filings.toolsItem 2. [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#i82dc34bdbaed41c593264f398e382efd94)
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Item 2. [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#i82dc34bdbaed41c593264f398e382efd94)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in "Financial Statements and Supplementary Data" of this Quarterly Report on Form 10-Q (this "Form 10-Q") and the Company's Annual Report on Form 10-K for the year ended December 31, 2024 (our "Annual Report"). In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and in our Annual Report, particularly under "Risk Factors" and "Forward-Looking Statements" of this Form 10-Q and our Annual Report. Please see our "Cautionary Statement Regarding Forward-Looking Statements" below.
EXECUTIVE SUMMARY
Net earnings (loss) were $(105) million ($(0.24) per diluted share) in the first quarter of 2025, compared with $(147) million ($(0.42) per diluted share) in the fourth quarter of 2024 and $56 million ($0.16 per diluted share) in the first quarter of 2024. The Company generated Adjusted operating earnings (a non-GAAP measure defined below) of $101 million ($0.23 per diluted share) in the first quarter of 2025, compared with $(7) million ($(0.02) per diluted share) in the fourth quarter of 2024 and $61 million ($0.17 per diluted share) in the first quarter of 2024.
International Papers’ first quarter results reflect higher sales and earnings through the successful execution of sale price increases, benefits from transformation initiatives and some favorable non-recurring items. Our results also reflect two months of sales and earnings from the DS Smith acquisition completed on January 31, 2025. As a result of our commercial strategy, we believe we have made progress growing our position in our Packaging Solutions North America business, while executing price increases. We saw a shift in the demand environment during the first quarter of 2025 across the end markets we serve, which we believe is due to increased uncertainty related to potential tariff implications. Industry demand in North America was down in the first quarter of 2025 on a year-over-year basis and we expect that trend to continue into the second quarter of 2025. Demand across the European markets remained soft, but stable. Despite uncertainty in the macroeconomic landscape, we have several initiatives underway and solid momentum that we believe will help drive earnings improvement over the remainder of this year. We are taking actions designed to drive out cost, to increase productivity and efficiencies and to improve our commercial performance.
Comparing the first quarter of 2025 financial performance to the fourth quarter of 2024, for the legacy International Paper business, sales were relatively flat on seasonally lower volumes. This was offset by slightly higher price and mix in our Packaging Solutions North America business, driven by the flow through of prior price index movements. First quarter of 2025 cost of goods sold was lower on improved operations and costs due to better mill and box plant performance, cost reduction initiatives, along with favorable non-recurring items, which include employee benefit costs, insurance proceeds from the Ixtac, Mexico box plant fire and lower incentive compensation cost. Maintenance outage expense was sequentially flat while input costs were slightly higher due to increased energy costs early in the first quarter of 2025, partially offset by lower fiber costs. First quarter of 2025 results reflect the favorable impact of a lower tax rate versus the prior quarter as a result of favorable discrete items. Accelerated depreciation recognized in the first quarter of 2025 associated with the announced closure of the Campti, Louisiana mill largely offset the non-repeat of accelerated depreciation expense recognized in the fourth quarter of 2024 associated with the Georgetown, South Carolina mill closure and some box plant closures. Finally, first quarter sales and operating earnings reflect two months of DS Smith activity following the January 31, 2025 acquisition. This includes the impact of higher depreciation and amortization resulting from the stepped-up property, plant and equipment and intangible assets associated with the DS Smith purchase accounting.
The following is a discussion, by segment, of first quarter of 2025 performance versus the fourth quarter of 2024 as well as the second quarter of 2025 outlook. First quarter of 2025 operating profit in our Packaging Solutions North America business was $142 million versus $228 million in the fourth quarter of 2024. This includes an operating loss of $9 million for the DS Smith North America business for the two months following the acquisition. Price and mix was higher from the realization of index movement and open market sales. We expect continued price realization in the second quarter of 2025 due to the prior index movement. Volume was seasonally lower in the first quarter of 2025, but we expect improvements in the second quarter of 2025 as we enter the heavy agriculture season along with anticipated continued progress in growing our position as a result of our commercial strategy. Operations and costs in the first quarter of 2025 was sequentially lower due to our cost out initiatives, along with lower costs associated with employee incentive compensation and favorable medical benefits. We also received $30 million of insurance recoveries related to the 2024 fire at our Ixtac, Mexico facility. Operations and costs are expected to be higher in the second quarter of 2025 as the favorable items from the first quarter of 2025 are not expected to repeat along with
additional maintenance costs due to timing. Planned maintenance outage costs were sequentially flat in the first quarter of 2025 but the second quarter is expected to be a heavier maintenance outage quarter. Depreciation and amortization was $208 million higher in the first quarter of 2025 primarily due to the closure of the Campti, Louisiana mill. The second quarter of 2025 will reflect the non-repeat of accelerated depreciation.
First quarter 2025 operating profit in our Packaging Solutions EMEA business was $46 million versus $19 million in the fourth quarter of 2024. This includes an operating profit of $13 million for the DS Smith EMEA business for the two months following the acquisition. Price and mix was sequentially lower in the first quarter of 2025 due to the impact of price decreases. We expect price and mix to be flat in the second quarter of 2025. Volume was sequentially flat in the first quarter of 2025, and we expect the second quarter of 2025 to remain flat relative to the first quarter of 2025. Operations and costs in the first quarter of 2025 was sequentially lower driven by lower employee incentive compensation and favorable medical benefit costs. Additionally, operations and costs benefited from energy credits on efficiency projects in the business. Operations and costs are expected to be higher in the second quarter of 2025 as these credits are not expected to repeat. Planned maintenance outage costs were slightly lower in the first quarter of 2025 versus the fourth quarter of 2024. The second quarter of 2025 is expected to be marginally higher than the first quarter of 2025.
