International Paper's Closures: A Growth Play or Bankruptcy Warning?

International Paper (IP) has announced the closure of two packaging facilities in Compton, California, and Louisville, Kentucky, as part of a strategic cost-cutting initiative amid weak demand. The facilities will cease operations by January 2026, affecting 218 employees, with production shifting to nearby sites. The company emphasized efforts to minimize workforce impact through attrition, retirements, and reassignments. Executive Vice President Tom Hamic acknowledged the difficulty of the decision, stating, "We are sincerely grateful for the contributions of our departing team members and fully committed to supporting them through this transition" as reported in the announcement.

The closures are tied to International Paper's broader transformation strategy to streamline operations and focus on sustainable growth. The company, which recently acquired DS Smith to strengthen its position in North America and Europe, aims to consolidate its footprint to enhance service delivery and operational efficiency. However, the move follows a challenging financial landscape: the firm reported a larger-than-expected adjusted loss for Q3 2025 and faces declining margins, with an operating margin of -0.04% and a net margin of -5%. Analysts highlight risks, including an Altman Z-Score of 1.47, which places the company in a "distress zone" and raises concerns about potential bankruptcy within two years.

The decision reflects broader market pressures. Packaging demand in the U.S. has softened, though recent reports note conflicting trends: while some industry groups cite rising demand driven by population growth and pandemic-related shifts, International Paper attributes its closures to cost management. The company's financial health is further complicated by high volatility (beta of 1.38) and a debt-to-equity ratio of 0.6, underscoring its exposure to cyclical economic risks.

Meanwhile, the stock market has shown shifting investor sentiment. While AI-driven tech stocks have faltered, industrial and financial sectors have outperformed, with the SPDR Dow Jones Industrial Average ETF (DIA) gaining 1.4% compared to a 2.2% loss for the Invesco QQQ Trust (QQQ) over two weeks as reported in market analysis.

International Paper's strategic overhaul includes $600 million in expected EBITDA benefits by 2026 from operational streamlining, though near-term headwinds-such as higher labor costs and planned outages-threaten Q4 performance. Despite these challenges, the company remains bullish on long-term growth, citing improved productivity and a focus on high-return projects like the Riverdale lightweight containerboard conversion. Analysts recommend buying IP stock, citing its undervalued P/S ratio of 0.66 and a target price of $47.48.