is a linchpin, right? So, going back to my days at Danaher running a sub plant, sub manufacturing plant, right? You're always looking for the bottlenecks to the key of your strategy or the key of your execution. And so, it took me a little while to get in and understand kind of exactly what was going on, but I'll simplify in 2 ways.

[Andy Silvernail, CEO at International Paper Company]

One is, we've been living in a world of lax capacity for too long. And because of that, it makes you soft, right? It's like an athlete who sits on the couch for a couple of years. It makes you soft. And so as we have started to push part of our operations, when I say that pushing them in terms of moving volume to assets that we need to have be A plus we're pushing that.

[Andy Silvernail, CEO at International Paper Company]

And so and what that's showing is it's showing the mill capability. And we've got a few mills that we've got some serious work to do. And when you add that up, that's darn near a couple of $100,000,000 a year in potential, right? So, you're having to keep way too much cost in your system, because frankly, when you go back and you do the root cause analysis, which we have, it comes back to 2 things. It comes back to underspending for a very long period of time.

[Andy Silvernail, CEO at International Paper Company]

It's not a year or 2, right? It's underspending on basic reliability stuff in the mills. And so as you can imagine, right, you're kind of your plan is constantly changing. The bogey is changing for those teams, and they're having to run rough shot. And the second thing, right, we are we have experienced that everybody in our industry and everybody in manufacturing is experiencing is a pretty significant changeover of people.

[Andy Silvernail, CEO at International Paper Company]

And so as experience starts to change in those mills and you combine those two things together, it can make it less reliable day to day. And so our focus is very much on maintenance investment and reliability spend, capital and expense, and it is on rapid training for leaders, who are new to a position. And so you've really got to focus there. And the good part about that, right, is you can count this. And what I mean by that is you can see the amount of if you think of kind of mill performance as the benchmark of where you are in terms of your ability to absorb the overhead and produce, we can see this pretty tightly.

[Andy Silvernail, CEO at International Paper Company]

And so making those investments and that's a linchpin to the rest of our strategy of getting cost out of the system. The second part to it really comes around productivity. And what I mean by that is in any manufacturing world, the goal should be to offset your what I'll call internal productivity. So I don't mean input costs, right? I'm talking about wage, maintenance, those pieces of normal inflation.

[Andy Silvernail, CEO at International Paper Company]

You've got to drive to offset that. And in my experience, we've been able to do that in the companies that I've worked for. We're seeing it already in some of the very focused work that we're doing. I'll use the box plant lighthouses or now we call them pilots and I'll call them lighthouses as the example. But as you know, this is a very high contribution margin business.

[Andy Silvernail, CEO at International Paper Company]

And so as you drive productivity, you can take significant cost out and or as you move volume over a different set of assets, the contribution margins are just really high. That's something we haven't done. Again, that's when you think about keeping too much capacity, that ends up as EDT, that's how it shows up. And so we believe that absolutely you can go after that. You don't look, you're not going to get it overnight.

[Andy Silvernail, CEO at International Paper Company]

But in the timeframes that we're talking about in terms of both driving the day to day excellence of execution and then having the productivity flywheel moving, it's $300,000,000 to $400,000,000 It's a lot of money. And so yes, we can get it back.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Very clear. Appreciate the color.

[Andy Silvernail, CEO at International Paper Company]

Thanks, Mark.

[Operator]

Your next question comes from the line of Phil Ng with Jefferies. Please go ahead.

[Philip Ng, Managing Director at Jefferies Financial Group]

Hey, Andy. Appreciate all the great color.

[Andy Silvernail, CEO at International Paper Company]

You

[Andy Silvernail, CEO at International Paper Company]

bet, Phil. Good morning.

[Philip Ng, Managing Director at Jefferies Financial Group]

Good morning. I thought slide deck was pretty awesome. It had a lot of great color in terms of things that you guys have done already on the cost commercial action side of things. You also gave us a look at what's still to come more on the to do list with items like mill and boxes and structural cost out efforts, reducing organizational complexity and expanding the sales force. So Appreciate in 1Q is kind of a stabilization period and you kind of pointed out earnings momentum, transformation 2025.

[Philip Ng, Managing Director at Jefferies Financial Group]

So kind of help us think through how that could kind of layer through this year, some of these actions, whether it's on the cost or commercial side and think about the earnings momentum as the year progresses? You talked about the $300,000,000 to $400,000,000 that you was a drag. I mean how quickly can we get some of that back I guess?

