The speaker, Mark Nellessen, welcomes participants to International Paper's third quarter 2023 earnings call and introduces the speakers, Mark Sutton and Tim Nicholls. He also mentions important information and disclaimers, such as forward-looking statements and non-U.S. GAAP financial information. Mark Sutton then highlights the company's results, including meeting their earnings outlook and driving out high marginal costs. He also mentions the success of the company's "building a better IP" initiative, which has contributed $195 million in benefits year-to-date.

The company's performance in the third quarter was driven by commercial and process improvement initiatives, and they expect the demand environment to continue to improve. However, the absolute level of earnings was not satisfactory, so the company is taking additional actions to strengthen their businesses and improve profitability. This includes the closure of a container board mill and two pulp machines, which was a difficult decision due to the impact on team members and communities. The company also completed the sale of their ownership interest in a joint venture in Russia. Tim will provide more details about the third quarter performance and outlook.

In the third quarter, the company's operating earnings per share increased and were better than expected. Operating margins improved due to cost optimization and lower outage expenses. Price and mix were lower, but volume remained stable. Operations and cost improved earnings, and there were lower employee benefit costs and maintenance outages.

In the third quarter, input costs for the company were slightly higher due to increased energy and OCC costs, but were partially offset by lower costs for chemicals and wood. The company's effective tax rate also improved during this time. In the Industrial Packaging segment, price and mix were lower due to index movements and lower export prices, but volume remained stable. The company's operations and cost improvements also contributed to higher earnings, with a focus on reducing the highest marginal costs and optimizing the supply chain. Efforts to improve distribution costs have also been successful, resulting in a reduction of approximately $40 million on an annualized basis.

In the third quarter, planned maintenance outages were lower by $34 million and input costs were moderately higher. The Global Cellulose Fibers division saw lower price and mix due to price index movements, but volume was higher due to improved demand for fluff. The destocking trend continued, but is expected to be completed by the end of the third quarter. Operations and cost improvements contributed $36 million to earnings, with a $12 million benefit from non-repeat items. The fourth quarter outlook for Industrial Packaging includes a decrease in earnings of $60 million due to prior index movements and lower export prices.

The company is expected to see an increase in earnings of $20 million due to higher box volumes, but a decrease of $10 million due to operations and costs. This is due to non-repeat of favorable employee benefit costs, partially offset by lower costs for energy and other raw materials. In the Global Cellulose Fibers segment, price and mix are expected to decrease earnings by $25 million, but overall volume is expected to increase earnings by $5 million. The company has exceeded its target for the Building a Better IP program, with a total benefit of $195 million year-to-date, mostly from strategy acceleration initiatives.

Our business teams are focused on creating value for customers and improving profitability by targeting attractive segments and regions. Through process optimization and the use of advanced technologies and data analytics, we are identifying new ways to enhance productivity and reduce costs. In our Industrial Packaging segment, we are leveraging our capabilities and tailored solutions to strategically align with the most attractive regions, segments, and customers. We are also using advanced data analytics to manage product pricing and optimize our mill system to reduce fixed costs. These actions are expected to result in a $140 million increase in annual EBITDA for industrial packaging. Additionally, we are investing in improving our operations and efficiency through advanced technologies and data analytics.

The company is confident in the long-term potential of their industrial packaging business and has made strategic investments in their mill system and box business to drive growth and increase profitability. They plan to continue making organic investments in their network of box plants, as well as greenfield plants and potential mergers and acquisitions. They recently opened a new greenfield plant in Pennsylvania and believe they can leverage these investments and their market expertise to grow with customers and capture more value. In their Global Cellulose Fibers business, there are also significant opportunities for growth.

The company has seen positive results from its commercial strategy, including renegotiating contracts and earning higher premiums for fluff grades. However, the current challenging business cycle and exposure to commodity grades have hindered the full potential of these benefits. The market is beginning to recover and the company plans to focus on serving the most attractive fluff customers and markets to maximize value. They are also taking steps to reduce fixed costs and improve earnings. The company believes there is potential for growth and value creation in this business due to their talented teams and diverse capabilities.

The speaker expresses confidence in the demand recovery and long-term prospects of International Paper. They mention taking actions to improve earnings and drive growth, and highlight the company's strategic customer relationships, talented teams, and strong financial foundation. The closure of the Orange facility is discussed, with the expectation that the company will still be able to grow with the market. The speaker also mentions the possibility of future container board investments and states that the long-term view of demand has not changed.

The company has been evaluating their options and developing a plan for the future based on demand and market trends. This led to the decision to reset the mill system, which will lower costs by $140 million. They still have room to grow and options for the future. On the capital side, they expect to spend around the same amount as depreciation and amortization for the foreseeable future.

The company has not finished planning for next year and will provide more information in January. There have been no significant changes in the full year outlook for adjusted EBITDA, CapEx, and free cash flow. North American box volumes have been improving since Q1 and are expected to continue improving in Q4, with stabilization in segments such as beverage, processed food, and e-commerce. October's performance is on track with expectations.

