International Paper Company

Thank you, Krista. Good morning and good afternoon, and thank you for joining International Paper's first quarter 2025 earnings call.

Our speakers this morning are Andy Silvernail, Chairman and Chief Executive Officer, and Lance Leffler, Senior Vice President and Chief Financial Officer. 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 first quarter earnings press release and today's presentation slides. I will now turn the call over to Andy Silvernail.

Thanks, Michelle. Good morning, good afternoon, everybody. I'm going to start on slide three. Tomorrow, I've been in the role for a year. The milestone is a good opportunity to reflect on a year of substantial change. As I look back, I'm excited about our progress. The team that I'm privileged to lead has embraced our transformation, moving with urgency and open mind. I see the desire everywhere to win for this company, along with a willingness to embrace a culture of safety above all else. During this first year together, we've deployed our 80-20 approach to drive transformational change at IP. This began by focusing on and over-serving our 80s customers by aligning our people, assets, and investment with what creates value for them and to drive profitable growth. We've made investments across our business to drive step-team improvements in service and reliability and to grow in our most attractive markets. We're building our execution muscles to drive commercial excellence and significant cost out across the company. Most recently, we've welcomed our DS Smith colleagues, and we are well on our way to being stronger together. We've come a long way in a short time, and I see significant opportunity ahead as we accelerate our 80-20 execution and continue on our transformation journey. I'm moving to slide four. At our investor day last month, we shared our ambitions for the next few years. We've outlined the three pillars of our strategy designed to drive sustainable value creation. It begins with building an advantage cost position, which provides a foundation to drive additional investments and build the right capabilities to serve our customers with excellence. By building a superior customer experience, we will win profitable market share. This virtual cycle will drive high relative supply position, enabling us to build advantage capabilities and strengthen customer offerings while increasing scale and further reducing structural costs. Before I turn to the next slide, let me outline my specific goals for today's call. First, I'll give an overview of what we have accomplished over the previous year. I'm incredibly proud of the focus, commitment, and tireless work across the teams in North America and EMEA. Second, we will address the realities of the economic noise and the impact on our businesses of consumer sentiment. I'll provide a current view of what we're seeing in the market. Finally, we'll go through in detail how we're working to control our own destiny to stay on our transformational trajectory. In the first half of the year, we'll be at nearly $800 million of run rate quarterly EBITDA, accelerating to $1.1 billion by Q4. We are on a transformational journey. The external world is a little wild right now. I've been involved in a lot of challenging moments from 9-11 to the Great Recession to COVID. We're going to stay focused on the strategy, tireless in our execution, and resolute in building a great company. We're moving now to slide five. Here's another slide that we shared with you at Investor Day, which provided our earnings targets for 2025, including financial goals for each of our businesses and the underlying market assumptions. At our Investor Day, we noted that we'd seen a tick down in demand when the tariff conversation first started. After the trade discussions escalated a week later, we saw another negative shift in demand. Despite the uncertainty about the macro landscape, we are controlling the controllables with a focus on driving commercial wins and inefficiencies out. Regardless of the macro environment, our job is to win for our customers, create a great place to work, and position IP for long-term profitable market share growth. At current demand levels, we can deliver for the year. It's impossible to predict the next few months as much as being driven outside of normal market forces. Regardless, we will remain vigilant and work to accelerate our strategy if demand falters further. This is a self-help story. I'm now turning to slide six. You can see our current view of the demand environment. Industry demand in North America was down 2% in the first quarter, and based on our order patterns, we expect that level of demand to continue into the second quarter. Demand across European markets was soft in the first quarter as expected, and we expect it to remain stable in the second quarter on a quarter-to-quarter basis. In both regions, demand has been stable in April, but we're very cautious about the outlook given the strong negative consumer and business sentiments. Given the wide-ranging uncertainty and volatility, we're prepared for three very different scenarios. If the demand environment remains stable going forward, I'm confident we remain on track to deliver the targeted range of earnings improvements. If we see meaningful deterioration in the economic environment, it's likely we'd fall below our range. We would take appropriate countermeasures to ensure that we remain highly competitive while funding our strategy and our dividend. Alternatively, if the economic environment improves, we still feel good about the upper end of our earnings target. With our transformational initiatives, along with our strong balance sheet, IP is well positioned to navigate various macro environments. I'm now moving to slide seven. As