[Andy Silvernail, CEO at International Paper Company]

Yes. So Phil, great question. I think as we think about this year playing out that the cost up that we announced last quarter, as you can imagine, right, making that real through the Q4 of the year, that then starts to layer in throughout the year. And so you should see that kind of sequentially ramped as people who are no longer going to be with the company assets that have been closed. As you know, you don't just close an asset and all the costs go away.

[Andy Silvernail, CEO at International Paper Company]

There's a tail to that. And so we have to move into that tail. That gets better as the year goes on. And then we have an expectation that we're going to continue to drive cost aggressively as we go through the year. And you should expect us that the thing that I would be looking for if I'm new is a quarterly drumbeat of actions, right?

[Andy Silvernail, CEO at International Paper Company]

That that's what you're going to see and obviously it needs to show up in the P and L and in the balance sheet and ultimately cash flow. And so on the cost side, right, we've got a roadmap that we've laid out. We've had to be pretty selective about how we could talk about that with all of you because of the DS Smith process. That restraint comes off. And so at the Investor Day, the intention is to show a much more clear roadmap, obviously, being respectful of all of our stakeholders in the process.

[Andy Silvernail, CEO at International Paper Company]

So you should expect to see that ramp. And then on the commercial side, really if you look at what's baked in right now on the commercial side is the pricing that we have today, right? We haven't adjusted for any future index changes. We have no idea, right, what's going to happen with that. So we don't have any expectation there.

[Andy Silvernail, CEO at International Paper Company]

So it's the prices that we're going to market with today. Plus if you kind of think through our expected pipeline, so there is no kind of major expectation of giant wins that's in our outlook for this year. So just to be clear. So the reality of that and you guys know this as well as anybody, turnarounds take time and they are not linear. And so if you think of it as a run chart, right?

[Andy Silvernail, CEO at International Paper Company]

As you go into one of our mills and you see process run charts all the time, right? The tolerances are wide right now. There's a lot of variation and our job is to squeeze that variation in every way, right? We're trying to squeeze the variation in what causes kind of these wild changes, to in parts of our business that frankly we don't think should be as volatile. We're making changes to those things.

[Andy Silvernail, CEO at International Paper Company]

And then you've got to execute. And when I said in my prepared remarks, this is where the hard work begins. I mean, this is where you are in the muck. You have to be. These things happen at a box plant, at a mill, right?

[Andy Silvernail, CEO at International Paper Company]

They don't happen in the ether. And so really getting to incredibly disciplined cause and effect where I'm pulling a certain lever and that is going to take a cost out or it's going to win a customer. That's where we are. And so, we certainly have a plan for how that ramps throughout the year. I'm very aware, look, I've looked at hundreds of businesses and business plans over the years.

[Andy Silvernail, CEO at International Paper Company]

And whenever you see an aggressive track like this, you have to discount it, right? You have to be smart about that. So, we have to make consistent progress quarter over quarter. We need to exit this year substantially better than where we ran last year and where we ran this year. A couple of things that I see as really encouraging.

[Andy Silvernail, CEO at International Paper Company]

So if you look at the North American Packaging Solutions business exclusively and you look at where they're tracking relative to where Tom Hammack and team said they would be tracking on the commercial side, we feel really good. On the investments that we've made into the box plant business and the expected improvements on service improvements, has absolutely shown up. I mean, we have moved an entire standard deviation in performance and customer service performance in the last year. And that is a big deal. And so we've seen that and we've also seen what that means to specific customers.

[Andy Silvernail, CEO at International Paper Company]

I'm spending time with specific customers talking about their experience with us. We're now getting on-site with customers and doing joint innovation sessions. But we're pushing we're starting to push those envelopes more than we have in the past. But this is where look, this is where it's a nice flight. That's the end of the day.

[Andy Silvernail, CEO at International Paper Company]

That's what this is. We're in execution mode now.

[Philip Ng, Managing Director at Jefferies Financial Group]

Okay. That's super helpful.

[Philip Ng, Managing Director at Jefferies Financial Group]

I guess, you gave us a roadmap today in terms of CapEx spend. It's great you're reinvesting in growth products for box plants. You're stepping up maintenance reliability and doing great things on the sales force front. Is this a level in terms of capital spend and maintenance operating spend that could be steady state from here? Or should we kind of accept that to step up the next few years as you kind of move forward?

