International Paper Company (IP) Earnings Call Transcript & Summary

Thanks, and welcome everyone, whether you're joining us this morning or this afternoon, to International Paper's call covering our second quarter 2026 results. With us today are Andy Silvernail, who serves as Chairman and Chief Executive Officer, and Lance Loeffler, our Senior Vice President and Chief Financial Officer. Before we go further, please note that key information appears at the start of our presentation, and it includes certain legal disclaimers. As an example, forward-looking statements will be made on this call, and those statements carry risks and uncertainties; details on these risks and uncertainties, along with other factors that might cause or contribute to actual results differing materially from such forward-looking statements, appear in our press releases and in reports we file with the U.S. Securities and Exchange Commission; in addition, certain non-U.S. GAAP financial information will be presented. A reconciliation of those figures to U.S. GAAP financial measures can be found on our website. Copies of the second quarter earnings press release and today's presentation slides are also posted on our website. At this point, I'll hand things over to Andy Silvernail.

Mandi, thank you. Hello and welcome, everyone, whatever time of day it is where you are. Turning to slide three, we can get started. Over the last several quarters, our message about concentrating on better execution has been consistent. The second quarter's numbers demonstrate real headway, which speaks to how dedicated our team is to delivering amid complicated operating conditions. Companywide, we achieved solid operational results, pulled off an especially demanding outage calendar, and moved forward on important strategic investments; we kept removing cost and complexity from the business, and the outcome was performance above what we had anticipated for the quarter. Within North America, our pattern of box volume growth compared with a year earlier carried on, and we anticipate that we will again grow faster than the industry during this quarter. On top of that, we enhanced mill performance overall and finished the Riverdale machine conversion right on schedule. Over in EMEA, we stepped up cost-reduction measures and pushed ahead with our transformational investments. Additionally, we kept up steady headway on the intended separation of our EMEA packaging business. Speaking more generally, the priorities we set for 2026 — boosting reliability, making the business simpler, reinforcing our cost structure, and putting money where we can generate the most value — are moving along as we anticipated and are strengthening the momentum that is evident. There is still more for us to accomplish, yet execution is getting better and performance is improving as we work toward a stronger International Paper. Now let's examine the quarter more closely. I've moved to slide four. A clear indicator that we are advancing is our capacity to expand faster than the market. During the second quarter, daily box volumes in North America rose 1.7% compared with the prior year, and for the entire year we anticipate growing faster than the industry by roughly 2%. That expansion stems directly from the effort we have put into deepening customer relationships and securing new business; in our view, delivering a superior customer experience sets International Paper apart in a meaningful way. We assist customers in enhancing performance, innovating more quickly, and expanding their operations. Our investment in the Aurora, Illinois, Commercial Performance and Innovation Center illustrates our customer-first approach in practice. There at Aurora, we have built a space where customers can collaborate directly alongside our designers, engineers, and technical specialists to address their most difficult challenges, innovate jointly, and launch new packaging solutions more rapidly. I am now on slide five. We apply that same level of intensity to how we run things internally, which supports another strategic pillar — a cost advantage; the impact of the steps we have taken to reinforce our mill system appears on this slide. Mill performance is up roughly 500 basis points versus a year ago. Even more significant, capacity utilization is improving consistently as the gains from our focused efforts start to build on one another; we have streamlined the mill system and lowered costs by carrying out a set of footprint actions while steering capital toward the assets and projects that will benefit most. Returns from targeted spending on reliability and productivity are also starting to show. A win-the-day mentality, made possible by a discipline of daily management, has guided everything we have done. What we have now is a tighter, more efficient mill network that's producing greater volume from an asset base that's both stronger and more capable. That's a trend we find encouraging, and it strengthens our conviction that the steps being taken are producing the outcomes we anticipated. When we move to the following slide, we'll examine more closely a few of the major investments that are helping fuel our improvement. I'm now on slide 6. Across our network, we're directing targeted capital toward upgrading the portfolio and enhancing reliability, productivity, and growth. That's 80/20 being put to work. We've made difficult decisions to leave segments where returns weren't sufficient, freeing that capital for reinvestment in places