International Paper’s 2026 Q2 Call: Pine Hill Insurance Recovery and North America Demand Outlook Clash

Date of Call: Jul 30, 2026

Financials Results

• Revenue: Overall sales declined due to planned exit of non-strategic export business and softer EMEA demand.
• Operating Margin: Earnings and margins declined year-over-year in North America due to planned outage activity and the Riverdale conversion; EMEA experienced margin squeeze due to higher paper prices and distribution costs.

Guidance:

• North America adjusted EBITDA outlook for Q3 is $555M-$585M, including ~$85M Pine Hill impact. Full-year outlook is $2.35B-$2.45B, with a step-up of ~$600M from H1 to H2.
• EMEA adjusted EBITDA outlook for Q3 is $230M-$250M. Full-year outlook is $900M-$1B, with a step-up of ~$170M from H1 to H2.
• Pine Hill disruption estimated at $70M-$100M in H2, with majority expected to be recovered via insurance.
• North American box volumes expected to be up 1.7% YOY on a daily basis in Q2, with industry outpacing expected by ~2% for full year.
• Macro environment headwinds increased from ~$50M to ~$150M due to elevated transportation spot rates and higher OCC, diesel, and medical costs.

Business Commentary:

Operational Performance and Strategic Investments:

• International Paper reported strong operational performance in Q2 2026, with North American box volumes increasing 1.7% year-over-year on a daily basis, and expectations to outpace the industry by 2% for the full year.
• The company successfully executed a heavy outage schedule and advanced strategic investments, contributing to improved mill performance and the completion of the Riverdale machine conversion on time.
• The growth is attributed to enhanced customer relationships, investments in performance and innovation centers, and strategic mill system improvements.

Cost Reduction and Efficiency Improvements:

• The company achieved cost reductions by executing a series of footprint actions and simplifying the mill system, resulting in improved capacity utilization and consistent performance improvements.
• More than $210 million in run rate footprint and cost savings actions were announced in EMEA, including the closure of 31 manufacturing facilities and a central office, expected to reduce positions by over 3,000.
• These efforts were driven by the need to strengthen the cost structure and create a leaner, more efficient mill system.

Investments in Growth and Reliability:

• International Paper made focused investments to upgrade its portfolio, with examples including the NORPAC mill acquisition, the completion of the Riverdale machine conversion, and the Dover Converting Facility acquisition.
• These investments aim to enhance product mix, support a more balanced paper system, and drive financial returns in the mid-teens to mid-20s.
• The strategic moves are part of the company's 80-20 approach to reinvest in capabilities and locations that help win and create the most value.

EMEA Business Transformation:

• The EMEA business saw significant transformation with investments aimed at modernizing the recycled container board platform and improving competitiveness.
• Key projects include the modernization at LUCA, consolidation of volume in Germany, and expansion in Romania to capitalize on growth opportunities.
• These efforts are expected to generate stronger financial returns and lower costs, supporting long-term growth in the region.

Macro Environment and Financial Outlook:

• The company's full-year adjusted EBITDA outlook for North America was revised to $2.35 billion to $2.45 billion, reflecting macroeconomic headwinds such as elevated transportation spot rates and higher OCC, diesel, and medical costs.
• Despite these challenges, the company is confident in its outlook due to completed milestones, realized price increases, and ongoing cost-out initiatives.
• The financial guidance incorporates the impact of geopolitical uncertainties and input cost fluctuations.

Sentiment Analysis:

Overall Tone: Positive

• "We delivered strong operational performance, successfully executed a particularly heavy outage schedule, and advanced key strategic investments." "We’re seeing better execution and improving performance as we build a stronger International Paper." "We’re realizing prior price increases and continuing to execute our 80-20 initiatives. While the operating environment remains dynamic, these actions will help mitigate macro headwinds and support our confidence in the outlook."

Q&A:

• Question from George Staphos (Bank of America): Can you talk about items making you comfortable with the ~50% Q3 to Q4 ramp? What have you factored for higher diesel prices post-June? Also, update on 80-20 progress and expectations.
  Response: Lance: Ramp driven by Riverdale ramp-up, pricing flow-through, and cost-out initiatives. Diesel assumptions based on current strip. Andy: 80-20 progress includes facility rationalization (31 facilities, >3,000 positions) and reinvestment in assets like Mansfield, Riverdale, NORPAC, Waterloo; optimization ongoing.

• Question from George Staphos (Bank of America): Update on 80-20 achievements and expectations.
  Response: Andy: In Europe, focus on facility rationalization and reducing people cost intensity; in North America, major structural changes complete, now driving optimization and smart reinvestment; expects continued progress in H2.

• Question from Matthew McKellar (RBC): How are you managing Pine Hill downtime? Clarify if Q3 guidance includes Pine Hill impact and assumes insurance recovery.
  Response: Andy: Pine Hill expected operational by end of August; system optimized to mitigate impact. Lance: Pine Hill impact excluded from full-year guide; expect majority recovered via insurance in H2, details still being worked.