[Philip Ng, Managing Director at Jefferies Financial Group]

Or how should we

[Andy Silvernail, CEO at International Paper Company]

Yes. So Phil, if I had a magic wand meaning, I had the ability to spend it meaning the performance of the business is where I wanted it to be and we had the capability to effectively spend the money, I would spend more. I would. And the reason we're targeting this 1.2% is it matches what we think the organization can actually effectively execute and where we are relative to the turnaround of the business. But look, I think as we perform, we will aggressively we will invest aggressively over the next few years.

[Andy Silvernail, CEO at International Paper Company]

And it's really kind of a combination of things, Phil. One is, we got to close the gap on a number of things that we've had. When you make decisions around non strategic assets and you incrementally increase spending, right? So, if you think of it both those things happen at the same time, what happens is you radically increase the spending on the strategic assets. It's not a small change.

[Andy Silvernail, CEO at International Paper Company]

It's you're not talking about 5% and 10% and 20%, you're talking about 20%, 30%, 40%, 50% in some areas. And we're going to have to do that for a few years because look, we dug a hole over a decade. We're not going to fill it in a quarter. And so we've got to make those choices. And a visual and maybe this will help folks is a visual that I've been using is think of the demand of the packaging business over a cycle.

[Andy Silvernail, CEO at International Paper Company]

So if you just think of it as a what does demand really look like of a packaging business over a cycle. It's about 1%, 1.5% volume increase through a cycle. And that changes kind of a plus 2 plus two points to that, so call it plus 3 to minus 1 or so or minus 2 or so, somewhere in that range. That's kind of the range in any given year of actual consumer demand. And when I say consumer, consumer and industrial demand of our product.

[Andy Silvernail, CEO at International Paper Company]

But investment trends, profit trends historically have been highly volatile, right? And then people react to that and they make the investment trends even more volatile. If you think in a very simple way of what we're trying to do right here is we're trying to cut off volatility. We're trying to sand the board on the top side and on the bottom side, right, to take volatility out. And when you look at GCF as an example, I love the GCF business, but it's volatile.

[Andy Silvernail, CEO at International Paper Company]

It's more volatile than our core Packaging business. There are other parts of our business that are relatively low profit that are pretty volatile. And as you start to move towards your core Integrated Packaging business, that volatility goes down. And then if you match your investment plan with what your real trend line looks like you take out more volatility. When you chase the trend line with investment you our box plant managers, our mill managers, they can't plan to be successful if they're reacting in quarters.

[Andy Silvernail, CEO at International Paper Company]

They've got to have 18 months or so on the maintenance side and probably 3 years plus on the capital side. And that's got to be consistent. And we haven't allowed them to put them in a position to be successful. And I apologize for the length of this answer, but I can't tell you how passionate I am about this. We have to consistently invest in being great.

[Andy Silvernail, CEO at International Paper Company]

We have a hole to fill. We're going to fill that hole and we are going to be much more consistent in our capital investment. And everything flows with capital investment in this business. And what I mean by that, look I spent 3 days last week personally 3 days in a Kaizen event looking at our capital investment process. And I look, no offense to anybody, it's a ludicrous process, that we have right now.

[Andy Silvernail, CEO at International Paper Company]

And we are radically changing it in terms of time, in terms of responsibility, in terms of who has authority and signing responsibility and we will dramatically change that timeline. And in changing that timeline, we take the handcuffs off of our people and it's not just the dollars invested, right? It's because everybody is attached to that. You've got literally thousands of people who are chasing things that are unproductive and those people could be working with our customers on innovation. They could be working on productivity, right?

[Andy Silvernail, CEO at International Paper Company]

And we need to take the handcuffs off our people and allow them to freak and run. And so, sorry, that one gets me worked up. So, I'm pretty passionate about it.

[Philip Ng, Managing Director at Jefferies Financial Group]

Appreciate all the great color, Andy. Thank you.

[Operator]

Your next question comes from the line of Mike Roxlin with Truist Securities. Please go ahead.

[Michael Roxland, MD - Equity Research at Truist Securities]

Yes. Thank you, Andy, Mark, Jose for taking my questions. Congrats on all the progress and obviously, Andy congrats on the passion as well. And Mark, Jose, congrats on your enrolls. Just wanted to quickly follow-up on what Phil has mentioned in terms of the major portfolio coming up from a different angle.

