International Paper: Absorbent pulp is a value-added product that will grow over time due to the essential role it plays

International Paper: Absorbent pulp is a value-added product that will grow over time due to the essential role it plays

The Pulp and Paper Times: 
International Paper Company is a global producer of renewable fiber-based packaging and pulp products with manufacturing operations in North America, Latin America, Europe and North Africa. The Company sells products directly to end users and converters, as well as through agents, resellers and distributors.

International Paper’s Annual Report for FY 23 stated that, During 2023, International Paper executed well, both commercially and operationally, as we navigated an uncertain and challenging demand environment. During much of the year, underlying demand for our products was lower as consumers prioritized spending on services and essential goods. This trend was influenced by the pull forward of goods during the pandemic, as well as by inflationary pressures and rising interest rates that impacted the consumer. Demand for our products was further constrained by inventory destocking as our customers, and the broader supply chain, worked through elevated inventories of their products. The lower demand combined with declining sales prices and continued cost inflation resulted in lower sales and earnings in 2023 as compared to 2022.

“Driving out costs across our operations was a primary focus throughout the year and by leveraging advanced technologies and big data, we continued to improve productivity and drive profitability. Through our Building a Better IP initiatives, we delivered $260 million of earnings benefits in 2023, exceeding our target and demonstrating the mindset embedded in our culture for maximizing value through commercial and operational excellence” stated by Mr. Mark S. Sutton, Chairman of the Board and Chief Executive Officer.

Mr. Sutton further stated that we continued to optimize our Global Cellulose Fibers business, aligning with customers and segments that value our differentiated product and service offerings. We believe absorbent pulp is a value-added product that will grow over time due to the essential role it plays in addressing the personal care needs of consumers around the world. We are not satisfied with our absolute results in 2023. However, we made progress in improving mix, reducing our exposure to commodity pulp grades and reducing costs.

“Comparing 2023 performance to 2022, price and mix was lower in our North American Industrial Packaging business due to prior index movements, lower export prices and higher export mix, as demand improved. Price in our Global Cellulose Fibers business was lower due to prior index movements and an unfavorable mix driven by lower absorbent pulp shipments. Volume in both business segments was impacted by ongoing inventory destocking across the supply chain. While there was demand recovery in the second half of the year in both business segments, volume was lower in our North American Industrial Packaging business as consumers shifted priorities toward non-discretionary goods and services while dealing with inflation” The report stated

Mr. Sutton informed that In our Industrial Packaging business, we invested in our extensive box system to improve our ability to serve customers. We added new converting lines to existing facilities, upgraded equipment with modern technology and opened a state-of-the-art facility in eastern Pennsylvania. These investments are helping address regional capacity constraints and productivity challenges. Across our packaging business, we are leveraging capabilities, strong segment-based value propositions and focused cost reduction efforts. We are making meaningful progress improving margins and mix by creating value for our customers while maximizing profitability.

On the outlook for year 2024, the report added, that looking at full-year 2024, we see a transitional year where markets continue to recover as we focus on improving mix and margins in both business segments through execution of our commercial strategies. We expect demand trends to continue to improve across our portfolio with year-over-year industry growth of approximately three percent for packaging and fluff pulp. Additionally, we expect more than $400 million of net benefits from our commercial and operational initiatives. This includes the fixed cost reductions tied to the closure of our Orange, Texas containerboard mill and the permanent shutdown of two pulp machines in our Global Cellulose Fibers business, with the benefits of both strategic actions expected to be at a full run rate by the fourth quarter 2024.

“Looking ahead to 2024, International Paper is well positioned for the future. Our financial foundation is strong, as are the principles and core values that guide our actions. I’m confident in our commercial strategies and our ability to drive significant improvements across our entire system. Given our strategic customer relationships, talented teams, world-class assets and market expertise, we are committed to maximizing long-term value for all our stakeholders, and we intend to deliver.” He added.

The Report stated that, these cost saving initiatives will be important in offsetting expected higher costs for recovered fiber, transportation and general inflation on wages, employee benefits, materials and services. With respect to our capital allocation framework, we are targeting capital expenditures of $800 million - $1.0 billion in 2024 for general maintenance, cost improvement and to enhance capabilities in our box business. As previously mentioned, we returned approximately $840 million of cash to shareowners in 2023 including approximately $640 million of dividends. Given our strategic customer relationships, talented teams, world class assets and market expertise, we are committed to maximizing long-term value for all our stakeholders.

For the year ended December 31, 2023, International Paper reported net sales of $18.9 billion, compared with $21.2 billion in 2022. International net sales (based on the location of the seller and including U.S. exports) totaled $5.3 billion or 28% of total sales in 2023. This compares with international net sales of $5.9 billion in 2022.

Global Cellulose Fibers net sales for 2023 decreased 10% to $2.9 billion, compared with $3.2 billion in 2022. Operating profits in 2023 decreased compared to 2022. Comparing 2023 with 2022, benefits from lower input costs ($126 million) were more than offset by lower average sales price and an unfavorable mix ($72 million), lower sales volumes ($51 million), higher operating costs ($113 million) and higher maintenance outage costs ($13 million).

industrial Packaging net sales for 2023 decreased 11% to $15.6 billion compared with $17.5 billion in 2022. Operating profits in 2023 were 27% lower than in 2022. Comparing 2023 with 2022, benefits from lower input costs ($856 million) and maintenance. Entering the first quarter of 2024, compared with the fourth quarter of 2023, sales volumes are expected to be higher driven by seasonality. Average sales margins are expected to be higher, reflecting lower containerboard costs. Operating costs are expected to be lower. Planned maintenance outage costs are expected to be lower. Other input costs are expected to be stable. Earnings will be impacted by the nonrepeat of an energy subsidy and other favorable onetime items in the fourth quarter 2023.
 

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