International Paper at Jefferies Conference: Strategic Shift Amid Market Challenges

On Thursday, 04 September 2025, International Paper (NYSE:IP) outlined its strategic transformation at the Jefferies Mining and Industrials Conference 2025. CEO Andy Silvernail addressed both challenges and opportunities, including market headwinds in the US and Europe due to trade uncertainties and regional conflicts. Despite these hurdles, the company remains focused on restructuring efforts to bolster its competitive position in the packaging sector.

Key Takeaways

• International Paper is undergoing a strategic transformation to focus on packaging.
• Restructuring efforts include mill closures and investments in the US and Europe.
• Market weaknesses have resulted in a $500 million profit impact.
• The company aims to enhance service quality and customer responsiveness.
• Optimism remains for long-term market improvements in the US.

Financial Results

• Market weakness has led to a profit impact exceeding $500 million.
• In Europe, volume and price challenges have created a $350 million headwind.
• The US market is primarily affected by volume losses.
• A cost reduction target of $500 to $600 million is set for European operations.

Operational Updates

• US restructuring includes selling GCF, closing Savannah and Riceboro mills, and investing in Riverdale.
• European efforts focus on cost reduction and streamlining operations.
• The company plans to reduce structures from 13 to 7 in Europe.
• Enhancing service levels and asset quality remains a priority.

Future Outlook

• Optimism for US market recovery, driven by improvements in housing and trade conditions.
• Commitment to running tight on capacity to maximize profitability.
• Increased integration and capacity reduction anticipated in Europe.

Q&A Highlights

• Focus on winning business through quality service and timely delivery.
• European strategy mirrors US efforts on cost optimization and integration.
• Emphasis on serving high-value customers who appreciate the company’s service level.

Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Jefferies Mining and Industrials Conference 2025:

Phil Ng, Jefferies Analyst, Jefferies: Guys. I’m Phil Ng, Jefferies paper and packaging analyst. We got International Paper here. Representing the company, we got Andy Silvernail. Well, Andy, hopefully, we keep this a dish tradition.

This is

Andy Silvernail, CEO, International Paper: year two. Yeah. We will.

Phil Ng, Jefferies Analyst, Jefferies: And, you know, you’ve been in your role for about a year and a half. Yeah. You’ve been a very busy man, Andy.

Andy Silvernail, CEO, International Paper: Very busy man.

Phil Ng, Jefferies Analyst, Jefferies: Know, maybe this is a good venue for you to kinda at least convey some of the puts and takes and how you kinda envision this transformation playing out.

Andy Silvernail, CEO, International Paper: Yeah. Yeah. So where do you wanna run to today? Where you directionally, you just wanna talk about how can I where we are today or you wanna talk, how do you wanna handle it?

Phil Ng, Jefferies Analyst, Jefferies: Power be you want to kick things off

Andy Silvernail, CEO, International Paper: and reflect. Look, after a year and a half, I would say that the base case is very much what I expected it to be, minus a weaker markets, just generally, if you look at the overall economic growth. Maybe I’ll just touch on that first, Phil, jump Sure. Into And so, I’ll start with The US. The US, we had expected in this year to be up about plus one.

It’s actually gonna be I think it’s gonna end up being down about two in the marketplace. So it’s about a three point swing, you know, for us in in general. And and and the the question that I think everybody has, we talked up a lot about this at dinner last night, was around kind of is there structurally something different in the market? Kind of expectations, how do you think about that? And we’ve we’ve dug a ton into the marketplace to ask that question, and and there’s really no evidence at this stage.

There are always puts and takes around medium, you know, kinda thinking about the offsets of mediums and what are you using for for materials, but there’s really kind of nothing structurally. The thing that always sticks in people’s minds is, well, I’m getting more things at my house that are arriving in bags. Right? So is that bad for packaging? And and, you know, a couple of things is that’s something that happens all the time.