[Michael Roxland, MD - Equity Research at Truist Securities]

You mentioned in the press release, one of your objectives for 2025 is to balance capacity to your demand. So I'm wondering from can you help us at least maybe speaking generalities again if you can, what type of capacity moves you have in mind? Is it more of what you've mentioned in previous responses in terms of transferring production? Is it a matter of maybe closing those at a higher cost in a situation where I'm going to require too much capital to fix at this point? Can you help us frame like what type of capacity realignment you're anticipating?

[Andy Silvernail, CEO at International Paper Company]

Yes. So Mike, I'm going to give you an answer that's going to be partially satisfying just because of the 2 things. 1, if we do have some minimal restrictions and also I think as we talk about assets and locations, we need to do that the right way at the right time. So, I have to be a little bit opaque around that. So, I apologize if that's just the right thing to do.

[Andy Silvernail, CEO at International Paper Company]

So, I want you to step back for a second and think of it. As you think of our entire business and you think of the quality of earnings across the spectrum of that business, right, it's pretty wide from one market segment and one product to another market segment and another product. Those core earnings are is a pretty wide band on that. When you look at a portion of our business that isn't as profitable or frankly maybe negative and then you align that against assets that really have pretty poor returns. When you put those two things together, that's a those are tough chunks of things to look at, right?

[Andy Silvernail, CEO at International Paper Company]

And when you put them together, there's no path to that being super successful. And so you got to move your investment to the customers, the products and the assets and the people, who are going to allow you to win. And that's the process that we've been going for. And when we talked about kind of a whole slew of that in the Q3, that's what that was all about. As we move through this year, we will absolutely continue to move down that path.

[Andy Silvernail, CEO at International Paper Company]

And we've got to do it in both the box system and in the mill system. And we just kind of think about the ability to do what I just kind of got fired up about a few moments ago. To do that, you can't peanut butter spread investment, right? You have to move investment. It's eightytwenty thinking at its most foundational, which is you got to move your resources, your money, your people, your energy towards those things where you can have a differentiated position.

[Andy Silvernail, CEO at International Paper Company]

And the cool part is if you look at our box network in the United States and throughout North America and you look at where we are positioned across the country and then you compare that to the competitive set, we feel really good about that. Now, we know we have to change that because we have places that frankly have too much capacity and there's too much it's got a crazy marketplace, right? And you have too much there and you have places where you don't have enough. And so, in the places where you don't have enough like Waterloo, Iowa, we're going to be super aggressive. So greenfields, brownfields, the lighthouses that we're talking about, the demand is there and we can't satisfy the demand because we don't have enough capacity.

[Andy Silvernail, CEO at International Paper Company]

And in some other places where it's not, we need to first focus in on niches of sub niches of markets where we're really good and we can win in that subniche and have a great sustainable competitive position in that subniche. And then in places where frankly it doesn't make economic sense, we need to make other decisions. On the mill side, when you think about the mills, I grew up and as you guys know, I grew up in a mill town. And so these conversations have been in my blood since I was 8 years old. And you have to invest, right?

[Andy Silvernail, CEO at International Paper Company]

You have to invest on a consistent basis in mills. And of course, the older they get, you have to make sure you keep them primed. And for those or anyone who's interested in cars, look, there are 40 and 50 year old cars that run great, but they're not as competitive as the car you're going to buy off the lot tomorrow. And so you're constantly looking at where that is, when do I continue to invest and when do I not. And you have to be able to do that in a very clear mature way, because all of our stakeholders require this, right?

[Andy Silvernail, CEO at International Paper Company]

So if you think about our people, our customers and our shareholders, is the 3 principal stakeholders. I'm a big believer that none of them can win over the others in any long period of time before it damages all of them. And so to make those investments in the business, it absolutely makes our business competitive. It creates very stable attractive jobs for our people. We win with our customers because we offer them the kind of service and reliability and innovation they want at a fair price.

[Andy Silvernail, CEO at International Paper Company]

We take the cost out of the system, which gives us the margin to reinvest back. And ultimately, right, that turns into profitable growth for our owners. And so that highly dependent, system of stakeholders is what we're driving at.

[Michael Roxland, MD - Equity Research at Truist Securities]

Got it. Thank you. And just one quick follow-up. Just, there obviously a lot of changes in a very short period of time that it's interesting for a company that has had a really entrenched corporate culture. Just wanted to get a sense from you, whether there's any pushback, any resistance And what you may be able to sort of like reach the wheel to encourage buy it?

[Andy Silvernail, CEO at International Paper Company]

Yes. Great question. Look, I have been thoroughly impressed with how people have crapped on to the change. There was an enormous pent up demand in this company for change. And look the people are great.