offering the biggest opportunity to win. The 4 investments highlighted here illustrate that strategy. Every one of them bolsters our competitive standing, serves our customers, and generates financial returns between the mid-teens and mid-20s. Let's begin with NORPAC mill. Before I get into the strategic case for NORPAC, I want to recognize the tragedy that took place at the neighboring Nippon facility in May. Our thoughts go out to everyone directly affected and to the whole Longview community, our own NORPAC employees included, since that community is where they live. Safety above all else is our core value, and this serves as a sobering reminder of why we have to remain relentless in that commitment. With that as the backdrop, we closed the NORPAC acquisition in June. During the Nippon investigation, output at the mill was temporarily reduced, but we moved quickly to deal with the lower steam supply coming from their facility. Consequently, mill operations today are back at pre-incident level. NORPAC fits International Paper extremely well. It grows our capacity to meet rising demand for lightweight, high-performance packaging grades, cuts distribution costs along the West Coast, improves our total cost position, and makes our overall mill system stronger. At Riverdale, the machine conversion has been finished, and ramp-up is moving along as we expected. We expect the ramp to be mostly complete by the end of the year, with the machine hitting full run rate in Q1 of 2027. That ramp period gives us time to work alongside customers to qualify the machine across every product line. This project improves our product mix, boosts our advantage cost position, supports a paper system that's more balanced over time, and should produce returns in line with what we expect from our investments. Turning to Dover Converting Facility, that acquisition reinforces our footprint in an appealing region, brings in an established customer base, and backs our long-term growth strategy. In Waterloo, we're getting ready to start up in Q4 and expect to be fully operational by Q2 of 2027. Waterloo is a state-of-the-art facility built around safety, productivity, and innovation. It grows our presence in an appealing market segment and will put us in position to deliver high-quality packaging solutions with more speed and reliability. Taken together, these investments show our 80/20 approach in practice: putting money into the capabilities and locations that help us win, and focusing resources where they generate the most value. Moving on, let's discuss Packaging Solutions EMEA and a few of the investments currently being made there. I'm now on slide seven. During the last 18 months, we have made considerable progress in transforming that EMEA business. We've streamlined the organization, brought legacy acquisitions together, reset the cost base, and established a stronger commercial model centered on key customer relationships. A crucial enabler of this effort has been investment. Throughout EMEA, we are putting money in to keep the asset base strong and even improve it, boost competitiveness while reducing cost, and back growth in the places where the most attractive opportunities exist. The three cases on this slide show the difference capital deployment is making. At Lucca, we are upgrading our recycled containerboard platform, swapping out an older paper machine for a new lightweight one expected to provide higher yield, lower energy use, and better sustainability performance; this investment is transformational, producing a more efficient mill and enhancing our capacity to serve the converting network. This investment should come online during the third quarter; in Germany, our cost-out strategy is being carried out by moving volume from smaller facilities into more modern and efficient plants, similar to the lighthouse approach we applied in North America; we are holding capacity steady while raising utilization, reducing fixed costs, and reinforcing our cost position. In Romania, we are investing in order to capitalize on growth. Eastern Europe remains among the fastest-growing regions in our portfolio, at roughly 4% CAGR; we are adding capacity within an existing operation to support customers and seize that growth. All together, these investments should produce stronger financial returns and demonstrate how we are enhancing the business over the long term, reinforcing our asset base, bringing cost down, and investing in the areas where we see the best growth opportunities. I'm turning to slide eight and remaining focused on our EMEA business. Just as in North America, we are simplifying the system and matching resources to the assets and opportunities capable of creating the most value. So far, we have announced over $210 million of run rate footprint and cost savings actions. Those actions cover 31 manufacturing facilities and a central office that have shut or are shutting and should lead to net reductions of more than 3,000 positions. The actions shown here extend beyond site closures. Asset optimization is a key part of this effort. We are optimizing the network by redeploying equipment, capital, and capacity into the sites where the greatest impact can be achieved. About half of the equipment moves we have planned are already finished, enabling us to consolidate operations, improve utilization, and better match our assets to customer demand. With that, I'll hand things over to Lance so he can cover our second quarter results and outlook in more detail.