First quarter of 2025 operating profit in our Global Cellulose Fibers business was $17 million versus a $250 million operating loss in the fourth quarter of 2024. Price and mix was higher versus the fourth quarter of 2024 on improved fluff mix and the sale of energy credits. We expect price and mix to be higher in the second quarter of 2025 on continued price realization from prior index movement. Volume was sequentially flat in the first quarter of 2025, and we expect the second quarter of 2025 to remain flat relative to the first quarter of 2025. Operations and costs were sequentially lower in the first quarter of 2025 due to improved mill performance and lower costs associated with employee incentive compensation. We expect second quarter of 2025 operations and costs to be flat compared to the first quarter of 2025. Planned maintenance outage costs were sequentially higher in the first quarter of 2025. Second quarter of 2025 is expected to be higher as one maintenance outage was moved to the second quarter which will drive higher costs relative to the first quarter of 2025. Finally, first quarter of 2025 depreciation and amortization was lower on the non-repeat of accelerated depreciation expense associated with the Georgetown, South Carolina mill closure in the fourth quarter of 2024.
Acquisition of DS Smith
On January 31, 2025, the Company completed its acquisition of the entire issued and to be issued share capital of DS Smith. Upon closing, IP issued 0.1285 shares for each DS Smith share, resulting in the issuance of 178,126,631 new shares of IP common stock (“New Company Common Stock”). As a result of the share issuance, the holders of the New Company Common Stock owned approximately 34.1% of the Company’s outstanding share capital upon closing. Based on the issuance of 178,126,631 new shares and the closing price of $55.63 on the close of January 31, 2025, the total purchase consideration for the completed acquisition was approximately $9.9 billion.
On February 4, 2025, the shares of New Company Common Stock began trading on the New York Stock Exchange under the symbol “IP” and the shares of Company Common Stock, including the shares of New Company Common Stock, began trading on the London Stock Exchange via a secondary listing under the symbol “IPC.” The headquarters of the combined company is based in Memphis, Tennessee, and the EMEA headquarters has been established at DS Smith’s existing main office in London.
Divestiture of European Corrugated Box Plants
On April 14, 2025, the Company announced it entered into exclusive negotiations with Palm Group of Germany after receiving an irrevocable offer for the purchase of five plants in Europe: (i) three plants in Normandy, France (namely, one box plant in Saint-Amand, one box plant in Mortagne, and one sheet plant in Cabourg); (ii) one box plant in Ovar, Portugal; and (iii) one box plant in Bilbao, Spain. Upon completion of the required French works council consultation and/or employee information processes, the parties expect to enter into a definitive share purchase agreement. The closing is expected by the end of the second quarter of 2025. All assets and liabilities at March 31, 2025 related to these locations have been recorded as held for sale in the accompanying condensed consolidated balance sheet.
The sale of these plants was agreed to with the European Commission as a remedy for IP’s acquisition of DS Smith, as published on the European Commission’s website on January 24, 2025. The conclusion of the divestment is subject to the European Commission’s approval of the proposed purchaser.
Reconciliation of Net earnings (loss) to Adjusted operating earnings (loss)
Adjusted Operating Earnings and Adjusted Operating Earnings Per Share are non-GAAP measures defined as net earnings (loss) (a GAAP measure) excluding net special items and non-operating pension expense (income). Net earnings (loss) and Diluted earnings (loss) per share are the most directly comparable GAAP measures. The Company calculates Adjusted Operating Earnings by excluding the after-tax effect of non-operating pension expense (income) and net special items, as described in greater detail below, from net earnings (loss) reported under GAAP. Adjusted Operating Earnings Per Share is calculated by dividing Adjusted Operating Earnings by diluted average shares of common stock outstanding. Management uses these non-GAAP measures to focus on ongoing operations and believes that such non-GAAP measures are useful to investors in assessing the operational performance of the Company and enabling investors to perform meaningful comparisons of past and present consolidated operating results. The Company believes that using these non-GAAP measures, along with the most directly comparable GAAP measures, provides for a more complete analysis of the Company's results of operations.
Non-operating pension expense (income) represents amortization of prior service cost, amortization of actuarial gains/losses, expected return on assets and interest cost. The Company excludes these amounts from our Adjusted Operating Earnings as the Company does not believe these items reflect ongoing operations. These particular pension cost elements are not directly attributable to current employee service. The Company includes service cost in our non-GAAP measure as it is directly attributable to employee service, and the corresponding employees’ other compensation elements, in connection with ongoing operations.
The following is a reconciliation of Net earnings (loss) to Adjusted operating earnings (loss) on a total basis. Additional detail is provided below regarding the net special items expense (income) referenced in the charts below.
| Three Months Ended March 31, | Three Months Ended December 31, | ||||||||||||||||
| In millions | 2025 | 2024 | 2024 | ||||||||||||||
| Net earnings (loss) | $ | (105) | $ | 56 | $ | (147) | |||||||||||
| Add back - Non-operating pension expense (income) | 3 | (12) | (8) | ||||||||||||||
| Add back - Net special items expense (income) | 249 | 18 | 182 | ||||||||||||||
| Income taxes - Non-operating pension and special items (a) | (46) | (1) | (34) | ||||||||||||||
| Adjusted operating earnings (loss) | $ | 101 | $ | 61 | $ | (7) |
(a) For the three months ended March 31, 2025, this amount includes a tax benefit of $1 million on the non-operating pension expense and a tax benefit of $45 million associated with special items. The three months ended March 31, 2024 includes tax expense of $3 million on the non-operating pension income and a tax benefit of $4 million associated with special items. The three months ended December 31, 2024 includes tax expense of $2 million on the non-operating pension income and a tax benefit of $36 million associated with special items.