If you look at the historical trends in packaging, those sorts of things are constantly moving. And and the relative volume in the in the marketplace is actually pretty small. And so you look at that, you know, structurally now. And if you actually kinda ask yourself a simple question, well, what’s happening? It’s just the velocity of good movement.

I mean, it’s it’s it’s really quite that simple. And in The US, I would say there are really two factors that appear to be the biggest drags. One is around I think we’re all very aware around, you know, kinda trade and tariffs and how those have played. And and literally, guys have heard me say this many times, but we saw the when the first barrage of conversations happened kinda post January, we saw a little bit of tick down in the market. And then on on so called Liberation Day, we saw another tick down.

And that has stayed really consistently the same in both markets in The US and in Europe. And as I talk to my peers, as I talk to our customers, so much is just driven on the unpredictability of the marketplace and therefore the willingness to spend. And so I think we’re going to live with this a little bit until you get through some of that, until you annualize some of that or you get some stability. The second one in The US is really around housing. And and one of the conversations we had last night is if you just kinda think about the last time you moved and you think about the packaging intensity that happened in that move and you think about where we are in terms of people actually buying and selling houses, and then people and moving right now, we’re at a, you know, historically a pretty depressed level, you know, in that regard.

So those two factors have been hanging on on the overall packaging market. And the good news in both of those is it’s hard to imagine those being systemically sticky. Right? It’s hard to see you go as I look at some point in the future, it’s hard to imagine that we’re gonna wake up five years from now, and it’s gonna be the exact same story. And so I think that’s actually a very good news story in The US.

Europe is is different to some degree. Right? One is you have certainly, you have the challenges of of trade and tariffs, but the overhang of the conflict on the eastern fronts in in in The Ukraine, that’s that’s pretty substantial. And I spent about ten weeks in Europe this year after we closed the DS Smith deal and just understanding that. And when you’re physically there and you’re actually talking to people day in and day out, you understand the weight of these two things pretty heavily in in Europe.

You know, long term, there’s really no reason to believe that structurally that something has changed in the markets in terms of volume growth over time. They’re both kind of one to 2% volume growth markets over over a cycle for different reasons. Right? In in in Europe, there’s more of a material change component to it, and and that kinda drives that. In The US, it’s a combination of economic growth and and a little bit better demographics than in Europe.

So that’s kind of on the market side. And what I would say is what we’re experiencing is that sluggishness. It’s what we talked about in the second quarter, that has continued. There’s no doubt about it that that sluggishness has continued. And it’s at this stage, right, my my plan is how do you win in that sluggish environment and not bet on the come.

I I am never a believer, and I’m gonna wait for something to for some something in a marketplace to to bail us out or bail me out. I don’t I just simply don’t believe in that. When that does happen, what we want is we want a cost base, and we want a resource centric focus around customers and around asset quality and around our people that allow us to be in the best possible competitive position. So everything we’re doing now, all the restructuring that we’re doing is fundamentally about having the best competitive position in the marketplace, and I can talk about that in more depth. And so, you know, what I would say is if if you really if you categorize it very simply, if you took if you said the markets were growing at the rates that kind of everybody in the industry had expected coming into it, it’s actually more than a half a billion dollars in profits for us.

That’s that’s about the number that you would tie to it. It’s actually a little bit north of that, frankly. But in The US, it’s really around the the volume losses there. And in Europe, it’s a combination of the volume and price, you know, softness that we had versus the expectations. So given that, right, and given where we are, I’m actually I’m actually pretty happy with structurally what we’ve gotten after.

And do you want me to just talk about that a little bit, the structural side? Sure. Yeah. So so in The US, we really we launched the eighty twenty methodology in The US in June, and we made a whole series, as you know, a whole series of announcements that have happened, you know, over the past year. And if you kinda look at the laundry list, it’s it’s it’s actually kinda breathtaking that when you look at the the number of of actions that we have taken and the impact that we’ve had.

