The operator introduces the International Paper Fourth Quarter Earnings Call and hands over to Mark Nellessen, the Vice President of Investor Relations. Mark Sutton, the Chairman and CEO, and Tim Nicholls, the Senior Vice President and CFO, will be speaking. The presentation will include forward-looking statements and non-U.S. GAAP financial information, with a reconciliation available on the company's website. Mark Sutton expresses appreciation for the hard work of employees and strong customer relationships during a challenging market environment. The company has executed well both commercially and operationally, focusing on driving costs and serving customer needs.

In 2023, the company took strategic actions to reduce fixed costs and improve profitability across their portfolio. They also exceeded their target for their Building a Better IP initiative and returned $840 million to shareholders. However, the market environment was challenging, leading to lower demand for their products due to consumer spending priorities.

In 2023, there was a decrease in demand for products due to the pandemic, inflation, and rising interest rates. This was also impacted by inventory destocking and declining sales prices. However, there was a slight improvement in demand in the second half of the year. The company also saw benefits from their Building a Better IP initiatives and closed a mill and two pulp machines, resulting in cost savings. In the fourth quarter, operating earnings per share was $0.41, lower than the previous quarter due to lower prices and mix.

The fourth quarter saw a mix of positive and negative factors for the company, with volume and commercial initiatives providing benefits, but operations and cost being unfavorable due to nonrecurring expenses. The company is focused on reducing costs and improving efficiency in various areas. In the Industrial Packaging segment, there was a decrease in price and mix due to index movements and higher export mix, but volume was higher overall.

The operations and cost for the North American packaging business were unfavorable compared to the previous quarter due to nonrepeat items and lower economic downtime. This was partly offset by lower planned maintenance outages and moderately lower input costs. U.S. box shipments have seen a 3% increase since the previous quarter and e-commerce has been resilient, with a 30% increase since 2019. International Paper has strong customer relationships and is able to support seasonal demand surges. The shipping and distribution segment has improved since the destocking phase, while the food and beverage segment has remained stable, with the fresh foods segment benefiting from solid performance in the food service channel and consumer shifts towards home meals. The protein segment has been impacted by supply reductions in beef and poultry.

International Paper's overweight position in the packaging segment has affected their box shipment performance compared to the overall industry, but they expect this to improve in 2024. The Beverage segment has been impacted by budget-conscious consumers, while other segments like durables and nondurable consumer goods have also been under pressure. However, based on customer feedback and economic data, demand in the packaging-intensive segment is expected to improve. Overall, the industry is expected to see a 3% growth in box demand in 2024. International Paper is well positioned to grow with their customers in the long term. In terms of containerboard exports, demand has improved and inventories have normalized across all regions. Solid demand is seen in fresh fruit and vegetable markets, while industrial segments in Europe and Asia remain soft. However, as the economy improves, these segments are expected to recover and International Paper is well positioned to grow with them. In the Global Cellulose Fibers segment, the fourth quarter is examined on Slide 10.

The company experienced lower prices and mix in the fourth quarter due to price index movements, but this was partially offset by higher demand for fluff and specialty pulp. Operating costs were higher due to non-recurring items and planned maintenance expenses, but input costs were lower. Demand for fluff pulp is expected to continue improving in 2024, with inventory levels normalizing in the second quarter. The company is focused on improving mix and margins in both businesses.

The first quarter of 2024 is expected to be a period of low earnings for the company due to seasonal factors and the impact of the January winter freeze. Despite this, demand for packaging and fluff pulp is expected to grow. The company's North American box business may lag behind the market as they focus on improving margins and product mix. The company expects to see benefits from their commercial and operational initiatives, including cost reductions from mill closures. However, they also anticipate higher costs for materials and services. The company plans to invest in capital improvements for their box business. The January winter freeze is expected to have a negative impact on earnings for the first quarter. In the Industrial Packaging sector, price and mix are expected to remain flat, with a decrease in earnings due to prior index movement in North America.

The paragraph discusses the expected financial impact on the company's North American box business, including offsetting commercial benefits from contract restructuring and decreases in earnings due to seasonality, cost inflation, and higher input costs. The company's go-to-market strategy, which will be discussed later, is expected to contribute to the increase in earnings. In the Global Cellulose Fibers segment, price and mix are expected to increase earnings, while volume and operations and costs are expected to decrease earnings. The company's strategy to reduce exposure to commodity pulp is also mentioned.

The company has made strategic investments in their box system to improve customer service and productivity. They are focused on value over volume and expect their earnings to improve in the future. They are also working to improve their Global Cellulose Fibers business by aligning with customers who value their differentiated offerings.

International Paper believes that fluff is a valuable product that will continue to grow in demand. They have skilled teams and a versatile mill system that allows them to provide innovative and high-quality products to their customers. To improve their financial performance, they have focused on getting paid for the value they provide and serving the most profitable customers. They have also taken steps to reduce costs and optimize their operations. Across the company, they are implementing new technologies to improve their manufacturing, converting, and supply chain processes.

