IP Q1 Earnings Call: Transformation Initiatives and DS Smith Integration Take Center Stage

Packaging and materials company International Paper (NYSE: IP) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 27.8% year on year to $5.9 billion. Its non-GAAP profit of $0.23 per share was 37.8% below analysts’ consensus estimates.

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StockStory’s Take

International Paper’s first quarter results reflected substantial organizational change and integration efforts after the DS Smith acquisition, with management attributing much of the company’s performance to early progress on its 80/20 transformation strategy. CEO Andy Silvernail highlighted improvements in customer focus, cost reduction, and operational reliability, emphasizing that investments in service and commercial excellence are beginning to drive measurable improvements, particularly in the North American Packaging Solutions business. Silvernail described the quarter as a period of “solid momentum on actions to drive significant costs out of our system by reducing complexity and reinvesting to build our advantaged cost position.”

Looking ahead, management maintained a cautious stance on the demand environment, citing persistent economic uncertainty and negative consumer sentiment in key markets. Silvernail stated that if current demand trends hold, International Paper expects to meet its annual earnings targets, but acknowledged the company is preparing for a range of economic scenarios, including the possibility of further demand deterioration. The team remains focused on accelerating its cost-out and commercial initiatives and closely monitoring integration and synergy realization from the DS Smith transaction.

Key Insights from Management’s Remarks

International Paper’s leadership spent the quarter executing on structural cost reductions and pursuing commercial improvements, while navigating a softer-than-anticipated demand environment. The company’s results were shaped by investments in customer service, integration of DS Smith operations, and ongoing transformation initiatives designed to strengthen its cost position and market competitiveness.

• DS Smith integration progress: Management reported that the DS Smith acquisition contributed to higher sales and operational improvements, and the 80/20 performance system is being deployed across both North America and Europe to drive cost and synergy targets.
• Customer focus and service enhancements: The company invested in commercial capabilities and improved on-time delivery and Net Promoter Scores, particularly for mid-sized and local customers where prior service levels had lagged. These improvements are credited with helping close the company’s volume gap to the market.
• Footprint optimization and asset closures: Accelerated depreciation charges were recognized as International Paper closed the Red River Mill and executed other footprint optimization actions. These steps are expected to yield further cost savings throughout the year as excess capacity is addressed.
• Transformation cost impacts: One-time items related to transformation, including severance and transaction costs, significantly affected free cash flow in the quarter, but management expects improvement in the second half as these costs decline.
• Commercial strategy in packaging: North American Packaging Solutions saw commercial gains as price increases took effect and the company grew market share among targeted customer segments. Management expects to fully close its volume gap to the market by the end of the year.

Drivers of Future Performance

Management’s outlook for the rest of the year focuses on disciplined cost control, the realization of integration synergies, and the ability to navigate uncertain demand conditions in both North America and Europe.

• Synergy realization from DS Smith: The company expects significant cost and commercial synergies from the DS Smith integration, with the 80/20 system rollout set to drive both operational efficiencies and improved market positioning.
• Demand and pricing environment: Persistent weakness in consumer and business sentiment, as well as evolving trade and tariff dynamics, remain risks. Management believes stable demand will support the achievement of annual earnings targets, but further deterioration would require accelerated cost actions.
• Commercial and operational execution: Ongoing investments in customer service, price realization, and supply chain optimization are intended to drive profitable growth, while footprint and asset optimization are expected to deliver incremental savings in the second half.

Top Analyst Questions

• Phil Ng (Jefferies): Asked about demand assumptions underlying the full-year EBITDA target and the impact of tariffs on pulp and containerboard businesses. Management shared that stable demand would support the lower-to-mid range of its guidance, and direct tariff exposure is limited, but broader demand risks remain.
• Mike Roxland (Truist Securities): Inquired about share gains among local customers and whether recent demand weakness changes the approach to asset consolidation. Silvernail explained investments in service and reliability have reversed prior share losses and that current conditions may allow for faster execution of planned footprint optimizations.
• Mark Weintraub (Seaport Research Partners): Sought clarity on the bridge between first and second half EBITDA, especially regarding the timing of price realization and cost-out benefits. Management confirmed most improvements for the second half are already underway, with mechanical realization of price and cost initiatives expected.
• Anthony Pettinari (Citi): Asked about confidence in second-half earnings improvement in Europe and management’s allocation of focus between regions. Management noted that synergy and 80/20 deployment are priorities in Europe, and team-building and process standardization are key focus areas.
• George Staphos (Bank of America): Questioned volume risks and commercial strategy for smaller accounts amid a weaker environment. Silvernail emphasized focus on core customer segments and readiness to accelerate capacity optimization if market conditions worsen.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and impact of synergy realization and cost reductions from the DS Smith integration, (2) the trajectory of demand in both North America and Europe as economic sentiment evolves, and (3) the success of commercial initiatives in closing the volume gap to market. Execution on asset optimization and the progress of the Global Cellulose Fiber business review will also be important factors to watch.

International Paper currently trades at a forward EV-to-EBITDA ratio of 7.2×. In the wake of earnings, is it a buy or sell? The answer lies in our free research report.

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