International Paper Company (IP) Earnings Call Transcript & Summary

Good, everybody. It's George Staphos from Bank of America Securities Research on pulp, paper and packaging for the Americas, and we're really looking forward to our next presentation with International Paper, and we have Mark Sutton. Mark has now -- joined the company in 1994 as a plant manager -- or excuse me, as an engineer in Pineville, Louisiana, and became Chairman and CEO in 2015 and has been, in our view, managing the company through a very important transition with a lot of change for the better. And so without further ado, I give you Mark Sutton, Chairman and CEO for International Paper. Mark, take it away.

Thank you, George, and thanks, everyone, for participating in this webcast and in this conference. I really appreciate everyone's interest in International Paper. I've got a few opening remarks with a few slides, and then George and I will do some Q&A. So on Slide 2, you're going to see the normal forward-looking statements. I think you're all familiar with these. And on our website, we have all the U.S. GAAP and non-GAAP reconciliations as normal. So I'm going to move through these statements and go to Slide 3. Before I get into a couple of remarks and materials, I do want to share the expected impact from the current events, the recent severe weather -- winter weather across the Southern and South Central U.S., where we have a lot of our factories. At this time, we expect first quarter earnings to be negatively impacted by somewhere between $60 million and $70 million. Most of that is in our packaging business. Five of our containerboard mills were in the path of the winter storm, and several of our box plants were affected as well. All of our facilities are running at this time. And we're still working through some intermittent issues, but we're up and running and serving customers. And we will obviously share additional details on our earnings call in April. So moving again to Slide 3, as I said, I'd like to talk about our recent announcement to spin-off our paper business and to create 2 focused leading companies. We're making good progress on the spin-off, and we expect to complete the transaction late third quarter this year, obviously subject to our IP Board approval. So let's focus on the International Paper after the planned spin-off. We're positioning IP to be a corrugated packaging focused company to accelerate value creation and build a foundation for long-term success, and we're taking meaningful actions to accelerate profitable growth and materially lower our cost structure to deliver between $350 million to $400 million of incremental earnings by the end of 2023. This commitment includes $50 million to $100 million of incremental annual earnings growth through commercial execution and investment excellence. It's driven primarily through organic growth and targeted capital investments in our corrugated packaging converting system. If you remember, we've invested very much in our mill system to improve our capability, our product quality and lower our cost over the last several years. And now we have the containerboard we need, and we're now beginning to further invest in our corrugated packaging converting capabilities. We'll deliver $300 million in structural cost reduction through initiatives really in 3 areas, and we highlighted this on our call with investors in December, and again, we touched on it in our earnings call. First, we're going to streamline and simplify our organization. We're going to be a simpler company. It's going to be easier to lead, easier to manage, easier to understand. We're going to really focus our efforts on our packaging business with a much more focused geographic footprint, which reduces some of the complexity in running a public company. Second, we will redesign processes to increase efficiency and reduce costs in areas of maintenance and reliability; distribution and logistics; and of course, because we're a manufacturing company that has a lot of inputs, we have opportunities in our sourcing area to take the next step in lowering our cost for inputs. And third, we're identifying better opportunities to optimize our fleet of assets to make the right products on the right assets and to further improve our cost position and to be more efficient overall with all of our investment dollars. We're building a better IP and charting a really exciting path to take the company to the next level. So I'll take your attention to Slide 4 now. As we enter 2021, I'm mindful that we are still in the midst of the global pandemic, and there's still significant uncertainty. But