International Paper (NYSE:IP) reported improved third-quarter earnings and margins as price realization, lower planned outage activity and better mill productivity helped offset weak demand and rising input costs. Management said consumer caution, inflation and volatility in energy markets are expected to persist into the fourth quarter and 2027.
Adjusted EBITDA totaled $843 million in the third quarter, including $37 million of corporate expense, while adjusted EBITDA margin improved nearly 400 basis points sequentially to 13.6%. Adjusted operating earnings were $0.37 per share.
Chairman and Chief Executive Officer Andy Silvernail said the company delivered “an important inflection in earnings” despite weak consumer confidence and inflation. He said International Paper’s North American operations improved productivity, particularly across its mill system, while the company continued to pursue its strategy around operational execution, customer service and market position.
North America Results and Outlook
Packaging Solutions North America generated $663 million of adjusted EBITDA in the third quarter, up 56% sequentially. The improvement was driven by $141 million of favorable price and mix, $85 million of favorable operations and costs, and lower planned outage activity.
Price increases announced through June were realized faster than expected, according to management. The company also benefited from improved mill efficiency, initial gains from the Riverdale ramp-up, a full quarter of NORPAC earnings, 80/20 strategic initiatives and lower ongoing mill costs.
Those gains were partly offset by a $46 million unfavorable volume impact and $55 million of higher input costs, largely related to diesel, old corrugated containers, or OCC, and energy. The temporary Pine Hill shutdown had a $20 million unfavorable impact, including roof repairs and business interruption that were partially offset by insurance recovery.
Silvernail said Pine Hill restarted ahead of schedule after roof repairs, helping limit disruption to the mill system and customer box shipments. The company’s box shipments declined about 2% year over year in the quarter, though management said this was one percentage point better than its estimate of industry demand.
Volume was pressured by food safety-related disruption in West Coast fresh fruit and vegetable markets, weaker protein demand, seasonally lower daily demand and lower exports. Silvernail said smaller livestock herds, inflation and pressure on consumers affected protein markets. He characterized the North American market as generally stable sequentially, though he expects it will take time for West Coast agricultural demand to recover through supply chains and into the next growing season.
For the fourth quarter, International Paper expects Packaging Solutions North America adjusted EBITDA of approximately $700 million to $740 million. The outlook assumes continued favorable price and mix, as well as seasonally higher daily demand that is expected to outweigh two fewer shipping days. Continued Riverdale ramp-up, NORPAC synergies and the absence of third-quarter Pine Hill expenses are also expected to help results.
The September published price increase is expected to begin flowing through late in the fourth quarter and be fully realized around the end of the first quarter or beginning of the second quarter of 2027, Chief Financial Officer Lance Loeffler said. Management expects North American box shipment performance to exceed the industry by more than 1% in the fourth quarter and by about 2% for the full year, driven mostly by share gains from business won in prior periods.
Full-Year Guidance and Cash Flow
International Paper lowered its full-year 2026 adjusted EBITDA outlook for Packaging Solutions North America to $2.27 billion to $2.31 billion. Since the company’s second-quarter call, it identified about $145 million of additional headwinds, including higher diesel fuel and distribution costs, increased volume pressure and the Pine Hill event. Higher employee medical costs and an outage shifted from the first quarter of 2027 into the fourth quarter of 2026 also contributed.
Those headwinds were partly offset by $35 million of price benefit from quicker realization of the June increase and partial realization of the September increase.
Free cash flow was negative $267 million in the third quarter, reflecting cash payments tied to heavy second-quarter maintenance spending, annual interest payments on legacy DS Smith debt and an inventory build following the planned outage season. The company expects full-year free cash flow of about $100 million to $200 million. Loeffler said the fourth quarter should benefit from stronger operating results, a working-capital swing to positive and what he expects to be the company’s lowest capital-expenditure quarter of the year.
EMEA Separation Planning
Packaging Solutions EMEA produced $210 million of adjusted EBITDA in the third quarter. The segment improved sequentially, but results were below management’s expectations amid softer market demand and higher energy costs.
Price and mix contributed $27 million favorably, supported by previously announced paper price increases and higher external paper prices. However, volume was $32 million unfavorable, while input costs were $39 million unfavorable, primarily because of higher energy costs. Cost-out actions and tighter management of controllable costs contributed $76 million of favorable operations and costs.
International Paper said it is no longer including Packaging Solutions EMEA U.S. GAAP financial guidance in its guidance framework because of the planned business separation and related U.K. regulatory requirements.
Silvernail said the company is progressing both a potential spin-off and an evaluation of a potential sale of the EMEA business. Under a spin-off scenario, International Paper expects both companies to have investment-grade credit ratings and plans to retain about a 20% stake in the independent company, DS Smith. The EMEA management team is scheduled to provide further details at a DS Smith Capital Markets Day on Nov. 3.
About International Paper (NYSE:IP)
International Paper (NYSE: IP) is a global producer of sustainable packaging, pulp and paper products. Its offerings include corrugated packaging and containerboard used to protect and transport goods, as well as absorbent cellulose fibers and other fiber-based materials used in personal care, healthcare, foodservice and industrial applications.
The company serves customers across North America and Europe, with products sold to manufacturers, retailers, consumer-goods companies and other commercial customers.