[Andy Silvernail, CEO at International Paper Company]

To be candid, right, when I was considering this role one of the thoughts I had to myself is wow, how good can the people be with the performance we've had? And I have been absolutely delighted. We have smart, capable, driven people who want to win. That being said, right, in a business like ours, there are a handful of very, very big decisions that get made that either enable or disable the organization to win. Capital is a huge one, right?

[Andy Silvernail, CEO at International Paper Company]

When you are spreading your capital thin, you are basically telling your people to play whack a mole. They don't have another choice. So when you make when you don't make the courageous decisions, that's what happens. When you have capital decisions that take an ungodly long period of time, it ties up thousands of people in non value added processes. If you grab any one of our mill managers and you were to ask her or him, what does it take to win?

[Andy Silvernail, CEO at International Paper Company]

They know. They know. And we have in many ways handcuffed them with decisions on capital investment, with decisions that are very bureaucratic, and frankly not setting and upholding very high expectations, right? The reality is, is one of the things that I'm trying to do with this call as an example is I believe there ought to be perfect alignment between our owners, our Board, the management team and everybody who works in this company. There should be no daylight between the expectations of action and the expectations of performance between anybody.

[Andy Silvernail, CEO at International Paper Company]

And look, a lot of people complain about having to do these kind of things and do quarterly calls. I think they're great. I grew up getting a report card. You get a report card and you got to go home and you got to talk about why you got an A or why you got a D. And there's no hiding.

[Andy Silvernail, CEO at International Paper Company]

And I love it. I grew up playing sports. Scoreboards are great, right? You are what the scoreboard says you are. There is no confusion in this organization about what the scoreboard says we have that.

[Andy Silvernail, CEO at International Paper Company]

No confusion at all. And our goal is to be one heck of a lot better.

[Operator]

Your next question comes from the line of Matt McKellar from RBC Capital Markets. Please go ahead.

[Matt McKellar, Vice President at RBC Capital Markets]

Hi, good morning. Thanks for taking my questions. I want to start asking about the Waterloo Greenfield box plant. Are you able to provide any additional color on what kind of CapEx you're anticipating for that plant? And then how you would think about an attractive return for this type of project, please?

[Andy Silvernail, CEO at International Paper Company]

Yes. So we're not we haven't disclosed anything today. We'll put a lot more color to that. This will be an item that we'll talk about certainly at the Investor Day. Obviously, it's a very large investment.

[Andy Silvernail, CEO at International Paper Company]

It's by far the largest box plan investment we have ever made. And my expectation is this is going to be something that we should be driving cash on cash returns of about 20%, right? That's the kind of thing and I mean the total cost not just on the investment purely for that thing, but if you look at through the value chain from an integrated perspective, that's the kind of value that we should be able to add from a kind of investment like this. And what I love about this investment and we also see this we've got some more that we're looking at that are like this, obviously not a ton of them, but some more that makes sense and we're looking at some brownfields. And then if you look at the pilots, what I like about these kind of things is they bring all the elements of our strategy together, right?

[Andy Silvernail, CEO at International Paper Company]

So in our world, we absolutely our goal is not to be the low price player, but our goal absolutely is to be the low cost player. And we think that we have the scale and the footprint that gives us license to do that, but we have to make different choices. And a plant like Waterloo dramatically changes that. If you look at our 2 lighthouses that we have, our 2 regional lighthouses, the gains that we're getting and we're seeing encourage the heck out of us and that's why we're going to roll it out to 22 more box plants here in 2025 and then we'll keep going, right? The goal is over the next few years is to completely reconfigure our box plant network.

[Andy Silvernail, CEO at International Paper Company]

And look, this is a harsh thing to say, but for a long time, we thought of our box plant as kind of a dumping ground for paper. That's kind of how we treated it. And the bottom line is, it is the front end of our business. It's more like a retail shop than other things, right, where you want to be super great service levels, very reactive to customers and make sure that we're employing our eightytwenty minuteus as close to the customers as possible. And so we're super excited about Waterloo.

[Andy Silvernail, CEO at International Paper Company]

We'll give you more detail here at the Investor Day about it. And we're also excited about the bulk plant, right? That's another example of a different type of strategic thought that's unlocking one of the pieces of great value that we see in the company, which is in specialty. And we're excited about that acquisition. It fits us well.