having said that, we see momentum building in our core businesses. We continue to see very strong demand for corrugated packaging and containerboard in North America and in Europe. We also are seeing solid demand for absorbent pulp with more favorable supply-demand dynamics as paper-grade pulp demand recovers. And in Printing Papers, we're seeing a gradual recovery in demand and also a better supply-demand environment. We expect price flow-through from recent price increases to accelerate across all 3 of our businesses as we move through the first half of the year. We expect margins to improve even as we manage through the impact of higher input costs for recovered fiber, energy and transportation. There's always a disconnect. When costs move, we usually recapture it, and we see that happening as we move through the first half of the year. Additionally, we expect productivity and other cost initiatives that we have underway to offset general inflation, all of which contributes to a much more favorable outlook in 2021. In addition, we expect meaningful nonoperating cash catalysts in 2021. This includes the decision not to extend the 2006 timber monetization notes, for which we expect to receive about $630 million before taxes when notes mature in August. And earlier this quarter, we monetized an additional $400 million of our equity position in Graphic Packaging. Also, we recently announced an agreement to sell our Kwidzyn, Poland mill for EUR 670 million or about $810 million, which represents a premium value for IP and our shareowners based on the mill's strong folding boxboard position in Central and Eastern Europe. In total, these items represent $1.8 billion in nonoperating cash flow before taxes in 2021. Now that obviously leads to the question, how are we thinking about capital allocation? Well, it's simple. All of our operating and nonoperating cash flow will flow through our capital allocation framework, which you see on Slide 5, and you've seen this before. We have one objective, to maximize value creation for our shareholders. And here's what you can expect. We'll maintain a strong balance sheet and remain committed to our current investment-grade credit rating, with a targeted debt-to-EBITDA of 2.5 to 2.8x on a Moody's basis. We've repaid $3.2 billion in debt since 2016, including $1.7 billion last year. We closed 2020 at 2.9x leverage, and we're committed to getting to our target range. With regard to pension, our plan is sufficiently funded, and we closed 2020 with a healthy 95% funding level. The actions we took to de-risk the pension plan positions us very well with no expected contributions for the foreseeable future. Returning cash to shareholders is a meaningful part of our capital allocation framework and the return structure for our investors. In 2020, we returned $820 million to shareholders. And over the past 5 years, we returned nearly $5.2 billion to shareholders through dividends and share repurchases, which represents just over 50% of our free cash flow. Looking ahead, we remain committed to a competitive and sustainable dividend with a targeted range of 40% to 50% of free cash flow. We will review this dividend annually as earnings and cash flow grow. In early 2020, we suspended share repurchases to navigate the pandemic. We felt it was the right and prudent thing to do. Earlier this quarter, we announced that repurchases may resume under the available $1.7 billion authorization based on our continued strong cash generation and our improved business outlook. Looking ahead, we will continue evaluating our free cash flow and the intrinsic value of the company to ensure that share repurchases are weighed against other capital allocation options, always with a commitment to maximize value creation. As is our normal practice, we will report any repurchases at the end of each quarter. As I said earlier, investment excellence is essential to growing earnings and cash generation. We expect CapEx in 2021 to be about $800 million. You can expect strategic capital to be deployed mostly in our corrugated box system. It's all about really building out the right capabilities in the right geographies to make sure we can serve our customers and generate attractive returns. We will continue to assess disciplined and selective M&A opportunities to supplement our goal of accelerating profitable growth, but you can expect M&A to really focus on our corrugated packaging businesses as we further enhance our box system, always with a focus on value creation. So George, with that and -- with that, I'd like to go ahead and open it up, and we can take your questions and others. So thank you.