Effects of Net Special Items Expense (Income)
Details of net special items expense (income) included in continuing operations for the three months ended are as follows:
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| March 31, | December 31, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2024 | ||||||||||||||||||||||||||||||||||||
| In millions | Before Tax | After Tax | Before Tax | After Tax | Before Tax | After Tax | ||||||||||||||||||||||||||||||||
| DS Smith combination costs | $ | 221 | $ | 183 | (a) | $ | 5 | $ | 4 | (a) | $ | 38 | $ | 38 | (a) | |||||||||||||||||||||||
| Severance and other costs | 83 | 63 | (b) | 8 | 6 | (b) | 162 | 122 | (b) | |||||||||||||||||||||||||||||
| Global Cellulose Fibers strategic options costs | 12 | 9 | (a) | — | — | 5 | 4 | (a) | ||||||||||||||||||||||||||||||
| Environmental remediation adjustments | — | — | — | — | 35 | 26 | (c) | |||||||||||||||||||||||||||||||
| Legal reserve adjustments | — | — | 10 | 7 | (d) | — | — | |||||||||||||||||||||||||||||||
| Net (gain) loss on sale of fixed assets | (67) | (51) | (e) | 5 | 4 | (e) | (58) | (44) | (e) | |||||||||||||||||||||||||||||
| Total | 249 | 204 | 28 | 21 | 182 | 146 | ||||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||||||||
| Interest related to settlement of tax audits | — | — | (10) | (7) | (f) | — | — | |||||||||||||||||||||||||||||||
| Interest Total | — | — | (10) | (7) | — | — | ||||||||||||||||||||||||||||||||
| Total Net Special Items | $ | 249 | $ | 204 | $ | 18 | $ | 14 | $ | 182 | $ | 146 |
| (a) | Transaction and other costs that the Company believes are not reflective of the Company's underlying operations recorded in cost of products sold, selling and administrative expenses and taxes other than payroll and income taxes. | ||||
| (b) | Severance and other costs associated with the Company's 80/20 strategic approach which includes the realignment of resources and mill strategic actions recorded in restructuring charges, net. | ||||
| (c) | Environmental remediation adjustments associated with remediation work at a waste pit site at a mill acquired but never operated by the Company, and last utilized by the predecessor owner of the mill, and post-closure remediation work associated with the mill strategic actions implemented in 2023 recorded in cost of products sold. | ||||
| (d) | Legal reserve adjustment associated with a previously discontinued business recorded in cost of products sold. | ||||
| (e) | Net (gain) loss on the sale of fixed assets related to the sale of assets at our permanently closed Orange, Texas containerboard mill, miscellaneous land and other items that the Company does not believe are reflective of the Company's underlying operations recorded in net (gains) losses on sales of fixed assets. | ||||
| (f) | Interest income on tax overpayments in prior years associated with the settlement of certain tax audits recorded in interest expense, net. |
The following is a reconciliation of Net earnings (loss) to Adjusted operating earnings (loss) on a per share basis:
| Three Months Ended March 31, | Three Months Ended December 31, | ||||||||||||||||
| 2025 | 2024 | 2024 | |||||||||||||||
| Diluted earnings (loss) per share | $ | (0.24) | $ | 0.16 | $ | (0.42) | |||||||||||
| Add back - Non-operating pension expense (income) per share | 0.01 | (0.04) | (0.02) | ||||||||||||||
| Add back - Net special items expense (income) per share | 0.57 | 0.05 | 0.52 | ||||||||||||||
| Income taxes per share - Non-operating pension and special items | (0.11) | — | (0.10) | ||||||||||||||
| Adjusted operating earnings (loss) per share | $ | 0.23 | $ | 0.17 | $ | (0.02) |
Cash provided by (used for) operations totaled $(288) million and $395 million for the first three months of 2025 and 2024, respectively. Free cash flow in the first three months of 2025 and 2024 was $(618) million and $144 million, respectively. Cash used for operations during the first quarter of 2025 primarily reflects the timing of our annual incentive compensation payout and the payment of transaction costs associated with the closing of the DS Smith acquisition and other transformation related costs for a total impact of approximately $670 million. Additionally, first quarter of 2025 free cash flow reflects increased capital spending in line with our capital spending plan for 2025. The Company generated meaningful cash receipts outside of free cash flow through the sale of certain assets along with the receipt of insurance recoveries related to the Ixtac, Mexico box plant fire.
Free cash flow is a non-GAAP measure, which equals cash provided by operations less capital expenditures, and the most directly comparable GAAP measure is cash provided by (used for) operations. Management utilizes this measure in connection with managing our business and believes that free cash flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet, pay dividends, repurchase stock, service debt and make investments for future growth. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures.
The following is a reconciliation of cash provided by operations to free cash flow:
| Three Months Ended March 31, | |||||||||||
| In millions | 2025 | 2024 | |||||||||
| Cash provided by operations | $ | (288) | $ | 395 | |||||||
| Adjustments: | |||||||||||
| Capital expenditures | (330) | (251) | |||||||||
| Free Cash Flow | $ | (618) | $ | 144 |
The non-GAAP financial measures presented in this Form 10-Q as referenced above have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results calculated in accordance with GAAP. In addition, because not all companies utilize identical calculations, the Company's presentation of non-GAAP measures in this Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company. Investors are cautioned not to place undue reliance on any non-GAAP financial measures used in this Form 10-Q.