Appreciate that, Andy. Now let's look at slide nine and what our enterprise did in Q2. I'll begin with sales for the North America segment. Our box volumes rose 1.7% versus a year earlier when measured per day, but total sales came in lower because we deliberately wound down our non-strategic export operation after shutting the Savannah mill; on top of that, demand softened in our EMEA business, largely because of the geopolitical situation. Both earnings and margins fell compared with a year ago. The main factors in North America were scheduled outage work and the Riverdale conversion; over in EMEA, margins got squeezed as higher paper prices hit our packaging sales, and distribution expenses also rose. Even with those challenges, we ran operations better than we had expected, and these results show we keep making progress on execution throughout the company. Even in a quarter that carried a lot of outage activity and investment spending, free cash flow came in above what we had anticipated. Free cash flow for the quarter was — $7 million, since cash from operations went toward funding transformation initiatives and $533 million of capital investments. Now to slide 10, where we compare Packaging Solutions North America's second quarter results with the first quarter. Broadly speaking, these results show solid performance throughout the business. Price and mix contributed a favorable $37 million, which reflects quicker realization of the price increases we had previously announced along with a better mix stemming from lower export sales. Volume added $16 million favorable, helped by the usual seasonal pickup, one extra shipping day, and ongoing expansion in our domestic business. Operations and costs came in $1 million favorable, mostly from better mill performance, an Ixtoc insurance recovery, and the fact that the first quarter's winter storm impact did not repeat. Those gains were mostly offset by higher costs tied to the Riverdale conversion and other reliability work finished during the outages. Maintenance outages ran $127 million unfavorable in the quarter. As we had planned, this was an exceptionally heavy quarter for outages, at approximately double what we normally see. Even given how large and complex the work was, the team carried it out extremely well throughout the system. In fact, Riverdale's second paper machine came back into service earlier than planned while conversion work continued on paper machine 16. Input costs came in $21 million favorable, mostly because the elevated energy costs from the first quarter winter storm did not repeat. That said, those gains were partly offset by greater OCC and freight expenses. All told, Packaging Solutions North America posted $425 million of Adjusted EBITDA in the second quarter. Now to slide 11 and our third quarter outlook for Packaging Solutions North America. We expect price and mix to be favorable, thanks to continued realization of the price increases announced earlier through June publications. Volume is expected to be unfavorable, since one extra shipping day is more than outweighed by the lower export volumes we anticipate. Operations and costs should be favorable on a sequential basis. We anticipate that the advantages from Riverdale's ramp-up, along with what NORPAC contributes, will outweigh the reduction in Ixtoc insurance proceeds we foresee during the third quarter. On input costs, we're expecting an unfavorable picture, largely because of elevated OCC as well as energy costs that are seasonally higher. And finally, with an eye on keeping our team members safe, we made the proactive decision to halt operations at the Pine Hill mill so that structural roof repairs could be finished. At this point, we expect that mill to be running again by the end of August. Within our outlook there's a distinct line item projecting a roughly $85 million effect in the third quarter, prior to any insurance recovery we may receive. Taken together, these items produce an Adjusted EBITDA outlook for Packaging Solutions North America of about $555 million-$585 million for the quarter, and that figure incorporates the Pine Hill effect. If you turn to Slide 12, we lay out the main drivers and assumptions underlying the step-up we anticipate in North America between the first half and the second half of this year. Our Adjusted EBITDA outlook for the full year now stands at $2.35 billion-$2.45 billion; we've lowered the top end of that range by roughly $50 million, mainly reflecting the macro environment and the lingering effects of the Middle East conflict; we posted first half Adjusted EBITDA of $902 million and still anticipate a substantial step-up in the second half of this year. Over on the right side of the slide, we go through the primary drivers underpinning that step-up as well as the progress being made throughout the business. Relative to what we showed last quarter, the favorable adjustments consist of $50 per ton from the June published price increase, which is now included in the price total. On volume, we're now slightly offset, since we had originally expected an uptick in second half industry demand; our current expectation is that industry demand trends stay broadly stable as we move from the second quarter into the third quarter. A number of our 80/20 initiatives landed ahead of schedule, which shifted part of the benefit into the first half of the year and lowered the step-up reflected in the second half; with the heavy planned outages of the second quarter now behind us and Riverdale's ramp-up still on schedule, our expectations for those items haven't changed. The biggest unfavorable category is the macro environment, where our earlier estimate was approximately $50 million in headwinds. We now anticipate an impact nearer to $150 million, driven mainly by elevated transportation spot rates along with higher costs for OCC, diesel, and employee medical. When you put all of this together, these factors underpin an improvement of roughly $600 million from the first half to the second half of this year, excluding any effect from Pine Hill. For the Pine Hill disruption in the second half, our preliminary estimate falls between $70 million-$100 million. We do expect to recover most of that impact via insurance during the second half, though we're still working through the specifics. The main point to take away is that we've successfully hit several key milestones in the first half of 2026, among them our heaviest outage quarter and the Riverdale conversion. We are seeing the benefit of price hikes we put through earlier, and we keep carrying out our 80/20 programs. The business climate is still fluid, but these steps should soften the macro pressures and reinforce how we feel about what lies ahead for the rest of 2026. Now to Packaging Solutions EMEA, slide 13, where second-quarter results came in above what we had anticipated. Price and mix came in $12 million worse than the prior quarter, since greater paper costs on outside sales were outweighed by the negative effect of steeper paper costs on the packaging we sell. Volume slipped a bit quarter over quarter, which mirrors ongoing weakness in the market tied to geopolitical uncertainty and how consumers are feeling. Operations and costs ran $16 million worse than the previous quarter, yet still beat our expectations. Distribution expenses linked to higher oil prices stayed a problem, though the team advanced on cost reduction efforts that blunted the effect. Input costs came in $10 million better because reduced energy expenses, subsidies included, outweighed greater OCC costs. On the whole, Packaging Solutions EMEA posted $182 million of Adjusted EBITDA during the second quarter. Now on to what we expect for Packaging Solutions EMEA in the third quarter, slide 14. Price and mix should turn favorable, thanks to further realization of earlier paper price increases along with the corresponding rebound in box pricing.