I mentioned up front, we've accomplished a great deal in a year, but we have much to do. We have solid momentum on our actions to drive significant cost out of our system by reducing complexity and reinvesting to build our advantage cost position. As I shared in investor day, we are targeting $1.9 billion of cost out after inflation by the end of 2027. We've already taken actions across the company to drive approximately $400 million in annual cost savings while also pushing more resources closer to the customer. As we continue to accelerate AD20 across North America and Europe, we have line of sight to an additional $200 million of savings opportunities by the end of 2025 and the synergies that we've outlined for DS Smith. We are laser focused on achieving significant synergies from the combination of IP and DS Smith. After a very successful launch of our 8020 lighthouses in Chicago and Atlanta, we are now rolling out our 8020 performance system to more than 75 box plants across North America by the end of the year. We have also launched two lighthouses in our mill system to deploy 8020 across that system. We are focusing to further optimize our mill and box plant footprint while driving down sourcing and supply chain costs. We have tremendous opportunities throughout the company to reduce complexity and drive out costs. I'm now moving to slide eight. We also have opportunities to drive significant earnings improvement through commercial excellence. We're targeting $1.1 billion of commercial improvement benefits by the end of 2027, and we believe we are on track to achieve approximately $600 million of run rate benefits by the end of this year. We've made significant changes to improve our capabilities to over-serve our 80s customers, which includes investing in our people and our operations. In order to over-serve our 80s customers, we put more resources closer to the customer by investing in commercial capabilities and improving the customer experience. As a result of this strategy, we've significantly improved our service and on-time delivery, which has resulted in best-in-class Net Promoter Score. During the first quarter, our packaging solutions business in North America continued to improve commercially, closing our volume gap to market by approximately 500 basis points. This was 100 basis points better than we expected. Given our momentum, we expect to close this gap and grow at or above the market by the fourth quarter of this year. We will continue to invest in capabilities to improve the customer experience and drive profitable market share growth. We are committed to building a customer-centric culture across international paper, and I'm excited about the opportunity to leverage this strong capability that has long existed at DSMF. Importantly, We launched 80-20 at DS Smith immediately after the close. We have a rigorous implementation schedule which will catalyze our synergy goals of $600 to $700 million. So now let's turn to our performance and outlook on slide nine. Going forward, for financial reporting purposes, we will have three reporting segments. We will report legacy IP and DS Smith businesses in North America as Packaging Solutions North America. We will refer to legacy IP and D.S. Smith businesses in EMEA as Packaging Solutions EMEA. Importantly, in North America, we are going to go to market commercially and for our people as International Paper, while in Europe, we are leveraging the outstanding brand equity by going to market as D.S. Smith and International Paper Company. Regardless, excuse me, regarding our global sales fiber business, the strategic option process is ongoing. We have a number of interested parties in the due diligence phase. No changes are expected to our timeline, and we remain focused on achieving the right value for the business. Now I'll share some highlights, and then I'll turn it over to Lance, who will walk you through the details. I'm now on slide 10. Our first quarter results reflected higher sales and earnings driven by the DS Smith acquisition, sales price increases in North America, benefits from transformation initiatives, and some favorable non-recurring items, which Lance will cover later. These items also contribute to stronger adjusted EBITDA margins in the quarter. As a result of our commercial strategy, we made good progress reversing the slide in our North American packaging business while executing price increases. Executing our transformation strategy results in various one-time items that impact earnings and free cash flow. This quarter, our earnings per share were impacted by accelerated depreciation charges related to our footprint optimization initiatives. Our free cash flow came in as expected and was impacted by $670 million related to investments in our transformation, including severance costs and DS Smith transaction costs. This amount also includes this year's incentive compensation payout. For the full year, we still expect to be in the range of $100 to $300 million of free cash flow as we communicated on Investor Day. As we look to the second quarter, we expect flat adjusted EBITDA and higher earnings per share sequentially. We will have the non-repeat of accelerated depreciation from the first quarter, a full quarter of package solutions and media results, and additional realization from prior sales price index moves. We are actively executing our prior price increases. Our cost out actions will continue to ramp up, and we expect seasonally higher box demand in North America. Offsetting these benefits will be higher planned outage spending and non-recurring items that were favorable in the first quarter. With that, Let me turn it over to Lance to provide more details about our first quarter performance and the outlook. Thanks, Lance. Thanks, Andy.