The following summarizes our results of operations for first quarter of 2025 compared with the fourth quarter of 2024 and the first quarter of 2024:
| Three Months Ended March 31, | Three Months Ended December 31, | Change Compared to March 31, 2024 | Change Compared to December 31, 2024 | |||||||||||||||||||||||||||||
| In millions | 2025 | 2024 | 2024 | $ | % | $ | % | |||||||||||||||||||||||||
| Net sales | $ | 5,901 | $ | 4,619 | $ | 4,580 | $ | 1,282 | 28 | % | $ | 1,321 | 29 | % | ||||||||||||||||||
| Cost of products sold | 4,259 | 3,424 | 3,250 | 835 | 24 | % | 1,009 | 31 | % | |||||||||||||||||||||||
| Selling and administrative expenses | 530 | 358 | 521 | 172 | 48 | % | 9 | 2 | % | |||||||||||||||||||||||
| Depreciation and amortization | 571 | 278 | 499 | 293 | 105 | % | 72 | 14 | % | |||||||||||||||||||||||
| Distribution expenses | 483 | 391 | 348 | 92 | 24 | % | 135 | 39 | % | |||||||||||||||||||||||
| Taxes other than payroll and income taxes | 93 | 41 | 34 | 52 | 127 | % | 59 | 174 | % | |||||||||||||||||||||||
| Restructuring and other charges, net | 83 | 3 | 162 | |||||||||||||||||||||||||||||
| Net (gains) losses on sale of fixed assets | (67) | 5 | (58) | |||||||||||||||||||||||||||||
| Interest expense, net | 81 | 46 | 56 | 35 | 76 | % | 25 | 45 | % | |||||||||||||||||||||||
| Non-operating pension expense (income) | 3 | (12) | (8) | |||||||||||||||||||||||||||||
| Earnings (loss) before income taxes and equity earnings (loss) | (135) | 85 | (224) | |||||||||||||||||||||||||||||
| Income tax provision (benefit) | (31) | 27 | (78) | |||||||||||||||||||||||||||||
| Equity earnings (loss), net of taxes | (1) | (2) | (1) | |||||||||||||||||||||||||||||
| Net earnings (loss) | $ | (105) | $ | 56 | $ | (147) | ||||||||||||||||||||||||||
| Diluted earnings (loss) per share | $ | (0.24) | $ | 0.16 | $ | (0.42) |
Three Months Ended March 31, 2025 Compared to the Three Months Ended December 31, 2024 and the Three Months Ended March 31, 2024
Refer to the Effects of Net Special Items Expense (Income) section on page 29 for details of net special items expense (income) discussed below.
Net sales
The increase in the first quarter of 2025 compared to the fourth quarter of 2024 and the first quarter of 2024 was primarily driven by the addition of the newly acquired DS Smith business as a result of the completed acquisition in the first quarter of 2025. Additional details on net sales are provided in the Business Segment Operating Results section below.
Cost of products sold
Net special items charges of $70 million, $15 million and $35 million in the first quarter of 2025 and 2024 and the fourth quarter of 2024, respectively, are included in cost of products sold. The first quarter of 2025 includes $1.09 billion for DS Smith (including $70 million of special items charges). Compared to the fourth quarter of 2024, there were decreases of $93 million in raw materials, offset by increases of $54 million in fuel expense. Compared to the first quarter of 2024, cost of products sold was impacted by $320 million for decreases in raw materials and increases in insurance recoveries and one-time energy credits received, offset by lower maintenance and fuel expenses of $86 million.
Selling and administrative expenses
Net special items charges of $113 million, $5 million and $43 million in the first quarter of 2025 and 2024 and the fourth quarter of 2024, respectively, are included in selling and administrative expenses. The first quarter of 2025 includes $123 million for DS Smith (including $49 million of special items charges). Compared to the fourth quarter of 2024, there were decreases in incentive compensation and medical benefit costs. Compared to the first quarter of 2024, there were decreases in medical benefit costs offset by incentive compensation and other costs.
Depreciation and amortization
Depreciation expense includes $197 million, $5 million and $233 million for the first quarter of 2025 and 2024 and the fourth quarter of 2024, respectively, for accelerated depreciation related to mill and other 80/20 strategic actions. The first quarter of 2025 includes $107 million for DS Smith.
Distribution expenses
The first quarter of 2025 includes $140 million for DS Smith. Compared to the fourth quarter of 2024 and the first quarter of 2024, there were decreases in freight expense of $4 million and $43 million, respectively.
Taxes other than payroll and income taxes
Net special items charges of $50 million in the first quarter of 2025 are included in taxes other than payroll and income taxes. The first quarter of 2025 includes $5 million for DS Smith.
Interest expense, net
Net special items includes income of $10 million in interest expense, net for the first quarter of 2024. The first quarter of 2025 includes $24 million for DS Smith.
Income tax provision (benefit)
An income tax benefit of $31 million was recorded for the first quarter of 2025 and the reported effective income tax rate was 23%. Excluding a benefit of $45 million related to the tax effects of net special items and a benefit of $1 million related to the tax effects of non-operating pension expense, the operational effective income tax rate was 13% for the first quarter of 2025.
