International Paper Company

Good morning and thank you for standing by. Welcome to International Paper's fourth quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, you will have an opportunity to ask questions. To ask a question, press star 1 on your telephone keypad. To withdraw your question, again press star 1. As a reminder, to ask a question, press star one. To withdraw your question, press star one again. And it is now my pleasure to turn the call over to Jose Maria Rodriguez-Mace, Vice President, Investor Relations. Sir, the floor is yours.

Thank you, Krista. Good morning and good afternoon, and thank you for joining International Papers fourth quarter and full year 2024 earnings call. Our speakers this morning are Andy Silverman, Chairman and Chief Executive Officer, and stepping in today for our Chief Financial Officer, Tim Nichols, who is in London for DSMID 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.S. Securities and Exchange Commission. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains copies of the four-quarter 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. I will now turn the call over to Andy.

Thank you, Jose, 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 finance role in our North American Packaging Solution business. And, Mark, thanks for pinch-hitting for Tim as he's getting us ready here for day one with ESMIP. With that, good morning and good afternoon, everybody. I'm going to begin on slide three. I'm excited to share that today, DS Smith appeared before the court in the UK to get final approval, and we officially expect to close the DS Smith transaction at the end of the day tomorrow, US time, Friday, January 31st. 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. To resolve those concerns, we have agreed to divest five box plants in northern France, northern Spain, and Portugal within the next six 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 five 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 3rd. Together with our customers, we're creating the global leader of 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 Dia Smith at our investor day in March. Now transitioning to slide four. We are building a performance-driven, customer-centered culture at IP to fulfill our purpose, a culture that will enable us to create significant value for our employees, customers, and shareholders. 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. drive profitable market share growth by being the low-cost producer and the most reliable and innovative sustainable packaging provider in North America, EMEA. A disciplined 80-20 mindset will permeate everything we do. By focusing on the critical few, we are aligning resources, reducing complexity, removing costs, and delighting customers. These efforts are all focused to deliver superior value for all of our stakeholders. I'm now moving to slide five. We're making progress and taking actions on our path to achieve $4 billion of EBITDA medium term. This does not include the DS 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 $1.2 billion 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 $1.6 billion of costs. As we talked about on the third quarter call, we started to do the heavy lifting, so we're making the right choices to take costs 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 million annually. We have taken the difficult actions to close five box plants in our global cellulose fibers mill in Georgetown. We estimate that these combined will remove roughly another $110 million of cost from our run rate. As I mentioned last quarter, there are two regions where we're doing 80-20 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 systems so we deliver structural cost reduction. In 2024, our operating performance and lack of productivity cost us $350 million. 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 time from idea to execution. If we turn to the commercial improvements, we expect these commercial improvements to contribute roughly $800 million to our $4 billion target. Our go-to-market value over volume reset is essentially complete. We expect the final unfavorable impact of volume to be behind us later this year. Volume has tracked to our plan for the past three 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-centered culture. 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 80-20 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. We have a lot of work to do. There's absolutely no doubt about that. But the fundamentals are in place 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. 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 IPE, create significant value for our shareholders. I'm now on to slide six. I'm excited to share we are investing in a greenfield, state-of-the-art corrugated box facility in Waterloo, Iowa. This is a great example of the investments we're making as we continue with our ambitious plan to optimize our mill-to-box system and generate attractive returns. This world-class box plant is designed to deliver on a 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 at a freight advantage distance from one of our mills. The plan is to start construction this year and targeting for a startup in 2026. 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 anticipate closing this deal tomorrow. 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 eight. Our four-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. 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 contractor structuring, playing out in line with our predictions, which is giving us good line of sight among what we'll see in 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. As I shared before, we are laser focused on improving reliability and taking costs 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. 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. But at a high level, 2025 is expected to be a transformational year. During the first few months, we anticipate earnings will continue 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 80-20 implementation. With that, I'm going to turn it over to Mark, who's going to provide more details on our fourth quarter performance and outlook.