[Andy Silvernail, CEO at International Paper Company]

It's small, but it enables us in a great way and it also helps us move fast, which is a great enabler.

[Matt McKellar, Vice President at RBC Capital Markets]

That's helpful. Thanks for all the color. If I could just follow-up with one more on the box plants. As you sort of scale your approach from your first two lighthouses to the incremental 22 in 2025, Are you anticipating pretty similar improvements in productivity? Does that change at all versus the first what you achieved at the first couple?

[Matt McKellar, Vice President at RBC Capital Markets]

And then does that change at all again as you kind of target the next batch in 20 26 and beyond?

[Andy Silvernail, CEO at International Paper Company]

I do expect the same kind of results, right? And I think it's important to note that the results that we're seeing are really are not, being driven by dramatic capital investment, right? The results that we're getting in these two places so far are really around what I think of is the volume mix matrix, right? So as you think about complexity, the keys to what we're doing is isolating complexity, right? So we're putting a lot of complexity in a few box plants where they become experts at that complex product customer configuration.

[Andy Silvernail, CEO at International Paper Company]

And then other places where you can almost run lights out, it's really it's those 2, that combination that we're getting the kind of productivity that we're seeing. When you enable it with CapEx, there's more to come. That being said, the gains will not be again, I use the term linear, meaning we're not going to get the exact same kind of gains everywhere. There'll be places that we get more and you want to enable it with more CapEx and there'll be places where you won't get the 20% or 30%, because you don't have the same configuration in a geography, right? And so I think we're going to get really substantial productivity improvements.

[Andy Silvernail, CEO at International Paper Company]

We also I want to I'd like to roll this out lightning speed, but you got to be mindful of it, right? You can't just throw ideas at folks. You got to go hand in hand with them, make the changes, right? So you have to make the volume mix changes. You got to make those changes, where you want to consolidate a box plant and then have the remaining box plants take that on and people who will want to move over those things to the box plants can.

[Andy Silvernail, CEO at International Paper Company]

You want to be able to do that. But you want to install daily management and make sure that that's working before you kind of ride off to the sunset to another thing. So it's kind of the old saying go slow you're in a hurry because you want it to stick.

[Matt McKellar, Vice President at RBC Capital Markets]

Thanks very much. I'll turn it back.

[Andy Silvernail, CEO at International Paper Company]

Thank you.

[Operator]

Your next question comes from the line of Charlie Muir Sands with BNP Paribas. Please go ahead.

[Andy Silvernail, CEO at International Paper Company]

Hey, Charlie.

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

Hey, thanks for taking my questions. Just sticking with the rollout of the lighthouse strategy for a minute. So can I just clarify that is the one that you think can unlock around $300,000,000 $400,000,000 of cost productivity?

[Andy Silvernail, CEO at International Paper Company]

No. I think that was not the main focus of that. That was really around. I think you've got call it $175,000,000 to $200,000,000 of just I'm going to call it mill reliability, right? So that's just that's very much in the mills.

[Andy Silvernail, CEO at International Paper Company]

And then the balance is productivity. A lot in the mills, but also the box plants. And what I'm talking about there Charlie is my experience has been as you get a productivity engine humming to be able to offset things like wage inflation benefits and other what I'll call it internal inflation, so not your input costs. We don't do that well, right? And if you look at our financials and you go back over 5 or 10 years and you actually look at the destruction of value, the 2 big linchpins you see are, I'm going to call it reliability that showed up to the customer, which then had become a headwind from a volume perspective.

[Andy Silvernail, CEO at International Paper Company]

But also it ends up driving a lot of cost. So I looked at some analytics over the last couple of weeks. If you look in our mill system as an example and you follow long term maintenance spend relative to replacement asset value. So if you just kind of follow that, what you see is a building gap over time. But that doesn't mean that your costs went down because what ends up happening is your costs shift from being capital to being expense.

[Andy Silvernail, CEO at International Paper Company]

And so, if you actually stack capital and expense together, we're actually spending more combined today than we were 5 or 10 years ago because of that choice. And that kind of comes down to that car analogy, right? If I don't change my oil, I'm going to eventually going to lose my engine. And that losing your engine costs a hell of a lot more than changing the oil. And that's kind of what we run into.

[Andy Silvernail, CEO at International Paper Company]

And so now we're doing some pretty rapid engine rebuilds. That's the way to think about it. But the productivity engine is something that's going to be going all the time, right? And if you think of just the math on it, you're talking about 2% to 3% per year is what you got to get. You got to get 2% to 3% per year and that will offset your internal inflation.