An income tax benefit of $78 million was recorded for the fourth quarter of 2024 and the reported effective income tax rate was 35%. Excluding a benefit of $36 million related to the tax effects of net special items and expense of $2 million related to the tax effects of non-operating pension income, the operational effective income tax rate was 88% for the fourth quarter of 2024. The operational and reported effective income tax rates were lower in the first quarter of 2025 than in the fourth quarter of 2024 primarily due to the timing and magnitude of the accelerated depreciation expense recorded in the fourth quarter of 2024 associated with the closure of the Georgetown, South Carolina mill.
An income tax provision of $27 million was recorded for the first quarter of 2024 and the reported effective income tax rate was 32%. Excluding a benefit of $4 million related to the tax effects of net special items and expense of $3 million related to the tax effects of non-operating pension income, the operational effective income tax rate was 31% for the first quarter of 2024. The operational and reported effective income tax rates were lower in the first quarter of 2025 than in the first quarter of 2024 primarily due to a tax benefit for equity-based compensation in the first quarter of 2025 and a tax expense for equity-based compensation in the first quarter of 2024.
The following is a reconciliation of the net income tax provision (benefit) to the operational income tax provision (a non-GAAP financial measure) and the reported effective income tax rate to the operational effective income tax rate (a non-GAAP financial measure):
| Three Months Ended | ||||||||||||||||||||
| March 31, | December 31, | |||||||||||||||||||
| In millions (except rates) | 2025 | 2024 | 2024 | |||||||||||||||||
| Provision (Benefit) | Rate | Provision (Benefit) | Rate | Provision (Benefit) | Rate | |||||||||||||||
| Income tax provision (benefit) and reported effective income tax rate | $ | (31) | 23 | % | $ | 27 | 32 | % | $ | (78) | 35 | % | ||||||||
| Income tax effect - non-operating pension (income) expense and special items | 46 | 1 | 34 | |||||||||||||||||
| Operational Tax Provision and Operational Effective Tax Rate | $ | 15 | 13 | % | $ | 28 | 31 | % | $ | (44) | 88 | % |
The operational income tax provision and operational effective income tax rate are non-GAAP financial measures and are calculated by adjusting the income tax provision from continuing operations and rate to exclude the tax effect of net special items and non-operating pension expense (income). The most directly comparable GAAP measures are the reported income tax provision and effective income tax rate, respectively. Management believes that this presentation provides useful information to investors by providing a meaningful comparison of the income tax rate between past and present periods.
BUSINESS SEGMENT OPERATING RESULTS
The Company currently operates in three segments: Packaging Solutions North America, Packaging Solutions EMEA and Global Cellulose Fibers.
The following tables present net sales and business segment operating profit (loss), which is the Company's measure of segment profitability. Business segment operating profit (loss) is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments and is presented in our financial statement footnotes in accordance with ASC 280 - "Segment Reporting". For additional information regarding business segment operating profit (loss), including a description of the manner in which business segment operating profit (loss) is calculated, see Note 19 - Business Segment Information of the Condensed Notes to the Consolidated Financial Statements.
Packaging Solutions North America
| 2025 | 2024 | |||||||||||||||||||
| In millions | 1st Quarter | 1st Quarter | 4th Quarter | |||||||||||||||||
| Sales | $ | 3,702 | $ | 3,486 | $ | 3,539 | ||||||||||||||
| Business Segment Operating Profit (Loss) | $ | 142 | $ | 192 | $ | 228 | ||||||||||||||
Packaging Solutions North America results include sales of $127 million and business segment operating profit (loss) of $(9) million for the DS Smith business in the first quarter of 2025. For legacy IP Packaging Solutions North America, sales were higher compared to the fourth quarter of 2024 driven by higher average sales prices reflecting prior index movements and the benefits of our box go-to-market strategy, partially offset by seasonally lower volumes. Cost of products sold increased by $7 million and was impacted by higher costs on goods and services. Planned maintenance downtime costs were lower in the first quarter of 2025 compared with the fourth quarter of 2024. Input costs were higher driven by higher energy costs. Selling and administrative expenses decreased by $97 million driven by lower employee incentive compensation and medical benefit expenses. Depreciation and amortization expense increased by $193 million driven by accelerated depreciation recorded in the first quarter of 2025 related to the announced closure of the Red River containerboard mill in Campti, LA. Business segment operating profit benefited from the receipt of a $30 million insurance reimbursement in the first quarter of 2025 and $13 million in the fourth quarter of 2024 related to the Ixtac, Mexico box plant fire in the first quarter of 2024.
Compared with the first quarter of 2024, IP legacy Packaging Solutions North America sales in the first quarter of 2025 were higher driven by higher sales prices, partially offset by lower sales volumes reflecting the impact of our box go-to-market strategy. Cost of products sold decreased by $23 million and was impacted by lower sales volumes. Operating costs increased, driven by increased costs on goods and services, reliability incidents and maintenance spending. Planned maintenance downtime costs were higher in the first quarter of 2025 compared with the first quarter of 2024. Input costs were higher driven by energy costs. Selling and administrative expenses decreased $6 million and was impacted by lower employee medical benefit expenses. Depreciation and amortization expense increased $194 million driven by the accelerated deprecation related to the Red River mill closure. Distribution expense decreased by $35 million and was impacted by lower sales volumes. The first quarter of 2025 benefited from the receipt of the $30 million insurance reimbursement related to the Ixtac, Mexico box plant fire.
Entering the second quarter of 2025, sales volumes are expected to be seasonally higher compared to the first quarter of 2025. Sales are also expected to be impacted by prior index movements. Operating costs are expected to be higher. Planned maintenance downtime costs are expected to be higher in the second quarter of 2025 compared with the first quarter of 2025. Input costs are expected to be lower driven by energy and fiber costs. The second quarter of 2025 will include one additional month of DS Smith sales and business segment operating profit compared to the first quarter of 2025.