We anticipate favorable volume, which mirrors seasonal patterns along with the ongoing addition of newly won customers. We also expect operations and costs to get better from one quarter to the next, thanks to advances in our cost reduction programs and reduced distribution expenses. Finally, input costs should be a bit unfavorable, since decreased OCC costs are mostly canceled out by increased energy costs, which includes the fact that the energy subsidies we got in the second quarter will not happen again. Those factors produce an Adjusted EBITDA projection for Packaging Solutions EMEA of roughly $230 million-$250 million for the third quarter. Moving to slide 15, we lay out the main drivers for the step-up we anticipate in EMEA between the first half and the second half of this year. Adjusted EBITDA for the first half came to $390 million, a bit above what we had previously anticipated. Given that stronger beginning point, the anticipated step-up for the second half now stands at roughly $170 million, which backs our full year Adjusted EBITDA projection of $900 million-$1 billion for Packaging Solutions EMEA. Margin recovery and commercial uplift continue to be the biggest contributor. We anticipate packaging margins will get better in the latter half of the year as earlier paper price hikes make their way into box contracts. This gain is reinforced by added commercial growth from newly won customers, typical seasonality, and three extra shipping days. All together, margin recovery and commercial volume uplift should deliver roughly $110 million of incremental Adjusted EBITDA in the second half. Past margin and volume, two more factors contribute to the step-up. First, we anticipate capturing around $40 million in cost reduction gains in the latter half of this year. Those gains will stem primarily from footprint optimization steps and better distribution costs, provided there is no additional major escalation or geopolitical-driven volatility. Finally, input costs should contribute roughly $20 million, reflecting the lower OCC costs we expect. In total, these factors combine to give a second half Adjusted EBITDA of approximately $510 million-$610 million for EMEA; with that, I'll hand the call back to Andy.

Thanks, Lance. Turning to slide 16, I'll begin with a few comments about the planned EMEA separation. Progress is solid, and we have a dedicated team whose focus is on readiness activities. We're putting in place the governance, legal, operational, and technological infrastructure that's required, and we're moving ahead significantly on our key transaction documents. The separation is still on track for the timeline we announced. As discussed earlier today, our focus is unchanged. Everything we do is aimed at delivering value for our customers, our teammates, and our shareholders. We're enhancing execution throughout the company, boosting reliability and performance across our network, making the business simpler, and investing strategically to generate the most value. Positive momentum is evident, and we're pushing forward on the priorities we set out for the year. To wrap up, I want to express my thanks to the IP team. I take great pride in the focus and commitment they've shown during the second quarter. I'm confident that together, we'll deliver strong performance for the rest of the year. With that, let's take questions.

Hello, everybody. Morning to you all. I appreciate the specifics. Nice work on the advancement. So my initial inquiry — when we examine the sequential pickup you've got for the back half against the front half, and we're grateful for the bridge specifics — doing a bit of quick arithmetic suggests roughly a 50% bump from the midpoint of Q3 into Q4. Could you, Andy and Lance, walk through which particular items give you confidence in that projection? And knowing that prices shift daily and weekly, what assumptions have you baked in regarding possibly steeper diesel costs, even from June 30, July 1st, considering where we stand today? Then my second inquiry is wider in scope. Could you bring us up to date on the cumulative results from 80/20 in both regions — you showed the slide on Europe earlier — plus North America. What figure do you anticipate for this year, and how much will remain for 2027? Many thanks.