The company has implemented new tools and capabilities to reduce costs and improve efficiencies, resulting in a better experience for customers. These tools have led to improved reliability, lower maintenance costs, and more optimized operations. The company has a strong balance sheet and plans to continue returning cash to shareholders. Investment in the box system is a priority for future growth.

International Paper is implementing cost reduction projects and has a strong financial foundation. The company is confident in its leadership team and employees to drive success through improvement efforts and executing their go-to-market strategy. They anticipate continued demand recovery and margin improvement in 2024. The company is committed to maximizing long-term value for stakeholders and will deliver on their promises. During the question-and-answer session, the company's senior business leaders will provide their perspectives. One question asked was about the commercial initiatives and whether they are locked up contractually. The company responded that they are focused on getting value over volumes and may walk away from lower margin business. The company also mentioned a $68 million tailwind for the first quarter and it can be annualized for the full year.

Mark Sutton asks Tom Hamic to explain the 4-pillar strategy that International Paper is implementing to improve their business. Tom explains that the strategy includes focusing on customer experience, reliability, quality, and timely shipping. They aim to provide more value to customers and charge accordingly. Tom also mentions that some customers have left but returned quickly due to the challenges of box making.

Philip Ng asks about the company's commercial initiatives and their contribution to earnings. William Hamic confirms that the wins are locked in and expects to maintain and improve the margin structure in 2024. When asked about EBITDA and free cash flow for the year, Timothy Nicholls declines to give an outlook, citing the many moving pieces and uncertainties. He also expects the impact of the January freeze to be limited to the first quarter. The next question is from Mike Roxland about the company's outlook.

Mark Sutton and Tom discuss the focus on value over volume in their business. They believe that long-term earnings growth will come from unit volume growth and margin improvement. They also mention the challenges they face with customer contracts and the importance of clearly articulating value in negotiations. They plan to continue growing with the market and prioritize profitability and volume in the short term.

The company wants to find a fair balance in their contracts and pricing to meet customer expectations and grow with the market. They believe having a strong understanding of the local box business will help them turn things around. They are also looking to mitigate their exposure to commodity pulp and believe that fluff will continue to grow in demand. They expect to be closer to their optimized mix by 2025.

The company expects to have an optimized mix of paper-grade and fluff pulp by 2024-2025, with potential for growth in absorbent hygiene products. They chose not to give a range for potential price changes at this time. They have been negotiating with customers to ensure they are getting paid for value, but it is unclear how much more negotiation is left.

The speaker is confident that the company will regain market share in the box volume business due to their strategic understanding of the customer base and targeted investments. They have made investments that were previously lacking and a significant portion of contracts have been renegotiated, with ongoing discussions about value and products with local customers.

The speaker discusses the company's mix and states that 35% of it is constant and the remaining 65% will have to be negotiated with customers. They also mention their approach to addressing demand in the past and how it has changed due to turnover in the workforce. The company is now focusing on investing in physical plant equipment to increase capacity.

The company has made investments in order to address different markets and regions more effectively. This includes investing in physical assets and restructuring employee schedules. The company's NBSK mill is not core to their focus on fluff, but it is still a valuable asset due to its strategic location and customer relationships. The company is still in the process of identifying a successor for the CEO position, and the Board is working diligently on this decision.

The speaker, Mark Sutton, responds to a question about the company's pricing and the potential impact on their Q1 guidance. He states that pricing and mechanisms are between the company and their customers and they will not provide forecasting on pricing. He refers to a conference in November where he stated that a $20 publication was not reflective of their experience with customers. He also mentions that the index stayed flat in January, but it is not reflective of the pricing they have been invoicing. He concludes by stating that the index is becoming less relevant in an increasingly small open market.

The speaker discusses the subjectivity involved in the pricing process and how the industry index may not accurately reflect what is happening. They mention that the index is used as a starting point for discussions, but does not set the price. The company is evaluating if the index is still working for them and their customers, and if not, they will find a different approach. The speaker also mentions cost savings from their Building a Better IP initiative and plant closures, and clarifies that the $400 million mentioned is not double-counted in these savings.

The speaker discusses the company's go-to-market strategy and how it has contributed to savings of $400 million. They also mention the impact of a recent winter storm on January box shipment trends, but state that it has not affected their forecast for the first quarter. Overall, they are pleased with the growth in the market and have received positive feedback from customers about the first half of the year.

The speaker discusses the company's inventory levels and their estimate of restocking in the marketplace. They also mention changes in incentives and compensation structures for sales and box plant managers as part of their go-to-market initiatives. The speaker feels confident in these changes and emphasizes that executing the strategy involves collaboration across the business.

The speaker is addressing a question about the company's go-to-market strategy and whether they will need to add more salespeople to execute it. They also discuss whether larger or local customers will be more receptive to the new strategy and how the company is making their sales positions more attractive. Ultimately, the success of the strategy will depend on the individual customer.

The speaker expects the company to grow higher-margin local customers while also keeping and growing national customers. They aim for a balanced approach and will evaluate the profit equation when making decisions. The call has ended and the speaker thanks everyone for their time and interest.

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