And if you simplify, if you kinda break it down and say, well, what are we actually doing? If you look at what we announced ten days ago, if you look at that on on the Thursday of of I can see, so it’s almost two weeks ago now, it it’s if you look at that, that’s actually a great encapsulation of strategically what we are doing in The US and in Europe. So I’ll take a second and use that example because I think it’s actually really informative of what’s happening. So in The US, we did effectively did three things. Right?

We we announced sale of GCF. We announced the closure of Savannah and Riceboro, and we announced the investment in Riverdale. Right? So those are the three big things that happened in that announcement. And so, you know, what what does that tell you about us?

Number one, we are a packaging company and only a packaging company, and that’s really important. Right? The history of International Paper has been as a broad based fiber company, right, that has had up to, I think, eight or nine very large scale business units with a really large centralized structure. We blew up the centralized structure last year. We radically decentralized back into the to closer to the customers, closer into the field, and we’re focusing

And so if it doesn’t lead to packaging, we really don’t have much interest in it, and that’s fundamentally. And so being an integrated packaging player is the right movement for us. We’re further ahead in in The US. Europe is gonna have a little bit different flavor around integration, but we’re gonna be a packaging company. Why?

Structurally, it’s just a better business. Right? So if you look at returns on invested capital of the industry, if you look at at at the marketplace and you take the the the paper based businesses, and you actually look at returns on capital, those that are packaging centric versus everything else, it’s not even close. And so being in that, and it’s also a hell of a lot less volatile than people think. Right?

If you actually look at at kind of a range of growth rates over time, there’s about a four point range of of outcomes in that packaging world through a cycle, you know, except in a severe recession. Right? And my point of that is it’s it’s it’s far less volatile than people kinda think of a paper based business being just in terms of volumes. The volumes then drive volatility that’s tied to that. Right?

So what you’re seeing in Europe is that combination of a weak market and weak price coming with it. Right? So that double whammy is really tough. It’s really it’s it’s it’s big time wind in your face. In The US, because structurally, it’s a better marketplace, we’ve had a weak we’ve had a weaker market, but price has held up, you know, better than than it has in in Europe.

And this business, structurally, if we get this right, when we get this right, structurally, it’s a much much much better business, and I think people associate with a a paper based business generally. So that’s kind of that’s that part of it. The restructuring of Riceboro and Savannah, if you think of it, there’s really there’s two components to it. One is, it’s volume that’s moving through aged or or strategically inferior assets. And in our business, strategically inferior assets are simply a problem.

Simply a problem. They they drive all bad behavior. They drive very they drive terrible returns on capital. You have to be well, you don’t have to, but you you want to be in the the the what I’ll call, the good half of a normal distribution of the asset curve. So if you think of of all of the assets in the industry across a normal distribution, right, those who are on the right half versus the left half, the good versus the bad, the outcomes are dramatic.

Right? And I’ll give you the example of this. So let’s let’s sit so and I’ll move to to to to Riverdale in a second. But as you were moving out of of strategically challenged assets and into good assets, which is the Riverdale move, we had a giant capital call in Savannah that was coming. We had to do some major repairs that basically drove no economic value, but you had to do it if you were gonna keep the site open.

For even less money than that was gonna cost, we were able to invest in Riverdale. So as we exited Savannah, we basically pushed off a $300,000,000 capital call, plus or minus. Excuse me, Savannah into Savannah. And then we are investing $250,000,000 in Riverdale. The first one is a negative ROIC.

Right? I shouldn’t say negative. It’s below your cost of capital. You’re you’re you’re gonna destroy value in that in that first scenario. So you don’t do that.

You exit the export that’s associated with those assets, which is over through a cycle is is is pretty poor profitability. You now put that into lightweight paper, right, where the market has been moving and is moving and has a much better and very positive return on invested capital. That trade, that 300 or $250,000,000 trade is a huge economic improvement. That is really what we’re doing across the company. So we’ve been doing that in The US for a year now.