Thanks, Mark. And an important point that you mentioned there, from a housekeeping standpoint, if anybody would like to ask a question via the Veracast system, just send the appropriate text, and I'm happy to relay that on your behalf. Mark, you've been Chief Executive Officer for the company now upwards of 6 years. And again, there's been a lot of change. And then you've already touched on this to some degree, but what is ultimately your vision for IP, having gone through this process now and through a number of the asset moves that you've done, what is it that you see? What is your vision for International Paper on a going-forward basis?

Well, when we talk about the vision for our company internally and externally, we talk about being successful, responsible. Success means a lot of things. And one of the things that it means in the financial terms, and then from the eyes of investors, is solid competitive TSRs. And that's my vision for the company that we move our company into a top performer in returns. We know that as an industrial company, in materials environment with some cyclicality, a portion of that return has got to be on return of cash to shareholders, dividends, share repurchases. We feel good about that part of our capital allocation. And obviously, the rest has to come on share appreciation. That's where we have more work to do. And that, we believe, is where the earnings growth, the profitable growth in our corrugated packaging business primarily is going to begin to deliver those type of returns. So my vision is to make sure that we are changing for the better with an eye toward the future and an eye toward generating top level returns. That's why we're continuing to focus the company on what we do well, learning from what we don't do well, making the adjustments and narrowing our focus so that we can excel in the business lines and the markets that we choose to be in.

When we look at some of the changes in the portfolio that you've made, some of the moves are quite understandable to the investor -- investment community. Brazil, for example, was an area where the company had some up and down performance. But some of the other assets like Kwidzyn was a very good mill. And so in terms of building a better IP and generating more earnings growth and return, should we basically surmise that the assets that you've transitioned out of were assets where you thought longer term, you were less able to generate that predictable, stably improving return? Or what other nuances are around that point?

That's a great question, George. I think the way to think about what we decided to do with our paper business, which Kwidzyn was a part of our paper business. It's a blended mill like some of our mills. It made uncoated freesheet and folding boxboard. We decided that it was the right time to take the next step in IP's journey, let our paper business go off and pursue an appropriate strategy for a very good business of kind of world-leading market position, but albeit in the backdrop of the declining overall demand profile. There's a different strategy that you would pursue if that was your business versus being part of a company -- 20% of a company that had other aspirations and other needs for capital and resources and people. So Kwidzyn wrapped up in that. We believe the best value for Kwidzyn was to divest it, and it looks like that future of that mill is in the Consumer Packaging space over time. As you know, we did an assessment of our Consumer Packaging. We made the partnership with Graphic Packaging. We studied it for a couple of years and decided that is not a business that International Paper needs to invest further in and to be a major player in. So having Kwidzyn as really our only Consumer Packaging asset and part of the business, we felt value of getting a premium for that asset. And you're right, it's a great asset with great people, and then redeploying that cash through our capital allocation framework, mostly into our packaging business would be more value-creating for our investors and would strengthen International Paper. And that's why we were willing to part with it. That's why we're spinning off our paper business to let it pursue its own strategy, to focus the rest of the company so all of the resources are targeted toward -- in both companies, the appropriate strategy for really 2 different types of companies.

Thank you, Mark. You touched on this a little bit. Certainly, we should expect, it sounds like M&A to be in targeted areas within -- converting within corrugated. Certainly, that's going to be one of the areas. You've generated or will generate a fair amount of proceeds from these transactions. I think the number you just cited was $1.8 billion pretax. Generally speaking, converting assets, box plants tend to be not big-ticket items. So help me, help the investment community, if there is this similar question, reconcile all of the generation of potential uses and capital -- free capital to use relative to what is normally not a big-ticket item in terms of investment. And the question we frequently get is, oh, gee, is IP looking to do another big acquisition, that's what they're doing. Help us understand what's going on as much as you can behind the curtain?

Yes. That's -- I mean it's an obvious question, George. We're operating very well. We're generating tremendous operating cash flow, and we have these -- not onetime, but these non-operating three, the ones that I've mentioned, that come up to a big number. I will take you back to the capital allocation framework. We know that our investors appreciate our dividend. We know that some of our investors appreciate a mix of the dividend and share repurchases. And we know that every investor appreciates a good, high return, organic or inorganic investment that generates high ROICs. That's where that cash is going to go. And so it's not a matter of we need to find something big in M&A to use the money. It's a matter of, as we generate the cash, we look at our framework and we go in one of those 3 areas, plus I would call your attention, continuing to make our balance sheet as strong as it can be because that gives the company a lower risk. We've worked so hard to de-risk the company, partly in the portfolio, in some of the regions that we weren't doing well. And I can't say enough of what all our teams have done to take the pension risk essentially off the table. And our balance sheet is as strong as it's been in a long time. That doesn't mean you got to make it less strong by going do something tomorrow. We want to maintain a strong balance sheet, and we want to have investors believe that every part of our capital allocation framework, dividends, share repurchases, CapEx, M&A are all going to be thoughtful, value-creating and return oriented. And that's going to move over time, but that's where that cash is going to go. And that's how we're thinking about.

