INTERNATIONAL PAPER CO /NEW/ (IP)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 headline results: Net sales were $4.58B (flat YoY, down 2% QoQ), GAAP diluted EPS was $(0.42) and adjusted operating EPS was $(0.02), with the quarter pressured by accelerated depreciation tied to footprint actions (notably the Georgetown pulp mill) offset by stronger Industrial Packaging profitability .
• Industrial Packaging operating profit improved sequentially to $247M on higher price/mix and lower outage costs; Global Cellulose Fibers swung to a $(250)M loss on lower price/volume and $215M of accelerated depreciation from the Georgetown closure .
• Management expects 2025 to be “transformational,” guiding to sequential stabilization then ramp, with Q1 adjusted earnings improving in both segments (IP +$52M, GCF +~$220M) largely on the non-repeat of accelerated depreciation; detailed outlook to follow at the March 25 Investor Day .
• Strategic and potential stock catalysts: DS Smith closing expected Jan 31 with EC clearance (divest 5 EMEA box plants), aggressive 80/20 cost-out (targeting $1.2B net cost-out; $350M productivity gap to recapture), capacity balancing actions, and a new greenfield Waterloo, IA box plant targeting ~20% cash-on-cash returns .

What Went Well and What Went Wrong

What Went Well

• Industrial Packaging profit rose to $247M (from $197M in Q3) on ~$63M price/mix benefit, lower planned outages, and lower OCC/wood costs; EMEA benefited from seasonality and subsidies; insurance proceeds added $13M .
• Execution on 80/20 and footprint optimization: corporate costs reduced by $120M annual run-rate; two lighthouse regions delivered >20% productivity gains, to be scaled to 22 plants in 2025 .
• Strategic progress: DS Smith court approval and EC clearance (with 5-plant divestment commitment) positions IP to become a global leader in sustainable packaging; Investor Day set for March 25 to detail the roadmap .

What Went Wrong

• Global Cellulose Fibers posted a $(250)M operating loss (vs $40M profit in Q3) due to lower price/volume, reliability incidents, higher outages, and $215M accelerated depreciation from the Georgetown closure .
• Volume declined as expected from commercial contract restructuring and two fewer shipping days; operations and costs were sequentially unfavorable (reliability incidents, seasonally higher costs, step-down in insurance recoveries) .
• Cash generation stepped down sequentially: CFO fell to $397M (from $521M in Q3) and FCF to $137M (from $309M), impacted by working capital, higher capex, and DS Smith transaction costs .

Financial Results

Segment breakdown (Net Sales and Operating Profit)

Select computed segment margins (Operating Profit / Net Sales)

• Industrial Packaging OP Margin: Q4’23 (0.8%) (calc) ; Q3’24 5.0% (calc) ; Q4’24 6.4% (calc)
• Global Cellulose Fibers OP Margin: Q4’23 (20.3%) (calc) ; Q3’24 5.6% (calc) ; Q4’24 (37.8%) (calc)

KPIs

Note: Margins are calculated directly from cited net sales and net earnings/operating profit figures.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “2025 will be a transformational year with disciplined execution to further reduce costs and balance our capacity to our demand.” — Andy Silvernail, CEO .
• “We’re making progress and taking actions on our path to achieve $4 billion of EBITDA medium term... roughly $1.2 billion of the improvement… is going to come from cost out.” .
• “In 2024, our operating performance and lack of productivity cost us $350 million… unlocking this performance will… drive profitable growth.” .
• “We are investing in a greenfield state-of-the-art corrugated box facility in Waterloo, Iowa… designed to deliver… 20% lower cost,” and targeting ~20% cash-on-cash returns through the integrated value chain .
• “We officially expect to close the DS Smith transaction at the end of the day tomorrow… [EC] approved… with conditions… divest 5 box plants in Northern France, Northern Spain and Portugal.” .

Q&A Highlights

• Volume trajectory: Management reiterated volumes are tracking plan; YoY volume declines should lessen through 1H’25 with a potential crossover to positive in 2H’25 as contract restructuring effects abate and service improvements enable new wins .
• Productivity/reliability unlock: Estimated $300–$400M opportunity, with $175–$200M tied to mill reliability; plan includes maintenance investment, training, and daily management to restore reliability and productivity .
• Capacity balancing: Balancing capacity to demand via targeted closures/consolidations and growth where under-capacity (e.g., Waterloo), with additional actions to come; details limited pending processes .
• Capital and spend cadence: Overhauled capital process; ~3-year march to close maintenance underinvestment gap; willingness to invest more as execution capacity rises .
• Pricing setup: Near-term view does not include January price increase effects .
• Corporate cost: Central costs declining by ~$120M annually, with cost reallocations to segments for transparency .

Estimates Context

• We attempted to retrieve S&P Global consensus for Q4 2024 EPS and revenue, but SPGI returned a rate-limit error; as a result, we cannot reliably state beats/misses vs consensus for this quarter (S&P Global data unavailable at this time). Results vs estimates are therefore not included. [Values intended from S&P Global but unavailable]

Where estimates may need to adjust:

• Industrial Packaging’s sequential momentum and price/mix commentary, alongside Q1 sequential uplift, point to upward adjustments for 1H’25 segment earnings if execution on cost and reliability stays on track .
• GCF’s Q4 loss was heavily driven by one-time accelerated D&A; with the non-repeat, sequential improvement should be significant in Q1, potentially prompting normalization in forecasts .

Key Takeaways for Investors

• Industrial Packaging is improving sequentially (price/mix, lower outages) with further Q1 uplift expected; focus remains on margin quality over volume, with volume trajectory improving into 2H’25 .
• GCF’s Q4 loss was largely non-recurring (accelerated depreciation on Georgetown closure); meaningful sequential recovery expected as that impact rolls off, though price/mix remains a headwind .
• The 80/20 cost agenda is real: corporate −$120M run-rate, two lighthouse regions delivering >20% productivity, and a clear roadmap to recapture a $300–$400M productivity gap over time .
• Strategic catalysts: DS Smith close (with limited EC remedies) expands EMEA scale; Investor Day (Mar 25) should provide a quantified multiyear plan and integration update .
• Capacity rationalization underway: closures and consolidation to balance capacity to demand (Georgetown done; additional actions announced post-quarter) support structural margin improvement .
• Capital deployment prioritizes reliability and low-cost production: Waterloo greenfield targets ~20% cash-on-cash returns through the chain; expect steadier, higher-return capex cadence as processes improve .
• Liquidity/FCF stepped down in Q4 on working capital and higher capex; monitor CFO/FCF re-acceleration in 2025 as cost actions flow through and one-time items fade .

Supporting Detail (Press Release and 8-K excerpts)

• Q4 2024 EPS: GAAP $(0.42); Adjusted $(0.02). Net sales $4.58B. Full-year 2024 net earnings $557M; adjusted operating earnings $400M. Special items included $395M pre-tax accelerated depreciation and restructuring in 2024 .
• Segment Q4: IP OP $247M; GCF OP $(250)M; key drivers include price/mix, outages, input costs, and $215M accelerated D&A for Georgetown in GCF .
• Cash metrics Q4: CFO $397M; FCF $137M .
• Dividend declared: $0.4625 per share payable Mar 17, 2025 .