We’ve made some huge structural moves in The US. There’s still more to do, but there’s but we’ve done a lot already. We’re just starting in Europe. And and that process in Europe, you’ve seen us announce consultations in The UK. Some of you may have seen the of a consultation in Croatia around a paper mill from the other day.

So that same process is now happening in Europe. And so, structurally, we’re going after that. And it’s all about moving to better and more attractive profit pools and then moving the quality of assets up that curve, and then moving financial resources and human resources to those to move to the right side of that curve. That’s what this is all about. Right?

And and ultimately, what it does is it puts you in a position to have an advantage cost position, number one. Number two, to be a service leader because you can invest those incremental resources back into service. And it’s what we’ve been doing in The US and it’s why you’ve seen a huge spike in our service levels in The US. And ultimately, that allows you to win market share in the markets, in the geographic markets and in the vertical markets that you find attractive. So in a nutshell, that’s the game, right?

That’s what we’ve So been up

Phil Ng, Jefferies Analyst, Jefferies: you’ve obviously announced some capacity closure now is great color, Andy. I guess in the past, you know, just having that excess 2,000,000 tons of capacity, it would lead to bad decisions. Yep. With that out of the way, what does that actually unlock in terms of behavior? How are you incentivizing your people from the sales side Yeah.

Make right decision. And trading that bad business in economic downtime, what does that unlock from a profitability standpoint?

Andy Silvernail, CEO, International Paper: It’s it’s a great question, Phil. And so there’s a lot of interest in that question. I’m gonna simplify it some. Use an example because I think that might help. So let’s let’s use the Savannah example, and and then let’s also talk about sales incentives.

Those two things combined because I think that would that would be helpful. So in the in the Savannah example, when when you have a million tons of excess capacity, if you have a million tons of capacity, it doesn’t have a home in the box market, but it’s sitting there and you and you’re sitting on a fixed cost base of, you know, a few $100,000,000 a year. In this industry, what historically has happened is people have had assets that are on the bad side of the curve. Right? You will basically effectively price that to marginal cost.

Right? Because to to keep to keep the availability of that asset, you’ll price there. And then what happens is because you’re now pricing at marginal cost, any capital that’s going into that asset is coming in at a negative return. Right? That’s just fundamentally what you’re doing.

And so, what you then do is you then bootstrap that. Right? So you don’t invest properly, you kinda slow bleed it because you’re like, oh, this is I’ll I’ll wait till the up cycle. Well, guess what happens? The up cycle happens.

Now you’ve underinvested in the assets, you’re plowing money in a short window back into the asset for really really really crappy returns. Right? You’re just you’re chasing that. And so that just so think of that that sine wave gets bigger and bigger and bigger over time and you’re chasing that with capital. And then you have a sales structure.

And the sales folks are being told, don’t lose market share. Don’t lose volume. So what are they doing? They have an incentive structure that’s in place. Well, we kinda we didn’t we didn’t really have a very good incentive structure in the past.

And so they’re just kinda following marching orders, so to speak. And so what you get in there is you get volume chasing price, chasing bad bad assets. And that’s just a terrible combination, and frankly, what we’ve been doing for decades. And so what we’re doing now is eliminating that. So you’re eliminating the bad asset problem.

You’re eliminating the need to chase to fix to fit fix it or to to win at marginal cost. And then, we’ve changed the incentive structure. So one of the things that we’re going through our strategic planning process right now, and we did a review, Lance and I did on Tuesday, and we actually looked at a scatter plot of The US of pay and performance of our salespeople, pre the changes that we made last year to today. And so think of that scatter plot, if I got performance on one side, I got pay on the other, you’d want everything to be around the 45. Right?

That’s that’s where you’d want to see it. Well, guess what? You go back and you look at at previous years, it’s this crazy scatter plot blob in the left hand corner with everything tightly around that. So, basically, everyone being paid the same with with kind of no correlation to performance. It’s it’s absolutely fascinating.