You used a term for different sort of complex in your business in terms of pricing versus cost, and sometimes there's a disconnect. And times where there is a disconnect where you have more available capital to put to work relative to opportunities, will the company keep that cord, keep the balance sheet strong, which certainly has been a positive for you through the downturn that we just -- that hopefully we're coming out of. Or what else should we think you do in terms of managing, again, that potential disconnect over time? Your comments are just you're going to be patient, thoughtful and not chase growth, but I throw it out there.

I think one of the things that we have -- when we -- you can think back to us building our Industrial Packaging business, some of the things we did, we didn't obviously control some of the timing of some of the M&A. And some of it we did control but sometimes you end up acquiring at the wrong part of the business cycle and because it's actionable at that time. What we would like to do is get ahead of that curve and be more proactive. So I'm okay if we've got more cash generation and a strong balance sheet than we need "at a given point in time" because we have a perfectly good capital allocation framework to make decisions and to trade-off. Should we do something as an investment? There's nothing. We don't see anything. Then there's a place to go through share repurchases, depending on where our share price is at that time. And it prepares you for when a potentially good strategic growth opportunity comes. And again, for us, in the regions we've decided to be in, most of it's going to be in the converting area. There'll be some organic opportunities. There's going to be some organic investments that -- you'll continue to see a new box plant here and there. You may continue to see further investment in our mill system. But right now, for the foreseeable future, we just finished all of that. And we've got all the containerboard that we need for the foreseeable future. So we feel really good about the place we finally got the company, generating a lot of cash. Yes, these nonoperating cash flows are interesting and important. They will just help us accelerate improvement in the capital allocation framework.

Mark, let's talk about another potential disconnect. So last year, you generated north of, I think, $2 billion of free cash flow. It sounds like what you are trying to do is improve the business, obviously, but also take out some potential volatility, which over time, should lower your cost of capital. When we look at the cash you generate relative to your market cap and compare that to your cost of capital, which should be actually declining now based on the changes you're making, theoretically anyway. So the market-implied view is that actually, IP is going to see a decline in cash flows and not growth. So there is a disconnect. You see a lot of growth, the market seems to be implying declines in cash flow and growth over time. What do you think is driving that? And what 2 or 3 things do you think we'll be able to see this year in terms of the fundamentals in your business that will further amplify what you think for the profitability? You are a growth business, and the market's got it wrong. And usually, the market is right. So what should we look for? And why do you think that disconnect exists?

I can't speak for the market because it's not homogeneous. When I do speak to investors, it depends on the time horizon. So I think in some cases, we're mostly a corrugated packaging company. There's different views on the cash flow generation over the next 2, 3, 4 years. What I'm talking about in running this company is a longer time horizon than that. I think you'll see that the normal materials cyclicality is much dampened, much more dampened compared to what it's been. But I've seen a trend line of increasing free cash flow in the company because we're continuing to lower our costs. We're continuing to grow our corrugated packaging business. We're continuing to improve our cellulose fibers business, and they'll be the normal but, I think, less pronounced over time, business cycles, but with a trend line of increasing cash flows. And if investors are skeptical about that, I understand that the best thing we can do is to demonstrate it. Investors were skeptical a couple of years ago that margins would crash because of supply/demand and all these things, and margins moved a couple of basis points. They're still starting with a 2 in our packaging business, for example. So I think us focusing on our customers, running our operations well and generating cash and using it responsibly is the #1 thing we can do to send a message to investors that this is a good core business that's foundational in almost every value chain out there. In terms of where corrugated packaging goes and that it's a good place to invest in putting your portfolio. It's always going to be a strong return of cash cost here in IP. We're going to have a strong dividend. We're going to do the right thing at the right time over time in share repurchases. And we built the company that we have today, with some of the sweeping M&A. Now we don't really need to do that. We need to continue to grow where growth is available. And that's our focus, George.