Sure. I'll handle the second one. I'll ask Lance to add some nuance on the first. George, I'd say that broadly speaking, when you consider the front-to-back-half ramp, and then look further ahead, the 80/20 initiative sits at the core of all our efforts. Let me begin with Europe. You've observed the emphasis on closing facilities and on lowering the labor cost intensity within the operation. There are 31 sites, with more than 3,000 employees affected. That effort will keep progressing exactly as we've previously laid out; that progression is what enables us to achieve meaningful earnings gains during the back half of the year, and when we look toward next year, that accounts for the majority of it. Crucially, George, it comes down to deploying those resources into genuinely smart reinvestments, the way we've done back in the U.S. on the commercial front. Eliminating needless waste, removing excess or unproductive capacity, unproductive assets, boosting profitability, and plowing money wisely back into profitable expansion of the business; we anticipate the same pattern emerging in Europe during the back half that we saw in the U.S. Turning to the U.S. in particular, we've completed the significant structural overhauls to the mill network and the plant network. We've removed the large portions of those. Even so, we keep pushing optimization constantly. Each month I'm traveling to mills and/or plants. Not long ago I was in Pennsylvania, and the efforts underway there — we constructed a new site several years back. We're pursuing rationalization that is generating efficiencies at that plant. At this point the question is how to fine-tune that site to produce added profitability, reduced working capital usage and capital overall; and then there are the major investments we've already made. Trimming and constructing. The significant capital outlays, the significant choices we took across the past 2 years regarding pulling out assets that weren't performing and putting money back very aggressively into a Mansfield, a Riverdale, a NORPAC, to cite some instances, into what is now a Waterloo, and we've also announced Mississippi. That Dover, Delaware box plant we constructed. Such efforts are still underway, and it's reasonable to anticipate that this type of transformation will keep happening throughout the organization, essentially to eliminate needless waste and put funds back into profitable growth. Those will keep going. Clearly, the enormous effect we experienced in the U.S., you're beginning to observe movement toward optimization. In Europe, we remain squarely in the middle of it. Lance, do you want to take on the first one?

Absolutely, George. To address what you asked about the jump from Q3 to Q4, I believe your attention is mainly on North America. What's fueling that, and what it suggests for the final quarter, comes down to a few factors. First, Riverdale keeps ramping up as we bring that equipment online and get it running, aiming to hit the full run rate by the start of next year. Second, there's the pricing carryover that will keep gaining strength through year-end on pubs—the price publications through June. As we capture additional price throughout our box system toward the end of the year, that momentum will build further. Then there's the ongoing refinement of the cost-reduction efforts across the company that we keep pushing on during the second half, which keep adding to our profit momentum. Those are the main items, I'd say. When you consider the challenges, and how we approached the expense side, regarding diesel, we've simply adopted the position that it's difficult to forecast where it's headed, given the geopolitical unpredictability and the exchanges happening globally right now. In our assumptions, we've essentially just used the strip; we've tried to keep that fairly straightforward from an assumption standpoint.

All right, I'll pass it along. Appreciate it, everyone.

Thank you, George.

Morning, and thanks for fielding my questions. To start, I'm curious how you're handling the outage at Pine Hill given how tight things appear to be right now. You mentioned in the Q3 outlook for North America and the materials some positive mix as well as fewer exports. My understanding is that's distinct from the $85 million Pine Hill effect you flagged. Any detail on the mix impact and on how you keep your converting system supplied would be useful. And just to be clear, does your 2026 guidance factor in any insurance recovery? Would it land in roughly the same range as the $70 million-$100 million hit you're expecting for Q3 results? Thanks.

Yes. Let me address the insurance part quickly. Our expectation is that there's a strong probability most of that gets reimbursed. We're trying hard to align it with the periods affected as closely as we can, so we don't create noise in some of the sequential comparisons. It has our attention. We're still in the early stages. Most of it relates to the business interruption portion. We'll be coordinating with our insurance carriers to sort through it, and we'll update you as we move further along in the process.

Sure, regarding Pine Hill in particular, when you consider the network and what this does to it, a few points come to mind. First off, we expect to have it operational again by the end of August, so the downtime won't drag on for a long stretch. That said, with how tight our system is, and the broader system too, it definitely leaves a mark. We actually began — if you look at everything we've accomplished over the last couple of years in terms of optimizing the system, we're really grateful that we got out in front on that, in the sense of being able to align paper grades with customers, with industries, with locations. A great deal of work was done in advance, thankfully. That's genuinely encouraging, and one thing we've been pushing everywhere is getting the most out of mill network efficiency across every paper grade; beyond that, we've cut back or lowered how much export goes out into the system, so we're bringing that back in to ensure we look after our core customers. The next couple of months will be tight. Looking at July and August, without question it'll be tight, and it worsens the tightness that exists in the market everywhere. We believe we have it handled. Still, we can't pretend it won't be tight over the coming month or so, and after that we expect to come out of it fairly fast.