Now, you look at the changes that we made last year, pay and performance, and it is literally hugging the 45. Every so we have every single salesperson plotted around that. That is an awesome thing to see. I I don’t if that makes sense to everybody what we’re talking about. That change is not small.

That is an enormous change and you you actually mix that with a quality asset set. Right? Where you’re not we don’t have to chase crappy business to keep an asset full in the short term from from a cash standpoint. Those two changes are and then you look at what we did the the example I just used from two weeks ago, that’s a great example of the structural changes.

Phil Ng, Jefferies Analyst, Jefferies: Super. Talk about how, you know, the game plan to win back business. What are you doing to, you know, provide value for your customers? How that progress is coming along?

Andy Silvernail, CEO, International Paper: Yeah. So so first of all, there is, you know, one of the great assets that I got to inherit when I joined International Paper in The US was far and away the best footprint in the industry. So if you actually just take the footprint, if you were to take a kind of chart out geography, so think of any major metro area, and you were thinking about profitability and growth, and you were to take those and put kind of bubble charts, bubbles representing the size of a market, and you were to look at us versus the rest of The US marketplace, we far and away have an advantaged footprint. And and I would argue, we probably have an advantaged mill asset base once we’re out of the the the low quality assets. So as as I as I look at that and I and I say, okay, you know, how does that allow us to to to win over time?

We have a a terrific advantage. However, our business, what a lot of people don’t understand is our business is actually hyper local. Right? It is people kind of think of a fiber based company and you think of a world global commodity, whatever. Our business is done within 250 miles of any metropolitan area.

And so that’s that’s where competition happens. Right? That’s where I experience competition. And so I have to win in that local marketplace, which means I have got to have the cost position, the service and the competitive market share position to win in that local market. And so what our focus is on is let’s drive the basics of service in those local markets.

So quality, on time delivery, speed of response. We have customers I mean, our major customers, we’re responding to them same day. Right? That’s the level of responsiveness to our major customers. And that is, in my view, that’s the price of entry, is that level of intensity around service and support.

And the reason for that is that if you think about how packaging moves through our customers’ facilities, the cost of that packaging relative to what they’re doing is minuscule. The cost of failure is extreme. And they know it and we know it. And so as as we drive those service levels up, they actually are now taking their people out of their distribution centers or manufacturing plants, and they’re reallocating people to other jobs, or they’re eliminating them altogether. And so as we embed inside our customers and we make their lives easier, right, they actually, they gain and we gain.

And a big piece of what we gain is stickiness. And that stickiness is really important. And don’t get me wrong. I’m not gonna over exaggerate the stickiness. But there is probably somewhere in the 10% plus range that customers that’s the cost of switching.

If you just kinda look at what as we look at our customers, when they’re looking at at at a new contract or whatnot, the last thing they’re gonna do is switch for a percent They are not gonna go through that kind of disruption. You’re talking, you know, customers that we’re doing changeovers with now. You know, this is a six month process because they need to prove. They’re about to move all of their business from a competitor to you.

And it’s our it’s 40 of our plants doing business with 60 of their plants. Right? That is not an easy switch. That’s that’s complex and they can’t afford the failure. And so, we we kind of think of this as a as a as well, I’ll for a few pennies of price.

Well, you’ll do that if your service stinks or if your quality is bad. And if your service is really good and your quality is really good, it’s not that that becomes a definitive barrier of, you know, for all time. But what that does is it definitely raises the switching costs. There’s no doubt about it. And it gives you entry into innovation.

And that to me is where it gets exciting. Because now if I’m partnering with that customer and we’re working together on the entire value chain, we can take, you know, total cost out of the system, right, with us making money and them making money. Right? We can both do that. And so that’s where the service game really comes into play.

Phil Ng, Jefferies Analyst, Jefferies: Super. Sounds like you had the foundation in place and the game plan in place for The US market.

Andy Silvernail, CEO, International Paper: Yep.