Mark, one question came in from the audience. You mentioned that capital spending will be towards corrugated converting with an eye on helping the box system with the right capabilities in the right locations. To the extent that you can comment, what does that mean related to where in U.S.A. and what type of equipment you might be looking at investing in? And there's a parenthetical that also mean more digital printing as part of that converting matrix?

Well, I think the capability, it's all of the above, including the digital printing. I think a lot of our opportunities are in the actual converting of corrugated board into box. So the majority of our strategic investments over the last couple of years and for the next couple of years are going to be not in new corrugators per se, but in actual box-making equipment. The geography, it's really where the big markets are. We have coverage almost everywhere. A couple of years ago, we were light in Southwest and in Texas. We made some additional investments. We made a couple of small acquisitions, but it's a constantly moving target. And then some of our customers in certain segments are growing very rapidly, and we are moving through that growth with them. We're designing new types of plants that really target a certain segment and don't try to do every box in the market. And so we're experimenting with some different approaches. That's really what it is. It's not a geography, a physical piece of land in the U.S. that's a high corrugated user. We don't have any capacity or capability. It's about a few spots where we need more and a couple of spots where we need considerably more. And you can think about what those are. I mean you think about Chicago land area, think about the Northeast, think about the Southeast and the Atlanta region, and you think about Texas in that region, and then California is an entire marketing in and of itself. That's where we're strong, and we just want to continue to get stronger.

Understood. I guess one -- next question I had is the spin-off of the papers business and the potential earnings benefit that you'll receive from that. Why did you need to -- why do you need to spin-off and simplify to be able to get at those benefits? Now inherently, we've seen it with other companies, the more they focus, the better they are. But why was that particularly an issue for International Paper? Why couldn't you get the $350 million or more benefits with the existing platform just by becoming simpler within your existing organization?

Yes. It's a very good question. It's a logical question around what can you do after a spin that you couldn't do before a spin? We don't look at it as an or. We don't say in IP, we either need to separate into 2 companies and pursue these improvements or we can't. We look at it as an and. We believe it's the right time with the way the market has evolved for our paper business to be a stand-alone company to pursue a strategy that you can imagine what kind of strategies you could pursue in a business that's a very large market, a secular declining environment and an opportunity to take your leadership position to the next level. We think it's the right time to do that. And not an or, we will now have a much more focused International Paper, a much simpler International Paper, where money and people, our innovation thinkers, and even maybe the investment base, laser focuses on that business. So we look at it that it's the right time for the paper separation. Back in 2005, George, when we did the transformation plan, we decided to keep paper. That was a long time ago, and it has generated an enormous amount of cash. It has positioned new assets into the businesses that have longer runways. We just think it's the right time. But it's not a matter of we can't improve if we don't spin. We think investors, the business and customers are going to be better off 3, 4, 5 years from now taking this path versus just keeping it all together and trying to work on everything.

Understood. Will there be to the extent that you can comment, any dyssynergies initially that you'll need to plow through once the spin-off occurs? Any trapped overhead or any other costs that we should be mindful of? I know that will ultimately probably come out in the disclosures. But if you have any thoughts on that, that would be helpful.