• Question from Mark Weintraub (Seaport Research Partners): Clarify if Pine Hill and insurance are in the updated $3.2B-$3.4B guide. Update on $4-$5B long-term target and demand outlook.
  Response: Lance: Pine Hill excluded from total guide, loss to be recuperated in H2. Andy: Demand revised to flat in North America H2 due to affordability and geopolitical uncertainty; cautious on future outlook due to spin proximity and regulation.

• Question from Phil Ng (Jefferies): Philosophy on recent September container board price increase and longer-term pricing.
  Response: Andy: Pricing combination of market conditions and supply-demand; recent increases aimed at offsetting inflation; dynamic pricing environment, with future dependent on inflation trajectory.

• Question from Phil Ng (Jefferies): Where are you in optimizing box network and recapitalizing assets?
  Response: Andy: Box network in optimization mode post-high-cost capacity exits; investments like Waterloo, Dover, Mississippi represent strategic bets; expect continued measured investments to drive advantage cost position and responsiveness.

• Question from Mike Roxland (Truist Securities): Why were North American volumes up only 1.7% vs. prior 3% expectation? Shipments trend in July and price realization details.
  Response: Lance: 1.7% was actual volume growth; 3% was expected market outpacing. Andy: July shipments softer due to West Coast fruit/veg headwinds; price realization faster due to commercial team improvements and contract execution.

Contradiction Point 1

Pine Hill Disruption and Insurance Recovery

Guidance inclusion and recovery timing for Pine Hill disruption conflict.

Matthew McKellar (RBC) - Matthew McKellar (RBC)

2026Q2: The Pine Hill disruption is excluded from the full-year guide. A majority of the loss is expected to be recovered via insurance in the second half. - [Lance Leffler](CFO)

Can you elaborate on the favorable mix and supply to the converting system in North America and whether the 2026 guidance assumes insurance recovery for the Pine Hill impact? - Phil Ng (Jefferies)

2026Q2: The $3.2B-$3.4B full-year guide excludes the Pine Hill impact. The company intends to recuperate the majority of the loss in H2. - [Lance Loeffler](CFO)

Contradiction Point 2

North America Demand Outlook

Second-half 2026 demand expectation downgraded from growth to flat.

Mark Weintraub (Seaport Research Partners) - Mark Weintraub (Seaport Research Partners)

2026Q2: Demand: Revised expectations for North America: flat year-over-year in H2 2026 (down from an expected pickup) due to inflation/affordability issues and softness in fruit/veg on the West Coast. - [Andy Silvernail](CEO)

Are the Pine Hill impact and potential insurance recovery included in the updated $3.2–$3.4B full-year guide, how does the macro environment affect the previous $4–$5B 2027 outlook, and is there an update on North American corrugated demand? - Phil Ng (Jefferies)

2026Q2: Demand: H2 2026 now expected flat in North America (downgraded from +1%) and modestly up in EMEA due to affordability/inflation mutes, especially in fruit/veg on the West Coast. - [Andy Silvernail](CEO)

Contradiction Point 3

Timing of Price Increase Realization

Contradiction on which fiscal year benefits from the September price increase.

Anthony Pettinari (Citi) - Anthony Pettinari (Citi)

2026Q2: The increase would flow through over Q1–Q2 2027, consistent with historical lags. - [Andy Silvernail](CEO)

"When will the September price increase be fully realized, and what cost assumptions underpin the full-year guide?" - Anthony Pettinari (Citi)

2026Q2: The increase would be largely a 2027 benefit, with minimal 2026 impact. It would flow through between Q1 and Q2 2027, similar to historical patterns. - [Lance Loeffler](CFO)

Contradiction Point 4

2027 EBITDA Bridge and Pricing Flow-Through

Inconsistent timeline for pricing benefits flowing through to 2027.

George Staphos (Bank of America) - George Staphos (Bank of America)

2026Q2: Pricing flow-through from June publications... realized across the box system. - [Lance Leffler](CFO)

What specific factors support the ~50% increase from Q3 to Q4, what have you factored in for potentially higher diesel prices since June 30, and can you update on 80-20 progress in North America and EMEA along with expectations for 2026/2027? - Michael Roxland (Truist Securities)

2026Q1: Incremental pricing from 2026... half flows through in 2026, half in 2027. - [Andrew Silvernail](CEO)

Contradiction Point 5

Progress on 80/20 Cost Savings Initiative

Contradiction on the amount of cost savings achieved versus the target.

Questioner (Unknown) - Questioner (Unknown)

2026Q2: About half of the original $1.2B target remains to be actioned. - [Andy Silvernail](CEO)

What is the current progress on the $1.2B cost savings exit rate in Packaging Solutions North America? - George Staphos (BofA Securities)

2026Q1: Total cost-out to date is ~$700M, with over $1B expected by the end of the initiative. - [Andrew Silvernail](CEO)