[Andy Silvernail, CEO at International Paper Company]

And that I know in a world where people talk about I need 5% year over year. Well, you guys know the truth. Very few people get 5% year over year. What you really do is you liberate capacity, right? Yes, I can shut non strategic assets.

[Andy Silvernail, CEO at International Paper Company]

You get a benefit from that. But then you liberate capacity. And in our world, when you liberate capacity and you get volume growth of any kind, it flows through at ridiculously high levels. And so the early stages of this are actually the cost coming out. And on as you think of this kind of a couple of years from now, what you want is that engine of productivity that our mill managers, our box plant leaders are thinking about that and they're thinking of productivity on a 2 or 3 year rolling cycle, not I'm showing up in December and I've got a budget for next year and I got to figure it out.

[Andy Silvernail, CEO at International Paper Company]

Those are very different approaches.

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

So the rollout of the Lighthouse strategy doesn't necessarily deliver immediate P and L benefits until

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

the trade would crack.

[Andy Silvernail, CEO at International Paper Company]

Oh, no, no.

[Andy Silvernail, CEO at International Paper Company]

I'm sorry.

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

The volume will actually absorb that extra capacity or you can put a dollar value against that as well?

[Andy Silvernail, CEO at International Paper Company]

Yes. If you look at what we've done in the 2 lighthouse regions that we've been in, we have closed 2 box plants, right? So we've actually closed 2 box plants and consolidated the volume into the other lighthouses while taking on time delivery and service levels meaningfully up. So when you look at the the actual it's real productivity, it's real dollars, right? And so you get it first because you're taking out the overhead of the stranded capacity.

[Andy Silvernail, CEO at International Paper Company]

And then you're also driving continuous improvement as you bring that volume in. And so it kind of starts off with a big bang. If you think of us, think of IP in a microcosm in one of these regions, that's exactly what we're talking about, right? You're taking out cost that's effectively stranded cost, unneeded cost. You're matching the volume matrix, volume mix matrix correctly.

[Andy Silvernail, CEO at International Paper Company]

So those businesses are coming more effective. And then over time, you're driving that drumbeat of productivity, right? So it's a big bolus that we have to get in the box plant side and in the mill side and then you have to build the muscle of ongoing productivity going forward.

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

Right. And sorry just one more question. I think historically, you've guided annual corporate expense. I know that there has been a big restructuring across saving. You've developed a lot of the staff headcount to the segments.

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

But I just wondered what we should understand as being the figure now for 2025?

[Andy Silvernail, CEO at International Paper Company]

Yes. So I don't think we're calling it out very specifically, but the way you should think about it is as we go into 2025, you're going to see the reallocate the cost reallocations as appropriate back to the businesses of where they actually sit. So you'll see some ups and downs. So as an example, you'll see the North American packaging business was not probably getting enough of the load where more of it was being pushed to other DCF and our EMEA business. And we'll get that balance right.

[Andy Silvernail, CEO at International Paper Company]

But in total, right, the central costs are going down precipitously, right? They're going to go down by 120,000,000 from the actions that we've outlined.

[Charlie Muir-Sands, Equity Research Analyst at BNP Paribas]

Okay. Thank you.

[Andy Silvernail, CEO at International Paper Company]

Thank you.

[Operator]

Our final question today comes from the line of Gabe Hajde with Wells Fargo Securities. Please go ahead.

[Andy Silvernail, CEO at International Paper Company]

Good morning, Dean.

[Gabe Hajde, Analyst at Wells Fargo]

Thank you.

[Gabe Hajde, Analyst at Wells Fargo]

Good morning, Andy. I want to try to put some numbers to what we're talking about and go back to the presentation that you gave us on the Q2 call.

[Gabe Hajde, Analyst at Wells Fargo]

So

[Gabe Hajde, Analyst at Wells Fargo]

I think in that presentation, you indicated that you underspent sort of the peer group by 1.5% on CapEx and maintenance, I think it was $0.40 per 1,000 square feet.

[Gabe Hajde, Analyst at Wells Fargo]

But Yes.

[Andy Silvernail, CEO at International Paper Company]

I don't have it in front of me, but that sounds right. Yes.

[Gabe Hajde, Analyst at Wells Fargo]

Okay. And you're talking a lot about mill reliability and some underinvestment over time. And I sort of I like your analogy. So I'm thinking about running a quarter mile or a 1 mile race and I'm a quarter mile behind.