I think there always are dyssynergies when you have a structure that's designed to run an organization that you have and then you start to peel in -- pull things apart to our enterprise cost that don't necessarily go to 0, they go down, but they don't go to 0. We -- it's a manageable number for us, and it is -- those were both savings numbers I talked about, the $350 million to $400 million. That's net of all that. That is covering dyssynergies. That's true incremental earnings improvement. So we've identified it. It's a manageable number. And again, by simplifying the remaining part of IP, we can take a lot of those costs out pretty quickly that really aren't going to be necessary at all after we execute and get this -- the new paper company stood up and running.

No, that makes sense. And again, from our experience over time, not just in paperboard and packaging, and we've written this. When we've seen companies simplify and focus, almost always, the performance improves. So we look forward to that as well for International Paper. I want to switch gears a bit and move to a question that we frequently get around e-commerce, and you kind of know what question is coming already. Yes, I get that, and this is an "e-commerce has really helped the corrugated box business," and that's wonderful, but there is some element of the investor base that doesn't think that, that is sustainable. In your view, what amount of growth do you think has been created by e-commerce that is sustainable on a going-forward basis? Our view has been it's maybe upwards of 2 points, when you look back going to 2017. You know a little bit more about this and we would. So what are your thoughts on that, Mark?

Yes. I think it's, again, another very good question. It's a curiosity of our times in terms of where is retail and trade going in what channel. And the pandemic accelerated and put a magnifying glass on adoption rates and other things that we listen. We know a lot about it, but we know a lot about it because we listen to our customers, and they know a whole lot about it. And since we serve every segment, e-commerce and standard commerce, we can see some of the trade-offs. We can see where people are making investments. When people start putting capital in, it usually looks like they've got a pretty sure plan. We think e-commerce is going to continue to grow. It's going to continue to grow in a somewhat sustainable way with just a big boost up from 2020. I mean, obviously, I don't think it will grow as fast as it did in 2020 every year, but I think there's a lot of permanent adopters that have now found that it's a relatively pleasant experience. Corrugated is going to play a big role in that, and other packaging will play a big role in that and other supply chain services. And that's really what our focus is in the e-commerce segment. The retail e-commerce that comes to your house and my house, but there's a whole another section of e-commerce that none of us unless you're running a plant or a business somewhere, even interacts with, and that's the industrial side of e-commerce, and we are also very focused in that area. We just see it as a growth platform that is really -- corrugated packaging is very well suited, given its nature, given its flexibility, given how light it is for shipping, its protection factor, given the supply chain is not quite as protected as our shrink wrap pallet of really protected goods. So we feel really good about that. And a lot of our confidence is coming from the confidence that our customers have shared with us because, George, we have very large positions with almost anybody who's anybody in e-commerce. And we are a major part of their success in their supply chain. So we are at the table with designs, with the next -- where the next plants are going and fulfillment centers. And so we feel really good about it, and we've invested a lot of time, energy and money in being excellent in this particular segment.

I appreciate the thoughts there, Mark. One thing I wanted to ask related to e-commerce, are you seeing any sign from the customer at this juncture that there's maybe a little bit of exhaustion with corrugated? Again, we know how you feel in terms of the value that corrugated brings to the whole notion of getting a product from point A to point B in an e-commerce world. But there's the obvious concern from some that corrugated is building up in the garage and the basement and the driveway and -- or for whatever reason, it's not viewed to be sustainable again because of the old myths around paper-based packaging. Are you seeing any move by e-tailers, your customers to now not minimize but conserve on their corrugated usage. There have been some recent articles about returnable toke businesses getting into the market, though, that would still use the same amount of corrugated, but that's a separate point. What are your thoughts on that?