All right. That's quite useful. Many thanks. If I may, I'd like to ask just one additional question. Looking at what has already been booked and what has been publicly disclosed, it appears North American pricing ought to be considerably greater in 2027. As that works its way through, what sort of supply reaction do you expect to see throughout the industry? How much further do you anticipate exports will decline? Do you think we'll get announcements of new capacity? How do we view-

Matthew, allow me to cut you off. You sound extremely muffled. The latter portion of that was inaudible to us. Would you please begin the question once more?

Sure. Sorry about that.

That's better.

Looking at the pricing already announced and recognized, it appears North American prices ought to be significantly greater in 2027. As that works its way through, what sort of supply reaction do you anticipate seeing throughout the industry? How much further might industry exports decline? Will fresh capacity projects get announced? What's your expectation for how this unfolds? Thank you.

Excellent question. To begin with, as with anything, the interplay of supply and demand will shape how competitors respond, along with other possible reactions, including things coming from abroad. A variety of developments could reasonably be anticipated. From a structural standpoint, when I consider what construction costs, we've run extensive analysis regarding replacement costs; and as you might expect, and I believe virtually anyone would confirm, the expense of replacing mill assets has gone up dramatically over the past half decade. Consider the period after COVID — simply the capacity to construct a mill, to add incremental capacity, represents a far higher hurdle than it did five or 10 years back. I believe that's entirely reasonable to state. That doesn't mean it won't occur, but the hurdle has risen. It costs more, and I believe you truly need to think that through carefully. You've heard me mention previously that in my view the bar for anyone to seriously consider that sits somewhere around a mid-teens to high teens return on invested capital. For someone to come into the market with a significant mill investment, I'm not sure we've reached that point just yet. That's something we examine in our own analysis. Regarding reactions from abroad, clearly shipping expenses are quite substantial, particularly considering the added energy costs, added OCC costs present within the system. There are certain difficulties with that, yet we'd be foolish to assume you won't witness some activity on that front. Lastly, concerning alternatives and replacements, clearly what we've observed in the Middle East regarding energy costs and consequently how that affects the plastics sector. Overall, I feel positive about our current position. I like where we are. I like the way we've run our business and the way we're responding to the marketplace. I feel positive about where we stand and positive about what lies ahead.

Thanks. I’m sorry if this comes across as somewhat granular, but it connects a bit with what George and Matthew asked, just to make things clearer. Does the revised outlook of $3.2 billion to $3.4 billion take Pine Hill into account? And if so, or if insurance proceeds are recovered, could that help account for the especially big increase from 2Q to 4Q? I just want a few other points clarified as well.

Yeah.

Give us the details on that.

That's not part of the overall total guide — it's left out. Our expectation is that we'll recover most of what was lost during the back half of the year.

Understood. All right. If I may, there are really two things. Looking ahead to next year, based on what you're currently observing, what's your level of confidence around that $4 billion to $5 billion figure you've been referencing for some time — which, honestly, at one stage looked like quite a stretch, and perhaps now appears a bit more achievable? I'm not sure whether you're prepared to share refreshed thinking on that. And separately, you mentioned that demand in corrugated is looking flatter instead of rising year-over-year. Could you give us any further detail? Is this purely a macroeconomic observation, or is something else driving that shift?