Tim Nicholls and Mark Sutton discussed the company's outlook and mentioned that they expect the order book to grow by 3-4% in the fourth quarter. They also mentioned that the EBITDA for cellulose fibers may be below breakeven and overall, the company's EBITDA may be in the 400s compared to the third quarter. They also discussed the profitability of the company's Europe business and stated that they are happy with it and see it as a valuable part of the company's portfolio.

The speaker discusses the performance of the company's Europe business, noting that earnings have doubled from 2022 to 2023 despite challenges with high natural gas costs. They also mention successful acquisitions and view the Europe business as a regional strategy with long-term growth potential. The speaker explains that EBITDA margins may be lower in Europe due to the recycled mill structure, but the company still has a significant presence in the region. They also address the recent machine closures in the fluff pulp business and the potential impact of eucalyptus-based fluff on the market.

Clay Ellis, speaking to George, discusses the company's plans for machine closures in the fourth quarter and personnel changes in the first quarter of next year. He also mentions optimization work at Riegelwood and the use of eucalyptus fluff in the market. He believes that the long-term outlook for fluff pulp is consistent and that the dominance of long fiber in the market will not significantly change. The next question is from Mark Weiintraub from Seaport Research.

In the paragraph, the speaker asks for clarification on the company's fourth quarter EBITDA guidance and the impact of the Orange business transition on earnings. The company confirms that the fourth quarter EBITDA will be in the upper 400s and that the Orange transition will be complete in the fourth quarter, with the full impact on earnings expected in 2024. The speaker also asks for more information on the improving export market for containerboard and the company confirms that they have seen continued improvement in this market.

The company has noticed a normalization of inventories and an increase in demand in the major markets they serve, including Latin America, Europe, and Asia. Latin America has been particularly strong due to sales of bananas, pineapples, and melons. Europe has also rebounded due to fruit and vegetable sales, and Asia is showing signs of recovery. The company believes that demand has bottomed and the outlook is positive for the rest of the year. However, this demand improvement has not yet translated into better pricing, possibly due to a supply-demand imbalance. The closure of the Orange Texas mill was also mentioned, with further comments to come.

Mark Sutton, CEO of a packaging company, addresses a question about the company's approach to permanent capacity adjustments. He explains that the depth and duration of the current economic downturn, as well as the need to adapt to future market demands, have led to the decision to close some facilities. He also mentions the company's long-term plan and belief in future growth opportunities.

The company has announced a decision to rationalize their portfolio and is confident in their future growth opportunities. They will continue to focus on cost takeout and driving efficiencies, but face challenges due to high inflation and the need to negotiate lower costs from suppliers. The company has set clear goals for EBITDA per ton in order to achieve higher margins and returns on invested capital.

The company is focused on closing the gap in costs by taking out structural issues and using a rigorous approach. They plan to continue this approach to improve earnings. The company has a deep bench of senior executives and they are considering both internal and external candidates for the next CEO. The board is looking for someone with certain characteristics, but it is not specified what those are.

The company is in the process of selecting a new leader for the future and is considering both internal and external candidates. The board is focused on finding the best candidate for the company's future needs in terms of technology, markets, and workforce. The company has taken economic downtime with containerboard but expects to reduce it by half next year with the removal of orange capacity. This reduction in economic downtime will likely be additive to the $140 million in savings already announced. Jay Royalty is the speaker responding to Phil's question.

The company is in a transitional situation and is focused on improving demand trajectory. They have flexibility and room for cost savings, but will continue to operate as usual. Any improvements in economic downtime will add to the $140 million in cost savings. The company is also looking at opportunities to optimize their cost structure in global cellulose fibers, potentially through capacity actions or capital investments.

Clay Ellis, speaking on behalf of the company, discusses the factors that can drive their business to achieve above cost of capital returns. He mentions that optimizing the cost structure and achieving a more favorable production mix are important, as well as driving stronger pricing. He prioritizes supply chain cost reduction and optimizing machine capacity for fluff production. He also sees potential in improving the production mix and increasing prices.

The speaker discusses how their company is not at a disadvantage in terms of manufacturing and supply chain costs. They also mention the impact of taking capacity down in the pulp side on the cost profile of the Pensacola mill, which is a unique asset in their portfolio. The mill is globally competitive and serves various channels, and its capabilities align with market demand. The speaker also mentions that the mill is a single machine mill, but they have other successful single machine mills in their portfolio.

The speaker, Tom Hammack, responds to a question about customer inventory levels and destocking. He confirms that destocking is generally over and that they have seen a dramatic shift in inventory levels over the past three quarters. He mentions that some customers may have oversteered and there has been more volatility in orders. Overall, they believe that inventory levels are healthy and indicate future demand. The speaker concludes by thanking everyone for their time and interest in International Paper, and looks forward to updating them on their progress in the next call in January.

This summary was generated with AI and may contain some inaccuracies.