It's a dynamic -- or any type of packaging, if you're really looking at your business and improvement, any type of packaging is always subject to constant assessment and redesign and fit for use. So this is nothing new. I think that the pandemic and the amount of growth in e-commerce and new customers that weren't normal e-commerce users. I think you're right, there was a disconnect in the amount of packaging that was coming to residences and their ability to really say, wow, I wasn't a big recycler before, and now I got all this stuff. There are a lot of people that were already adopters, and they live in the municipalities and have tremendous recycling programs, and this was not a big deal at all. I'm one of those. We had a lot more packages come to our house. It was easy. No problem, nothing piling up in the garage. Now I work for International Paper. So maybe I have a different view on it. But I think the efficiency, the source reduction, and again, we welcome that because the box isn't always the right package. And in some cases, by having the right package designed, you see it coming to your home and you see it coming to businesses. The boxes are to be used where it's needed for protection and for other technical aspects, but 92% of corrugated packaging is recovered and put back into the fiber stream in the United States of America. And that is one of the best examples of a circular economy. Renewable natural resources at the beginning of life, carbon neutral energy generation from biomass residuals to make the product and 92% of it recycled, I will stand up each day and put that sustainability story against any alternative out there because it's true.

Mark, there was a recent investment that was made by the company, I think, in molded fiber. So could you comment a bit on that? And it would seem to be, again, hand in glove with your corrugated and e-commerce strategy. Could you talk to that a little bit?

The molded fiber investment is another example of growth vectors that are adjacent to our vertical within our corrugated packaging business. We also have a very, very dynamic fiber-based bag business that is relatively small in the scheme of our corrugated packaging business. But we have a display business. We have a number of things that are not just that -- the traditional box, but they fit because of either the customer base or it's a product or service offering that we can complete the entire needs of our customers. And I think you'll see more of those type of opportunities. The -- they start off small, but you can think of things like this that, hopefully, will be producing meaningful earnings and growth several years from now. And you have to start and learn in a responsible way in some of these new products or adjacent markets. And that's something that -- again, it's a good example of focus. I mean we've done a little bit of that, but we weren't organized to be really successful in that area. Now we've got a complete focus on what are the 8 or 9 things that we should be offering our customers that we may not be offering them today. And I think that will be an example of what focus gets us faster decisions. If it's going to work, it's going to work; if it's going to fail, you fail fast and cheap and you move on.

Understood. Thanks for the comments on that. I want to switch gears a little bit and talk perhaps a bit near term. So obviously, you've got the spin-off of papers, and maybe this is the single most important thing the company needs to "get right" this year from an operational standpoint. In terms of the other things that you do control, you don't control weather, you don't control OCC pricing, et cetera, what else do you need to get right this year for -- hopefully, we're having this conversation a year from now. We look back at '21, it was a very successful year for the company. What are those other 1 or 2 things?

So I think you hit the first one. We have to execute the spin successfully. But equally important, and maybe more important is building the foundation for that $350 million to $400 million of earnings improvement that we called out in 2023. We've got a lot of foundation building and even some bringing it to the bottom line that needs to occur in 2021. We've highlighted a little bit of it on our earnings call around this disruptive technology, opportunity in our converting system. We plan to bring some of that to the bottom line this year. So making progress on that commitment in 2021 is really critical. And I'll add a third. It's very tactical, but it's really important. We have a tremendous demand environment right now. And you're right, we don't control weather and we don't control some natural disasters, but the reality is we have to run well and serve our customers well because the market for all of our products, including paper, which is in recovery right now, is very strong. And we want to make sure we're there to take advantage of that and to serve our customers because customers remember. You wouldn't believe some of the feedback we got from customers as we managed through this winter storm going through all kinds of hoops to make sure that they never missed a box if their plant was up and running. And that is just something our employees get a lot of energy and pride with. But what we can't do is run poorly. That -- so that's a tactical issue, but you have to be ready when the market is presenting itself to you like it is now, while we execute the spin and make progress in these earnings improvement opportunities, which are a little longer term.

You talked about the demand environment being very strong, and we appreciate that incremental color. But you know the old saying, given an inch, try to take a mile. Is there any additional commentary you could provide around what strong means across the businesses? Again, I know it's hard for you to get into forward-looking commentary, but anything you could talk a little bit about maybe conceptually lead times now versus what would be normal? Anything around that would be helpful. Whatever you can't talk to, we totally understand.