Yes. I'll take your second question first, and then I'll circle back to the wider ramifications. Regarding demand, what we had anticipated in both the U.S. and Europe was a second-half acceleration. With inflation and affordability where they are, we no longer foresee that; our view is that it dampens the broader market as we move through the back half of the year, whereas previously we had anticipated roughly a point of improvement. We're revising that down to essentially flat across North America during the back half of the year, with a modest gain in Europe during that same period. That said, when you examine what's restraining the market, I'd identify affordability broadly as the single largest factor, along with uncertainty affecting the lower end of the economy. Correct? If you happen to be in the bottom half of the economic spectrum, things are difficult right now, and that's visible among the large consumer packaged goods businesses out there — the protein businesses, the vegetable businesses, and so on. They are clearly experiencing that, particularly within the more cash-constrained segment of the economic spectrum. Add housing to that picture, and we genuinely have yet to witness any easing there. We do see fairly notable pent-up demand building for the future. My sense is that the conflicts, together with the affordability concerns, will dampen that here certainly through the back half, and we'll see what that portends for 2027. To be very specific, we are observing some softness on the fruit and vegetable side, particularly along the West Coast, stemming from what's happening. You've seen all the coverage regarding certain problems on the vegetable side involving some contamination. We're witnessing that directly, and it's manifesting in the western portion of the U.S., whereas the eastern portion aligns pretty much exactly with our expectations. Our belief is that we can zero in and narrow this down as a near-term effect, but it will represent a headwind; on our end, we're seeing it during the month of July. We'll find out whether it eases as a rebound occurs, once people revert to typical behavior. There's going to be some pushback in Q3 from that, in my view; when we consider what this implies going forward, I'll be extremely cautious about providing any genuine specifics regarding the future, and there are a couple of reasons for that. First, plenty of uncertainty exists right now regarding everything unfolding in the Middle East, plus what's happening with input costs and all the rest; we'll refrain from saying anything more about how likely we think demand is to look as we move into the back half of next year. The pricing is out there for you to see. You're able to run the numbers yourself on that pricing, correct? Our longstanding practice has been to offer something like a guideline that roughly $9 serves as a decent proxy when you're working through those calculations, right? When we consider those calculations and the way they carry through, you can work out on your own what that translates to down the road; we've gone into depth regarding the cost reduction initiatives we've completed. Another factor we simply need to watch out for is that the spin is drawing nearer and nearer. Rules require us to be extremely careful regarding forward-looking statements that wouldn't be suitable within that process. So we'll refrain from going further on that. More will come your way during Q3, and clearly once we reach Q4, we'll present every detail of what we expect for 2027.

That seems reasonable. I just want to make sure — when you mention that $9 figure, does the $1 for each ton of containerboard result in $9?

That's right.

Understood. All right.

Thanks, Mark. I appreciate you clearing that up.

Hi, everyone. Great quarter, and nice execution. So, first off, Andy, you and others in the industry have announced a September price hike for containerboard in North America, like you mentioned. The market is really tight. Regarding this increase, is it needed to help counter the inflation you're expecting ahead? Or is it more about achieving a fair return since you're clearly reinvesting in your facilities? And even more importantly, from a broader view, considering the balance of supply and demand and where you're putting your money, what's your approach to pricing? How should we view this over the longer haul?

Well, ultimately, it comes down to setting prices based on the market and supply-demand conditions, correct? We decide for ourselves what we think is best, given the circumstances, especially on the demand side. Currently, there's a lot more going on with supply, inflation, and how tight the market is. When it comes to pricing, we consider what makes sense with all the various market pressures, and that's why we've ended up where we are so far this year. We'll keep doing that, right? Pricing is super dynamic in this setting, as you're aware. We're basically examining all those components and factors, and that's shaped our investment approach and how we've viewed the assets we want to own and what maximizes profit for our company. So far, inflation has really consumed the pricing. If you check what's occurred with OCC, energy, diesel, freight, and so on. Sadly, it's taken away all of that pricing right up to now. What inflation does next, and how that affects the latest announced price hikes, is unknown. There's no way to predict it. Naturally, we'd hope some of it benefits the bottom line nicely. We'll need to observe what specifically unfolds in energy, given the Middle East conflict. And what we're seeing with overall inflation throughout the economy that's still coming through from trade, tariffs, and all that commotion. We're feeling very positive about our current position; we're confident in the methods we apply for those choices and eventually converting them into earnings consistent with what we've discussed before.

Okay, that context helps a lot, Andy. As you said earlier in your prepared remarks, you're applying your 80/20 playbook. You're taking out capacity that comes with high costs. Initially that happened on the mill side. You've also carried out some of that work on the box side. So where does that effort currently stand throughout your box network — the right-sizing? You've clearly announced some investments this year, including Riverdale, Dover, Waterloo, and NORPAC. Where do you stand on recapitalizing your asset base through those investments? Are you still relatively early in that work? Just give us some color on where you are in that process today.

