International Paper is undergoing a transformation and the company has its sights set on 2027 for growth in multiple categories, said executives during an investor day event Tuesday.
They dug into specifics about the plethora of changes International Paper has undergone during the last year, and will go through in the months ahead, including bringing IP's 80/20 optimization strategy to newly acquired company DS Smith.
IP aims for $26 billion to $28 billion in sales in 2027; it projects $27 billion in sales this year. Another goal is to deliver $6 billion in adjusted earnings before interest, taxes, depreciation and amortization that year, said CEO Andy Silvernail. That's a notable boost from the $3.5 billion to $4 billion in adjusted EBITDA projected for this year — but it's achievable, he said.
"We think we can transform this company," Silvernail said. Challenging attendees to think of how much the world has changed in the last 25 years, Silvernail said, "Frankly, International Paper didn't change fast enough with it. Why I came to International Paper was transformation; that is the purpose."
IP anticipates $1.9 billion per year in capital expenditures through 2027. Much of that will go toward beefing up its box plant network, including via the recently announced greenfield box plant in Waterloo, Iowa, that is expected to open next year.
Much of the investor day event focused on IP's progress with the strategy reset that Silvernail implemented last July after joining the company in May. He previously has described the 80/20 approach, based on the Pareto principle that 80% of outcomes occur from 20% of causes, as aligning resources to drive results.
"What 80/20 does for us is it gives you a sense of what matters most, where is value, and how you're going to relentlessly drive towards value," Silvernail said. "That opens up advantages."
Another notable chunk of the event centered on the integration progress for London-based DS Smith, which Memphis, Tennessee-based IP acquired in January. Executives confirmed that DS Smith would launch its own 80/20 initiative, based on results so far from IP's.
Silvernail explained that the combination of the two companies equates to IP acquiring DS Smith's North American business and DS Smith acquiring IP's European business. "We're going to have very much a geographic focus" as integration occurs, Silvernail said.
Considering opportunities from 80/20 and other efforts, IP upped its DS Smith synergies projection to $600 million to $700 million, compared with the previous target of $514 million.
North America optimization centers on "lighthouses"
Executives pointed to the success of their “lighthouse” pilot programs, regional hubs to simplify the network and drive efficiency, as part of IP’s reconfiguration. However, the journey involves pain along the way.
Optimization initiatives under the 80/20 approach have resulted in a spate of IP closures and layoffs over the last year, to the tune of more than 1,500 layoffs since autumn. Last month, IP announced multiple closures, including its Red River containerboard mill in Louisiana. Executives suggested more difficult decisions are on the horizon.
"We're going to make hard choices about resources to put people in a position to win," Silvernail said. "That puts you in a position to grow."
Much of the footprint reconfiguration in North America centers on IP's box plant network. Parts of IP's U.S. network are experiencing excess capacity while others don't have enough, and that must be reconciled, Silvernail explained. The changes involve work "to reinvest in that footprint, to make it capable, but to match in geographies our capability," he said.
Focusing on customer needs also was an underlying theme at the event. That's playing into where resources are allocated.
"We're talking about a packaging business, as opposed to a containerboard business and a converting business," said Tom Hamic, executive vice president and president of North American Packaging Solutions.
Lighthouses involve superplants, which manufacture standard products on long runs for key customers, and hybrid plants, which focus on shorter-run, more complex product production. The first two lighthouses launched as pilots in the Atlanta and Chicago metro areas.
Creating the lighthouses often involves closing certain regional facilities to remove costs while investing in others nearby. For instance, IP closed a facility in Cleveland, Tennessee, when investing in the Atlanta-region lighthouse.
"In Atlanta, Chicago, early views of lighthouses in those two sub-regions [are that] we've taken out $20 million of fixed costs, and we've improved productivity by 20%," Hamic said.
Since those two early pilots, the lighthouse model has since rolled out to 24 additional plants, Hamic said. IP plans to scale this model to more than 60 plants by year's end.
DS Smith adopts 80/20
Shortly after the acquisition closed, it became clear that DS Smith would retain its name as a wholly-owned subsidiary instead of being absorbed by International Paper. IP announced in February that CFO Tim Nicholls would move into a newly created role, executive vice president and president at DS Smith, starting April 1.
Nicholls spoke extensively about what's happening at DS Smith post-acquisition, especially the implementation of the 80/20 approach in the business's Europe, Middle East and Africa segment. Executives explained that progress at DS Smith has gotten off to a slower start than expected due to the European market's softness compared with North America.
"We're in a market weak point, but we will recover," Nicholls said. Even though "it's early days in DS Smith" integrating as an International Paper company, "we're off to a good start," he added.
Implementing the 80/20 strategy in Europe to focus on matching the right customers with the right asset bases is one of the opportunities to accelerate growth potential, Nicholls said.
"The good news is, we've got a very well-maintained asset base," as DS Smith has heavily invested in its box plants and mill system, Nicholls said. "And there's also been some recent investments that will help us jump-start how we deploy 80/20 on the overhead side."
Developing superplants in Europe will include investments both for new facilities and scaling capabilities at existing facilities. Emphasizing the focus on meeting customer needs, Nicholls said, "We're trying to invest in things that we sell, not sell the things that we make."
Next month, IP will gather more than 100 of its DS Smith business leaders for training on deploying 80/20 in their regions, Nicholls said. DS Smith employees who have already gone through some training on the topic "embraced it wholeheartedly," he said.
Rollout will begin in key European markets, such as the UK, and expand to other geographies in the coming months.
Completing the reconfiguration in North America and launching it in Europe will involve overcoming plenty of pain points, Silvernail said. But he said it's going well and will result in a world-class, profitable International Paper on the other side.
"None of us kid ourselves that what we're tackling is easy. But this team has signed up for a transformation," Silvernail said in closing comments. "You have to control your own destiny.”