Phil Ng, Jefferies Analyst, Jefferies: Help us think through Europe. I think initially, at least part of the thesis in terms of synergies was DS Smith was short on paper. Yep. You could kinda backwards integrate yourself. Mhmm.

The paper you export. You’ve obviously take a lot taken a lot of capacity out. Right? Yep. So Yep.

How’s that equation changed, and what do you need to do to kinda get D. Smith right

Andy Silvernail, CEO, International Paper: in terms

Phil Ng, Jefferies Analyst, Jefferies: of that that transformation? The playbook just kinda expand on the playbook.

Andy Silvernail, CEO, International Paper: Yeah. So so first, let me touch on the on the thesis here around, you know, one of the one of the benefits. And, when we looked at that, we thought there might be up to a $100,000,000 benefit in D. S. Smith procuring paper from International Paper.

And what that’s proven is we’ve into that, everything I talked about a moment ago, there’s actually more economic value in choosing to not do that, and actually restructuring The US market. There’s more economic value to capture than in shipping paper over the ocean. That’s And a big piece of that is the amount of supply of paper in Europe. Right? So the availability of high quality paper in Europe is a different scenario than in The US.

Right? There are more independent assets in Europe than there are in The US. And so just looking at kind of which one do I want to choose, well, I’d rather choose a because it’s going to drive more economic value. But I do give up b, there’s no doubt about it. That being said, one of the best pieces of synergy that we have is our Madrid mill.

So the the Madrid mill that that IP bought and then refurbed over the last half decade or so, it’s interesting because you hear some of the stories around that Madrid mill that are actually kind of funny about, you know, we overspent on it. But when you actually look at I’d love to do 10 more of them, just like that, because it’s a it’s it’s a lowest cost, highest quality mill probably in Europe. Yeah. It’s it’s certainly in the in the top decile of of mills. And so, we’ve gotten a lot of benefit from that in the Iberian Peninsula, because we can now feed 100% internally.

So that’s played out well. The reality is of the European market, what I talked about before and that softness, that’s just a big headwind. Right? So in Europe alone, you’re talking about almost $350,000,000 of headwind in volume and price from our profit standpoint, from our expectation of where just on those two alone, it’s actually $3.75, if I remember right. And and so we’re battling that headwind, but the key to it is to not let go of that crisis and to allow that to drive the restructuring.

Right? So how do we actually move as fast as we can to restructure the business? In many ways, probably 80% of the game plan is very similar to The US, right, which is structurally move to the right profit pools, the right assets aligned, the right people aligned to that. So we’re moving down that path very aggressively. The difference is is in The US, right, we’re we’re basically an integrated company, you know, for the for the most part.

In in Europe, we’re only about 50% integrated. So we’re gonna continue to move towards more integration there. But to be clear, I’m not gonna go out and buy a bunch of assets at this stage. Right? There’s a there’s enough high quality paper available that we don’t need to go and put a bunch of money in the ground and and and buy assets.

We need to optimize from here. So we need to exit those things that are that are nonstrategic and unattractive, frankly, structurally. And and we’ve announced the start of that. You’re gonna continue to see more of that. The kind of drumbeat that you’ve seen in The US, expect to see that in Europe.

And and we have to move aggressively to do that. You know, the the total bogey of just cost out, you know, structurally is is 500 to $600,000,000 of of just cost out that we’re gonna take in in Europe. And so that’s moving along. It’s gonna take longer than The US by the nature of the consultation process. So in The US, we basically say, we announce it and we do it.

Right? In in Europe, you have to announce a consultation process. You have to go through that in good faith, and that’s very important. Right? It’s not it’s not a paperwork exercise.

You have to go through the processes in good faith. And you have to look at alternatives because alternatives do present themselves, and so you’ve got to go through that process. And so we’re doing that now. We’re moving very quickly. We have announced a whole series of actions relative to consultation in The UK.

You’ve now heard me talk about Croatia. We’ve also talked about the country structure that we’re ongoing, and so that’s just gonna roll through the system here over the next couple of years.