[Andy Silvernail, CEO at International Paper Company]

Yes, exactly.

[Gabe Hajde, Analyst at Wells Fargo]

It's really tough to catch up. So the number I think that we saw thrown out there was $260,000,000 for this new investment and from local government agencies, etcetera. So Waterloo that is. So this year you're going to spend about another $1,000,000,000 maybe a little bit less. When should we expect that IP starts to catch up that $1,200,000,000 of underspend?

[Gabe Hajde, Analyst at Wells Fargo]

And do you feel like as you look across these metrics that you're talking about that you're falling further behind?

[Andy Silvernail, CEO at International Paper Company]

No, I don't think we're falling further behind, right, because of the choices that we're making on reallocation of where that other money is going is a big change, right? So if you just took a peanut butter spread, I would agree with what I think I'm going to call it your concern, right, which is if you were just going to leave it the same, yes, that would be 100% true, right? If I just did Waterloo and I did everything the way I did it in the past, that would be true. But if you can see from the actions we've already announced, that is not the intention. And you can expect to see us make some other choices here readily around that.

[Andy Silvernail, CEO at International Paper Company]

And so as we think about that application, so you got to think of it as you're going to move your investment towards your strategic assets. That's already started. And that's a good sized number. So the total time frame to make up the whole, I think is about 3 years to make up the whole. And look again, I do it faster, but I don't think we could spend it faster effectively, right?

[Andy Silvernail, CEO at International Paper Company]

And if you just look at lead times and in terms of equipment and whatnot, I think it's a 3 year March. That's my opinion. Mark, any thoughts there?

[Mark Nellessen, VP - Investor Relations at International Paper Company]

I would agree with that.

[Gabe Hajde, Analyst at Wells Fargo]

No, I appreciate that. I mean, it's sometimes like pushing on a string if you don't have the resources to enable it. Understood. Okay. Maybe more I

[Andy Silvernail, CEO at International Paper Company]

think it's really before you go, what's really important though, right, is this dynamic resource allocation is really, really important, right? Moving it away from places that don't deserve it, that don't make money, that you're not going to win in to places where that is true, right? They do deserve it. You can win there. And the difference in returns on capital are gigantic in those choices.

[Andy Silvernail, CEO at International Paper Company]

And so if you think of a bell curve of ROIC for these investments, right, oftentimes people think about things like safety investment or maintenance investment as on the left hand side meaning not very attractive, right? And I look at it completely opposite here on the far right hand side of that. They are everything. And so, you have to have stability before you can have improvement. And so, so much of the work that we did last year and we're still doing today is around stability.

[Andy Silvernail, CEO at International Paper Company]

And then it gives you a chance to drive improvement.

[Gabe Hajde, Analyst at Wells Fargo]

Got it. I want to be respectful of everyone's time. The last one you talked about, report cards, scorecards. Near term, just to be clear, Mark, it wasn't. In the Q1 industrial packaging view, are you are not including any price as it relates to the January increases because it was not reflected in RISI or how should we think about that?

[Andy Silvernail, CEO at International Paper Company]

No, we are not including that.

[Gabe Hajde, Analyst at Wells Fargo]

Great. Thank you.

[Andy Silvernail, CEO at International Paper Company]

Thank you very much. Well, thank you everybody. Appreciate your time today. Appreciate your interest in IP. I want to thank the teams for just a herculean effort that they are putting in and the commitment that people are showing to grabbing on to doing these tough things, right?

[Andy Silvernail, CEO at International Paper Company]

Doing hard things is what we have to do. That should be our motto, do hard things. And that's what the team is doing. So I'm very proud of how we're tackling that. And I appreciate your interest.

[Andy Silvernail, CEO at International Paper Company]

So I look forward to seeing you on March 25, at the Investor Day and laying out, a lot more detail. So take care everybody.

[Operator]

Once again, we'd like to thank you for

Participants

Executives

• Jose Maria Rodriguez Meis, VP & General manager
• Andy Silvernail, CEO
• Mark Nellessen, VP - Investor Relations

Analysts

• Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners
• Philip Ng, Managing Director at Jefferies Financial Group
• Michael Roxland, MD - Equity Research at Truist Securities
• Matt McKellar, Vice President at RBC Capital Markets
• Charlie Muir-Sands, Equity Research Analyst at BNP Paribas
• Gabe Hajde, Analyst at Wells Fargo