By the numbers: Q4 and full-year 2023
Q4 net sales: $4.6B
Down 10.4% year over year
2023 net sales: $18.9B
Down 10.6% year over year
Q4 net loss: $284M
Net earnings improvement of 10.7% year over year
Q4 industrial packaging net sales: $3.84B
Down 7.8% year over year
- Improving demand: International Paper reported an overall challenging market environment in 2023, with lower demand for much of the year. A “demand trough” occurred last March and slight improvements have come since then, said CFO Tim Nicholls. The company has seen progress “since the destocking phase ran its course,” he said, noting sequentially higher daily box shipments in Q4. E-commerce shipments were “resilient” in 2023 and continue to be “an attractive channel for our consumers, as evidenced during the past holiday season,” he said, citing an increase of 30% since 2019. Regarding inventory, Chief Commercial Officer Tom Hamic agreed that destocking is over, but he said customers are not yet broadly restocking.
- Pricing: Executives addressed the price hikes that IP and most major fiber companies said they would implement Jan. 1. Following Fastmarkets RISI’s Jan. 19 monthly price report that indicated no change from December to January, questions intensified over whether the markets recognized the price increases. “The fact that the index stayed flat in January, again, is not reflective of the pricing we have been invoicing,” said CEO Mark Sutton. He noted that Fastmarkets RISI’s data serves a small — and shrinking — open market. “We don't feel the index over the last ... couple of quarters has been reflective of what's really happening in the industry,” Sutton said. He said pricing agreements vary and details are solely shared between IP and each customer, and he alluded to the possibility of reevaluating whether existing pricing models that consider the Fastmarkets RISI price index are still working.
- Price vs. volumes: Executives discussed a go-to-market strategy for industrial packaging in an effort to return to profitability, referencing “value over volume” numerous times. The strategy prioritizes improving margins and mix while enhancing value for customers, Sutton said, including being more selective in the markets IP serves. The strategy has elements related to the higher price debate as well. “We improved the customer experience, we deliver more value and then we charge for that value,” Hamic said. IP might “trail the industry for the next few quarters when measuring unit volume growth, but we expect to grow at or above market thereafter, and we expect our earnings to improve through this process,” Sutton said.
- Succession plan: An analyst on the earnings call asked for an update regarding Sutton’s pending departure from the International Paper, announced in September, and succession plan. Sutton said the board is making good progress on a plan and is “closer to a decision now than we were in September, but there's no timeline to report.”
- Q1 outlook: In the shorter term, “we expect the first quarter of 2024 will be an earnings trough due to seasonally low volumes, seasonally higher costs and unfavorable impacts from the January winter freeze,” with an estimated $40 million hit from effects of the uncommonly cold weather alone, Nicholls said.
- 2024 outlook: IP executives did not offer full-year earnings guidance due to “the fluid market environment,” Nicholls said. They did say they anticipate Q4’s demand recovery trend will continue, and they predict box demand will grow 3% this year. Cost benefits are expected to ramp in 2024 from last year’s closure of a containerboard mill in Orange, Texas, and permanent idling of two pulp machines: one in Riegelwood, North Carolina, and another in Pensacola, Florida.