Phil Ng, Jefferies Analyst, Jefferies: Within that five hundred to six hundred million dollars bucket, would you be able to unpack what are some of the big costs out? Is it on the mill side, box side? Do they have a bloated corporate cost structure like the IP US Yeah. Things?

Andy Silvernail, CEO, International Paper: It’s it’s so so let me do I’m gonna take the the last one first, and then I’ll walk the other ones. So there there there was not a large central structure in in London like we had in Memphis up until last year. There was not that. But what you found was in in Europe, what was happening was they were instead of managing the complexity at a corporate center, they were managing it at regional centers. And so you had a very small group of people in London.

You only had, you know, a 100, couple 100 people in London, total. But what you had were these very large country structures and have a very these very large, very complex country structures. And so what we’re doing is we’re simplifying that. So right? So so that we’re we’re going I think it’s it was from 13 structures down to seven and taking out a whole bunch of the the the kind of middle stuff that’s that’s in there in terms of of management that really is about managing complexity, Phil.

Right? It’s it’s not it’s not a value added piece of it. It’s just kind of managing the complexity. So you have to attack that. On the converting side, the game plan around major geographic centers.

So the game plan in Barcelona is the same as the game plan in Atlanta. Right? So you have multiple converting plants in and around that area, and you’re looking at matching market segmentation with volume and mix, right? So the ability to match that. So you can specialize in certain areas around volume and mix, drive productivity, drive service levels up dramatically.

A bigger difference in Europe that you don’t have is you have a lot more singular converting plants that are in a market. Right? So in The US, we mostly have multi plant markets, not completely, but mostly multi plant markets. In Europe, you have you absolutely have multi plant markets, but you also have a lot of these one off things. And so in that case, in the multi plant markets, same game plan as The US.

Right? We’ll restructure that and we’ll optimize around those major geographies. And then the singular plant markets, they have to stand on their own. Right? They they have to stand on their own just like if any of us own them as an entrepreneur.

They have to stand on their own and they have to win on their own. And if they can’t stand alone, they can’t win on their own. They don’t have a history. They don’t have a future. And that’s just the reality of that.

So we’re gonna go through that same process that we went in The US. The paper side is very different in Europe than in The US. Yes, we are short paper, but if you actually look at the tons that we sell that move through converting and the tons that we manufacture that we produce through paper, it’s you go, well, you’re not short paper. You go, what is it? Well, because half of what we make goes into other markets.

It goes it does not go through our converting process into packaging and ultimately end up on shelves or at your door. And just like we I I talked through a moment ago with export in The US, we’re doing that same analysis around all of the assets in Europe and asking a simple question, which is do they drive an attractive return or not? Do they have a strategic advantage or not? If they do, we wanna keep those assets and we wanna focus If they don’t, they have a different future, and probably not with us if we if you can’t drive the economic value. So we’re going through that those analytics.

As I mentioned before, you know, in in an ideal world, you do exactly what you did in The US, and you’d own high quality paper assets feeding the packaging system. That doesn’t make sense right now in Europe. Right? To to go and to build something or to buy at a premium, some kind of assets that that damage the market in some way makes absolutely no sense when you have availability, you don’t have to put the capital in the ground. So we’ll we’ll that’s a little bit different.

We’ll play that as it makes economic sense over time.

Phil Ng, Jefferies Analyst, Jefferies: Super. In The US, you’ve underinvested for many years. Yep. How does that how’s that situation in Europe? Is there a capital investment element?

And then from a commercial element, you know, where you guys you know, are you do you have the right type of customer I mean, it sounds like it’s a lot a lot of cost, but it’s a lot of complexity, but just kind of tackle those two things.

Andy Silvernail, CEO, International Paper: Yeah. So so Europe, what I would say, a couple of things that Europe has done different than The US that are good because I’ve talked about the things that are our struggle. So the commercial organization in Europe has been historically a better commercial organization than we had in The U. S. It was more service focused, much higher touch, touching more people in our customers’ value chain.

