By the numbers
Industrial packaging segment net sales: $3.79B
Down 13.6% year over year
Q3 net earnings: $165M
Down from $235M in Q2 and $951M in Q3 2022
Box sales: 2.33M tons
Down 7.7% year over year
- Destocking and downturn: Although destocking continued in Q3, it “is generally over,” said International Paper’s Chief Commercial Officer Tom Hamic on Thursday’s Q3 earnings call. As such, “we continue to see demand recovery across the markets we serve,” said CEO Mark Sutton. “With this level of downturn, there's been somewhat of a reset, and I think the market demand signals will engage again.” Demand was in a trough in Q1 but has improved since then, with orders up sequentially about 3% to 4% in October and projected to end up 4% to 5% in Q4, Hamic said.
- Closures, layoffs and optimization: Executives discussed last week’s announcement about the permanent closure of a Texas containerboard mill and permanent shutdowns of pulp machines in North Carolina and Florida, which will affect a total of 900 employees. Sutton said these are “incredibly difficult decisions to make because of the impact on our team members” and the actions are intended to “optimize our mill system and reduce fixed costs.” The Texas mill closure is expected to improve annual earnings before interest, taxes, depreciation and amortization for industrial packaging by about $140 million, with the impact occurring in 2024.
- Lingering drag: When asked what changed from previous quarters’ earnings calls when Sutton indicated no permanent closures were afoot, he responded, “I think what's changed is the depth and duration of this downturn. It's not like anything we've seen since we built the industrial packaging business, starting in the mid 2000s. ... Two quarters ago, I would not have thought we [would be] still in this type of demand environment taking this type of economic downtime.”
- Investments: Jay Royalty, senior vice president of containerboard and recycling, said, “We’re able to close [the Texas mill] without compromising our ability to serve customers. ... And even with this closure, we still have room to grow ... in the right product ranges at the right time.” IP has identified mill system capacity “investment opportunities to drive profitable growth and create significant value,” Sutton said, adding that “we feel good about being able to make this change [in Texas] and continue to grow with the market.” Most of IP’s recent strategic investments are focused on its box business, he said. Some examples include upgrading older equipment or adding converting lines in existing plants as well as opening a new box plant in Pennsylvania last month. Executives said IP has invested in more than 70 projects in 2022 and 2023.
- Succession plan: IP announced last month that Sutton would leave his CEO role and the board of directors would proceed with a succession plan. The announcement marked the final phase of a multi-year succession process, Sutton said on the call. While he didn’t hint at when a new CEO might be announced, Sutton said the board is working hard “to find the next leader for IP for the future.” Points of consideration are “what the future holds with respect to technology, with respect to what's happening in markets, the changing workforce — we build to specification the leader we think we need for the future of the company, and that’s what the board is laser focused on,” Sutton said.