Packaging Solutions EMEA
| 2025 | 2024 | ||||||||||||||||
| In millions | 1st Quarter | 1st Quarter | 4th Quarter | ||||||||||||||
| Sales | $ | 1,550 | $ | 348 | $ | 357 | |||||||||||
| Business Segment Operating Profit (Loss) | $ | 46 | $ | 24 | $ | 19 |
Packaging Solutions EMEA results include sales of $1.2 billion and business segment operating profit of $13 million for the DS Smith business in the first quarter of 2025. For legacy IP Packaging Solutions EMEA, sales were lower driven by lower sales prices reflecting prior price decreases compared with the fourth quarter of 2024. Cost of products sold decreased by $21 million and was impacted by a $13 million one-time energy subsidy received in the first quarter of 2025. Input costs were higher driven by energy costs. Planned maintenance downtime costs were lower in the first quarter of 2025 compared with the fourth quarter of 2024. Selling and administrative expenses decreased by $23 million driven by lower employee incentive compensation and medical benefit expenses.
Compared with the first quarter of 2024, legacy IP Packaging Solutions EMEA sales in the first quarter of 2025 were lower driven by lower sales volumes. Cost of products sold decreased by $28 million and was impacted by a one time energy credit received in the first quarter of 2025. Input costs were higher driven by higher energy costs and woods costs. Selling and administrative expenses were flat compared to the first quarter of 2024.
Looking ahead to the second quarter of 2025, sales are expected to be higher, reflecting one additional month of DS Smith sales partially offset by seasonally lower volumes. Operating costs are expected to be higher. Input costs are expected to be lower, driven by energy costs. Planned maintenance downtime costs are expected to be higher in the second quarter of 2025. The second quarter of 2025 will include one additional month of DS Smith business segment operating profit compared to the first quarter of 2025.
Global Cellulose Fibers
| 2025 | 2024 | |||||||||||||
| In millions | 1st Quarter | 1st Quarter | 4th Quarter | |||||||||||
| Sales | $ | 643 | $ | 704 | $ | 662 | ||||||||
| Business Segment Operating Profit (Loss) | $ | 17 | $ | (47) | $ | (250) |
Global Cellulose Fibers sales were lower, reflecting lower sales prices from prior index movements and lower sales volumes driven by the mill strategic actions taken in the fourth quarter of 2024, partially offset by a favorable product mix. Cost of products sold decreased by $25 million and was impacted by improved mill reliability and lower economic downtime. Planned maintenance downtime costs in the first quarter of 2025 were higher compared with the fourth quarter of 2024. Input costs were higher as higher energy costs were partially offset by lower chemical and wood costs. Selling and administrative expenses decreased $31 million driven by lower employee incentive compensation and medical benefit expenses. Depreciation and amortization expense was $228 million lower as the fourth quarter of 2024 included $215 million of accelerated depreciation related to the closure of the Georgetown, South Carolina mill.
Compared with the first quarter of 2024, sales in the first quarter of 2025 were lower, as higher average sales prices and an improved product mix were more than offset by lower commodity volumes driven by the mill strategic actions taken in the fourth quarter of 2024. Cost of products sold decreased $90 million and was impacted by lower sales volumes and lower planned maintenance downtime costs partially offset by higher input costs, primarily for energy costs. Selling and administrative expense was $15 million lower and was impacted by lower employee medical costs. Distribution costs were $15 million lower reflecting lower sales volumes.
Entering the second quarter of 2025, sales volumes are expected to be stable. Planned maintenance downtime costs in the second quarter of 2025 are expected to be higher compared with the first quarter of 2025. Operating costs are expected to be stable. Input costs are expected to be lower driven by energy costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used for) operations totaled $(288) million and $395 million for the first three months of 2025 and 2024, respectively. Cash provided by (used for) working capital components (accounts receivable, contract assets and inventory less accounts payable and accrued liabilities, interest payable and other) totaled $(622) million for the three months ended March 31, 2025 compared with cash provided by (used for) working capital components of $32 million for the three months ended March 31, 2024. The first quarter of 2025 cash used for operations includes certain significant payments that, in total, impacted operating cash flow by $670 million. This includes approximately $80 million of severance payments and approximately $240 million of DS Smith related transaction costs. This amount also includes the cash impact from the 2024 incentive compensation and other benefit payments made in the first quarter of 2025.
Cash provided by (used for) investment activities totaled $237 million in the first three months of 2025 compared with $(247) million in the first three months of 2024. The increase in cash provided by investment activities is mainly due to proceeds from the sale of fixed assets of $83 million, proceeds from insurance recoveries of $28 million and net cash acquired from acquisitions of $415 million, offset by higher capital expenditures of $79 million.
Capital expenditures totaled $330 million in the first three months of 2025, compared to $251 million in the first three months of 2024. Full-year 2025 capital expenditures are currently expected to be approximately $1.8 billion to $1.9 billion, or 100% to 106% of depreciation and amortization.
Financing activities for the first three months of 2025 included a $233 million net increase in debt versus a $3 million net decrease in debt during the comparable 2024 three-month period.
During the first quarter of 2025, the Company borrowed $175 million under its commercial paper program and $64 million under its committed bank facility.
See Note 15 - Debt of the Condensed Notes to the Consolidated Financial Statements for a discussion of various debt-related actions taken by the Company during the three months ended March 31, 2025.
There were no early debt reductions for the three months ended March 31, 2025 and 2024, respectively.
Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At March 31, 2025, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (stable outlook) by S&P and Moody’s, respectively. In addition, the Company held short-term credit ratings of A2 and P2 by S&P and Moody's, respectively, for borrowings under the Company's commercial paper program.
At March 31, 2025, International Paper’s USD denominated credit facilities totaled $1.9 billion, which is comprised of the $1.4 billion contractually committed bank credit agreement and up to $500 million under the receivables securitization program. Management believes that the Company's credit agreements are adequate to cover expected operating cash flow variability during the current economic cycle. The credit agreements generally provide for interest rates at a floating rate index plus a pre-determined margin dependent upon International Paper’s credit rating. At March 31, 2025, the Company had no borrowings outstanding under the $1.4 billion credit agreement or the $500 million receivables securitization program. The Company’s credit agreements are not subject to any restrictive covenants other than the financial covenants as disclosed in Note 15 - Debt, and the borrowings under the receivables securitization program being limited by eligible receivables. The Company was in compliance with all its debt covenants at March 31, 2025, and was well below the thresholds stipulated under the covenants as defined in the credit agreements. The financial covenants do not restrict any borrowings under the credit agreements.
In addition to the $1.4 billion capacity under the Company's credit agreements, International Paper has a commercial paper program with a borrowing capacity of $1.0 billion supported by its $1.4 billion credit agreement. Under the terms of the program, individual maturities on borrowings may vary, but not exceed one year from the date of issue. Interest bearing notes may be issued either as fixed or floating rate notes. As of March 31, 2025, the Company had $175 million of borrowings outstanding under the commercial paper program.
On February 14, 2025, DS Smith, a wholly owned subsidiary of International Paper, announced separate invitations (each such invitation, a “Consent Solicitation”) to eligible holders of its outstanding (i) €600 million 0.875 percent Notes due September 12, 2026 (the “2026 Notes”); (ii) €850 million 4.375 percent Notes due July 27, 2027 (the “2027 Notes”); (iii) £250 million 2.875 percent Notes due July 26, 2029 (the “2029 Notes”); and (iv) €650 million 4.500 percent Notes due July 27, 2030 (the “2030 Notes”), in each case issued by DS Smith under its Euro-Medium Term Note Programme (each a “Series” and, together, the “Notes”) to consent to, amongst other things, certain modifications to the terms and conditions (the “Conditions”) of, and the trust deed (the “Trust Deed”) for, the relevant Series to provide for (i) the removal of the obligation for DS Smith to prepare audited and unaudited consolidated accounts; (ii) the amendment of certain events of default to align more closely with certain equivalent provisions included in the documentation relating to debt securities issued by International Paper and to allow additional flexibility for potential reorganization of DS Smith’s subsidiaries, if required, now that DS Smith and its subsidiaries are part of the International Paper group; and (iii) certain consequential modifications to the applicable Conditions and Trust Deed for the relevant Series in relation to items (i) and (ii) above (together, the “Proposed Amendments”). As consideration for the holders of the Notes consenting to the Proposed Amendments, it was proposed that DS Smith procure a guarantee from International Paper, to guarantee the payment obligations of DS Smith under the Notes. The full principal amount of each Series of Notes issued by DS Smith remains outstanding as of the date hereof. On March 10, 2025, DS Smith has executed and delivered a Supplemental Trust Deed in respect of each Series to implement the Proposed Amendments, and International Paper has executed and delivered a deed of guarantee in respect of each Series to guarantee the payment obligations of DS Smith under such Series.
In March 2025, the Company amended and restated its £1.25 billion credit facility agreement to, among other things (i) replace its obligation to prepare audited and unaudited consolidated accounts and instead provide International Paper’s account information, on the same terms as International Paper’s existing credit facilities, (ii) amend the financial covenant in the credit facility agreement to align with financial covenants given by International Paper in its existing credit facilities, (iii) amend certain events of default, and undertakings to align more closely with certain equivalent provisions included in the documentation relating to the existing financings of International Paper and to allow additional flexibility for potential reorganization of DS Smith’s subsidiaries, if required, now that DS Smith and its subsidiaries are part of the International Paper
group. The multi-currency credit facility allows for GBP, EUR and USD borrowings and provides for interest rates at a floating rate index plus a pre-determined margin. Credit facility borrowings are denominated in the currency that aligns with the Company's cashflows. At March 31, 2025, the Company had €840 million (approximately $909 million at the current exchange rate) borrowings outstanding under the credit facility. The Company’s credit facility agreement is not subject to any restrictive covenants other than that International Paper must comply with the same negative covenants as per its existing credit facilities. IP was in compliance with all its debt covenants at March 31, 2025, and was well below the thresholds stipulated under the covenants as defined in the credit facility agreement. Further the financial covenants do not restrict any borrowings under the credit facility agreement.
In April 2025, the Company amended and restated its credit facility agreement to, among other things (i) replace its obligation to prepare audited and unaudited consolidated accounts and instead provide International Paper’s account information, on the same terms as International Paper’s existing credit facilities, (ii) amend the financial covenant in the credit facility agreement to align with financial covenants given by International Paper in its existing credit facilities, (iii) amend certain events of default, and undertakings to align more closely with certain equivalent provisions included in the documentation relating to the existing financings of International Paper and to allow additional flexibility for potential reorganization of DS Smith’s subsidiaries, if required, now that DS Smith and its subsidiaries are part of the International Paper group. The credit facility agreement provides for interest rates at a fixed rate for each facility. At March 31, 2025, the Company had €200 million borrowings outstanding under the €200 million credit facility agreement. The Company’s credit facility agreement is not subject to any restrictive covenants other than that International Paper must comply with the same negative covenants as per its existing credit facilities. IP was in compliance with all its debt covenants at March 31, 2025, and was well below the thresholds stipulated under the covenants as defined in the credit facility agreement. Further the financial covenants do not restrict any borrowings under the credit facility agreement.