Yes. We -- as you know, we're very conservative on giving forward-looking given the danger in that, given our position in the market and all of those things. So what I can tell you is the corrugated markets and even segments that we were weak last year, think about restaurants and some others, we're starting to see some recovery, as you would expect. We don't know where the stimulus is going, but it's probably going to have a temporarily positive effect on spending power. So corrugated across a number of segments continues to be strong. In the order of the growth rates that we talked about on our call, in the cellulose fibers business, there's obviously a bit of a rally in overall softwood pulp, but that's not really our focus in our cellulose fibers business, it's the absorbent pulp. We're seeing that demand improve. We're seeing the entire set of economics improve. And look, I'll tell you, there's a big hit in products like that when you have a year like we had, absorbent products, at certain income levels, is a luxury item. And a lot of people trade it out of it because they couldn't afford it. And that's part of what happened last year, and they're trading back into it as things get better at the baby side, at the adult side and everything in between. So that's something we see as a real positive. And then of course, the paper business took anywhere from 25% to 35% demand hit during COVID because people were at home and not in school. That is recovering. It will all recover, but it's recovering based off of where it was last year. So at somewhat rare but synchronized recovery, continued strong growth in packaging and synchronized recovery in cellulose fibers and paper, all at the same time, gives me really strong confidence. Now how far out you can look? We all know there's things that can affect an economy from the outside, global events. And we also know we're a materials-based business that drives a certain demand, not a volatile one, but a certain demand cycle. And so we are not going to make decisions based on today's environment being permanent and forever in terms of where we invest and how we think about these growth rates today. But we are going to take advantage of it, generate a tremendous amount of cash and use it responsibly.

That's been one of the themes of this presentation, Mark. A lot of cash and being used responsibly. I want to finish up with kind of a 2-fisted question on cellulose fibers broadly. One, from the audience, IP has mentioned the possibility of consolidating the Ilim joint venture at various points over the years. Given the desire to simplify the organizational structure at the same time, does consolidating Ilim will reconcile well with that or not necessarily? And then IP is getting better, simpler, more predictable, more cash generative. How do you expect cellulose fibers to evolve into that framework?

So it's a great question on whether we're better off consolidating and being -- if you're going to be in pulp, be the world's best in northern softwood, serving the Chinese market, which is what the Ilim story is, and being the best in absorbent products, which is a couple of notches up above that in terms of types of product. But that's under evaluation through our capital allocation plan, where we would only do the first part, the consolidation of Ilim. We believe our shareholders would see the appropriate level of value. It's not something we are doing right now. It's not actionable right now. And as you can see from International Paper's history, we are under a constant evolution of making -- trying to make the company better over time. And I can think of how many changes we've made, I think, mostly for the better. When you look at the returns on invested capital that we publish, and in 11 years, it's solidly above our cost of capital. When we look at the cash flow generation in and around $2 billion despite pandemics and locust and high demand, low demand, high cost, low cost, OCC here, OCC there, we believe we're constructing a much more predictable, sustainable cash-generating company. What we know we have to do is show investors that we can be a better allocator of that capital than we had in some cases in the past. And that's what we're focused on. That's what my laser-focused, I want to be one of the companies that our investors say, I got to have it in my portfolio because the returns are there, it's well run. They make a great product. They serve their customers. They're an ethical company. That's what we want to get to, and we know we can get there. And so the businesses we're going to be in are the ones that have the best chance of getting us there.

Mark, that's a terrific way to wrap up the presentation. As always, we really appreciate your participation in our conference. Everyone, I hope you enjoyed the presentation with Mark's on International Paper. Mark, again, thank you. Enjoy the rest of the conference, enjoy the day, and we'll see you soon. Thank you, Mark.

Thanks, George. Thanks, everyone.