If if if IP legacy IP had one or two relationships within within a customer, kind of thinking of their value chain, DS Smith has historically had, you know, six or eight touches in that in that chain. And that matters. The reason that matters is if relationship is with procurement, right, that is a structural disadvantage. If your relationship is with design, engineering, manufacturing engineering, that’s a structural advantage. That’s really where you want that advantage to go.

And the reason being is you’re working early on in that relationship to drive value for both players versus it being a price discussion. Right? And so as you think about what we’ve done in Europe, we’ve built a lot of service intensity and a lot of sales intensity, but we spread it really, really wide across the customer base. And so, the customer base is more fragmented anyway, and so we have a lot of resources that are being spread across markets that frankly the customer doesn’t pay for. And so we need to focus that on a smaller subset of customers that really value and will pay for that level of service intensity.

So that’s a difference that that so that’s something that’s that’s changing, you know, ultimately in that marketplace. And then it’s also a more innovative market. And the reason it’s a more innovative market is there’s a lot more CPG content. And there’s a lot more CPG content by the nature of the markets themselves. Right?

There’s a lot more packaging that happens on shelves in Europe, and for those of you who spent much time in grocery stores in Europe, you’ll notice that, because of demographics, because of the cost of labor, etcetera etcetera. But also, you don’t have the same industrial packaging infrastructure requirements that you have in The US. Just the distances to move things in Europe versus The US is a different marketplace than The US. So you have there’s more innovation, there’s a higher service component content, and Dia Smith has done that well. We need to focus those resources around that.

Phil Ng, Jefferies Analyst, Jefferies: Okay. And just lastly, on The US market, we’re in a pretty good spot. Right? I mean, demand’s been pretty muted, and it sounds like you’re pretty constructive in the medium longer term, but a lot of capacity has come out. Yep.

What’s your view on the cycle next few years? I mean, I know your longer term targets were predicated on mid cycle pricing. Yeah. Mean, it’s a pretty conducive environment with operating in the mid to high nineties right now. So just kind of help us think through the cycle.

Andy Silvernail, CEO, International Paper: Yeah. I think so number one, would say that as I think of this, the demand where we are relative to demand, to me, it appears as though we are a lot closer to the the a negative that that we’re we’re on the range of outcomes. We’re we’re much closer to a bottom or or a more difficult moment now than I can imagine in the future. I I have a hard time imagining, you know, you know, anywhere from two to five years from now, we’re not in a very different place in terms of demand. It’s hard to imagine that.

It it I talked about housing. I talked about some of the other structural issues out there. It feels to me as though we’re poised for that market to improve. And and from our own perspective, and I’ll only talk about us, it was it’s been all about that design of getting high quality assets right to to that to get to the high quality side of of the asset curve and to not have a bunch of latent capacity that you that that doesn’t make money through a cycle. One of the the long term excuses for not dealing with with inferior assets was, well, I need that capacity for when the market comes back.

Great. Market comes back, but when you actually map it over a cycle, it doesn’t ever make money with those crappy assets, right, and less attractive business. And so as we have structurally taken that out, our belief is that we would rather run tight than run loose, you know, through a cycle. It’s a it’s a much better economic proposition to run tight than to run loose through that cycle. And so if we if we face a much better economy, great, and we have to make choices, you’re gonna make choices around the right sets of customers and the right sets of assets, you know, to to capture that economic value.

So I would say The US is in a good position. I can’t pick timing. Right? It’s your economist gave a talk, I guess, yesterday. Right?

Phil Ng, Jefferies Analyst, Jefferies: Yes.

Andy Silvernail, CEO, International Paper: And he’s gonna be a lot more right than I am because I’m not an economist, although I’m not sure economists are ever right. So so, look, it’s it’s hard to predict the the when of it, but I think structurally the what of it and the value that gets created over time because of the restructuring of that market and what we have done, I think is is

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