Yeah, those are both very good questions. Regarding your first question about the containerboard segment, we're essentially in what I'd describe as a trimming and tuning phase. The clear-cut expensive assets—those requiring total financial rebuilding and which nobody would rationally put money into—have already been removed. That substantial portion is behind us. What remains are actions that, at the boldest extreme, resemble decisions like Waterloo or Mississippi—situations where you commit heavily to a specific market, region, or efficiency gain. Those represent the most daring category. Then there are cases such as Dover, where the focus is on reinforcing a particular market position and achieving synergy between containerboard and paper. Executing that when market conditions are favorable aligns closely with how we operate. Then there's what I'd describe as the brownfield tier — several of those projects are currently in progress, and through them we're adding the type of capacity that makes sense, lowering costs, and making the organization more responsive. Beyond that comes the final tier, which I'd essentially label 80/20 optimization — looking at price, volume, and mix, and how those elements interact within a single region containing several plants. Take the case I brought up before — I was over in Pennsylvania about seven days back. So in that region, we've got several sites serving the area, and we're working out the ideal blend between a mega-plant — one that's basically high-volume, quick-turn — and hybrid sites that handle far more complicated market demands. As we zero in on the best mix, what happens is faster response and lower costs; that's precisely the goal. We're actively managing across that whole range, and we'll keep placing those bets. As for the cluster of initiatives — those massive items that arrived back-to-back — things will look far more paced from here on out. And on the major capital spending front, these are clearly connected. Over the past couple of years, we placed a number of significant wagers. The part that truly pleases me is that those wagers are now beginning to become visible. That matters a great deal. Think about the various steps we've taken. We closed three different mills that, in any real sense, had no case for further funding. Had we poured meaningful money into them, we would have gotten basically nothing back. The only point of that spending would have been to extend their operating life and, frankly, to turn out paper or goods that weren't aligned with what customers wanted at margins we could live with. Those were hard calls to make, and afterward we poured money back very aggressively into facilities such as Mansfield, Riverdale, and NORPAC, since we believe those sites have a future making more suitable paper for buyers — in terms of grade, geography, and market — at much lower cost. Honestly, my sense is that NORPAC will prove to have been an excellent purchase: a strong asset, a strong team, and the right location obtained at a very appealing cost. For instance, the money put into Mansfield has delivered big returns; Riverdale is beginning to ramp up, knock on wood. We're still at an early stage of that process. Regarding the final portion of your question on investment, we've indicated you should anticipate a similar magnitude of spending in North America across the coming 2 to 3 years — that's what you ought to expect. What I'm attempting to push forward are the 2 central components, the 2 central pillars, of our approach. The first concerns a cost advantage. Our footprint and what I'd describe as the skeleton of our assets position us to be unquestionably the lowest-cost participant in the market. My full intention is to pursue that without letup — to be the lowest-cost player, not the lowest-price one. That isn't our aim. Our aim is to reach a position where we possess strategic options that competitors lack; we're working hard to advance that throughout the company. The second concerns responsiveness: we're bringing our mills and our box network into tighter integration, producing the proper paper in the proper locations for distribution so that costs come down and service improves, which in turn produces a lower cost position inside the box network and the capacity to respond to customers even more quickly. That virtuous cycle is what we're putting money into now, and it will mean we must keep investing quite aggressively over the coming few years.

That's really helpful, Andy, and I'm hoping those investments pay off and add nicely to next year.

Thanks.

Andy, Lance, hello there. Appreciate you fielding this.

Good morning.

I'd like to inquire regarding the spin, and since you've essentially got all the infrastructure ready for it to operate as a standalone entity, would you say other options remain that might be pursued or evaluated within that process?

Yeah, look, we're working diligently and keeping our attention on the spin; driving the spin is what we prioritize. There's a clear path for us to accomplish that; we're on track for it. Every bit of our effort is aimed there. I don't foresee any reason we won't meet the timelines we've laid out. Regarding alternatives, we've consistently stated that ultimately, doing what's right for our shareholders is essential — if somebody comes forward with an appropriate interest and they're the right sort of partner, listening to that becomes necessary. With the right kind of proposition, we certainly would. Look, ultimately, it comes down to our fiduciary duty and our obligation to our shareholders and to drive the most value, and that's where we're going to keep our focus.

Thanks. I'd like to take another crack at what George and, I believe, Mark asked. Let's rewind to before DS Smith — I'm a straightforward guy, so I'll keep it at $1.2 billion in cost savings and $800 million in commercial opportunity within what used to be PS North America. My understanding is you all picked up roughly $100 million of EBITDA there. Pull out the report card: on the cost side, have you taken every action needed to reach that $1.2 billion? Based on an exit rate, or on what you've delivered so far in 2025 and 2026, where would you put yourselves against the $1.2 billion? And on the commercial side, any color you can offer? I imagine we can work out some of the math ourselves, but I'd welcome it-

Yeah

So demand is likely running 3% to 4% below what you'd have expected.

Yeah.

During March.