International Paper Company

Ladies and gentlemen, good morning and thank you for standing by. Welcome to today's international paper third quarter 2022 earnings call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, you will have an opportunity to ask questions. To ask a question, press one then zero on your telephone keypad. To withdraw a question, press one then zero again. As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Mark Mellison, Vice President, Investor Relations. Please go ahead.

Mark Mellison Thank you, Paul. Good morning, and thank you for joining International Paper's third quarter 2022 earnings call. Our speakers this morning are Mark Sutton, Chairman and Chief Executive Officer, and Ted Nichols, Senior Vice President and Chief Financial Officer. There is important information at the beginning of our presentation on slide two, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information, and a reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains copies of the third quarter earnings press to call over to Mark Sutton.

Thank you, Mark, and good morning, everyone. We'll begin our discussion on slide three. The third quarter was a very dynamic and challenging environment, which had a significant impact on our earnings. We experienced a sharp decline in demand in our industrial packaging segment and significantly higher cost headwinds from higher energy and distribution costs. On a more positive note, I'm very pleased with the progress our Global Cellulose Fibers team is making to improve performance in that business. They are successfully advancing their commercial strategy and achieved cost of capital returns in the third quarter. In both businesses, we also delivered strong price realization. And for the year, we expect to exceed our $225 million target related to our building a better IP initiatives. Now back to the demand environment. As we entered the third quarter, we recognized there were macroeconomic uncertainties ahead of us and that our businesses are not immune to these risks. However, these macro trends shifted drastically midway through the quarter, creating stronger headwinds than expected versus our previous outlook, particularly in our industrial packaging business. Based on feedback from our customers and after observing order patterns across our various channels and end-user segments, We believe inflationary pressures weighed heavily on the consumer, resulting in lower demand for goods. This had a large impact on demand for packaging as consumer priorities shifted toward non-discretionary goods and services in the quarter. In addition, our customers and the broader retail channel continued to work through elevated inventories of their products, which further reduced packaging demand in the quarter. In response to these trends, we quickly aligned our production with our customer demand, which resulted in significant economic downtime in the quarter for our container board system. Also, our significantly lower export position versus prior use contributed to a higher level of downtime, all of which suboptimized our system from a cost standpoint in the quarter. I would point out that our mill system continued to operate very well before being constrained by lower demand. The work we did in the last several quarters to improve reliability is paying dividends. As we enter the fourth quarter, packaging demand appears to be stabilizing at these lower levels. And finally, on capital allocation, we returned $434 million to shareholders in the third quarter, including $269 million of share repurchases. As a result, we returned approximately $1.6 billion of cash to shareholders so far this year. In terms of the third quarter in particular on slide four, revenue increased by 10% year over year, driven by strong price realizations across our two business segments. Operating earnings and margins were lower than prior periods due to the significant macro headwinds I discussed earlier. However, our free cash flow generation was stable in the quarter. I would also like to take this opportunity to mention that we are making good progress regarding ILM. As I mentioned before, the complexity of the situation and our joint venture structure impact the pace of reaching a resolution. but we feel good about the progress we're making and we'll provide another update when there is more information to share. I'll now turn to slide five, which is one that we shared with you last quarter as we recognized that there were a lot of macro uncertainties ahead of us. Our outlook for the fourth quarter, which Tim will share with you shortly, assumes our earnings will remain under pressure in the near term. However, I want to reinforce my confidence in the resiliency of IP and our ability to navigate through these dynamic environments. Our teams at International Paper know what it takes to successfully manage through a business cycle. And given the rapid change in demand, it will take some time to realign and optimize our system to the current environment. We have a wide range of options and capabilities across our large system of mills, box plants, and supply chains. and we know how to leverage them while taking care of our customers. Also later in the presentation, Tim's going to share some specific actions that our teams are taking to shift production to our lowest-cost operations and shed high-margin cost across the system. We're also continuing to invest in projects to drive structural cost reduction through efficiency improvements. And finally, we have built a very strong balance sheet, which we will preserve because we believe it's ensuring our financial stability and optionality, and it's foundational to our company, especially in software economic environments. This allows us to continue investing in our businesses and to return cash to shareholders in a meaningful way by maintaining our dividend and through opportunistic share repurchases. I'm now going to turn it over to Tim, who will cover our business performance and outlook. Tim?