The Company also has a €60 million committed bank facility that matures in December 2026. In April 2025, the Company amended and restated its credit facility agreement to, among other things (i) replace its obligation to prepare audited and unaudited consolidated accounts and instead provide International Paper’s account information, on the same terms as International Paper’s existing credit facilities, (ii) amend the financial covenant in the credit facility agreement to align with financial covenants given by International Paper in its existing credit facilities, (iii) amend certain events of default, and undertakings to align more closely with certain equivalent provisions included in the documentation relating to the existing financings of International Paper and to allow additional flexibility for potential reorganization of DS Smith’s subsidiaries, if required, now that DS Smith and its subsidiaries are part of the International Paper group. The multi-currency credit facility allows for GBP, EUR and USD borrowings. At March 31, 2025, there were no borrowings outstanding under this agreement. The Company has a £50 million uncommitted bank facility. At March 31, 2025 the Company had $63 million borrowings outstanding under this agreement.
International Paper expects to meet projected capital expenditures, service existing debt, meet working capital and dividend payments and make common stock and/or debt repurchases for the next 12 months and for the foreseeable future thereafter with current cash balances and cash from operations, supplemented as required by its existing credit facilities. The Company will continue to rely on debt and capital markets for the majority of any necessary long-term funding not provided by operating cash flows. Funding decisions will be guided by our capital structure planning objectives. The primary goals of the Company’s capital structure planning are to maximize financial flexibility and maintain appropriate levels of liquidity to meet our needs while managing balance sheet debt and interest expense. We have repurchased, and may continue to repurchase, our common stock (under our existing share repurchase program) and debt (including in open market purchases) to the extent consistent with this capital structure planning, and subject to prevailing market conditions, our liquidity requirements, applicable securities laws requirements, and other factors. The majority of International Paper’s debt is accessed through global public capital markets where we have a wide base of investors.
During the first three months of 2025, International Paper used 3.4 million shares of treasury stock for various incentive plans. International Paper also acquired 1.1 million shares of treasury stock, related to restricted stock tax withholdings during the first three months of 2024. Payments of restricted stock withholding taxes totaled $62 million during this period. Our current share repurchase program approved by our Board of Directors ("Board") on October 11, 2022, which does not have an expiration date, has approximately $2.96 billion aggregate amount of shares of common stock remaining authorized for purchase as of March 31, 2025. During the three months ended March 31, 2025, no shares of common stock were repurchased under our share repurchase program.
During the first three months of 2024, International Paper used approximately 1.9 million shares of treasury stock for various incentive plans. International Paper also acquired 0.6 million shares of treasury stock, related to restricted stock tax withholding during the first three months of 2024. Payments of restricted stock withholding taxes totaled $22 million. During the three months ended March 31, 2024, no shares of common stock were repurchased under our share repurchase program.
Cash dividend payments related to common stock totaled $244 million and $161 million for the first three months of 2025 and 2024, respectively. Dividends were $0.4625 per share for the first three months of 2025 and 2024.
Our U.S. and U.K. pension plans are currently fully funded and we do not anticipate any required cash contributions for the next 12 months.
Variable Interest Entities
Information concerning variable interest entities is set forth in Note 14 in the Company's Annual Report.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires International Paper to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain.
Accounting policies whose application may have a significant effect on the reported results of operations and financial position of International Paper, and that may require judgments by management that affect their application, include accounting for contingencies, impairment or disposal of long-lived assets, goodwill and other intangible assets, pensions and income taxes.
The Company has included in its Annual Report a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and may require management’s judgments. Except as described below, the Company has not made any changes in these critical accounting policies during the first three months of 2025.
Business Combinations
The Company’s acquisitions of businesses are accounted for in accordance with ASC 805, "Business Combinations". We allocate the total purchase price of the assets acquired and liabilities assumed based on their estimated fair value as of the business combination date. In developing estimates of fair values for long-lived assets, including identifiable intangible assets, the Company utilizes a variety of inputs including forecasted cashflows, anticipated growth rates, discount rates, appraisals, market valuations, estimated replacement costs and depreciation, and obsolescence factors. Determining the fair value for specifically identified intangible assets such as customer lists and developed technology involves judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are charged to the consolidated statements of earnings. Subsequent actual results of the underlying business activity supporting the goodwill and specifically identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives in future periods.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q that are not historical in nature may be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements can be identified by the use of forward-looking or conditional words such as “expects,” “anticipates,” “believes,” “estimates,” “could,” “should,” “can,” “forecast,” “outlook,” “intend,” “look,” “may,” “will,” “remain,” “confident,” “commit” and “plan” or similar expressions. These statements are not guarantees of future performance and reflect management’s current views and speak only as to the dates the statements are made and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. All statements, other than statements of historical fact, are forward-looking statements, including, but not limited to, statements regarding anticipated financial results, economic conditions, industry trends, future prospects, and the anticipated benefits, execution and consummation of corporate transactions or contemplated acquisitions, including our completed business combination with DS Smith Limited. Factors which could cause actual results to differ include but are not limited to: (i) our ability to consummate and achieve the benefits expected from, and other risks associated with, acquisitions, joint ventures, divestitures, spinoffs, capital investments and other corporate transactions, including, but not limited to, our business combination with DS Smith; (ii) our ability to integrate and implement our plans, forecasts, and other expectations with respect to the combined company, including in light of our increased scale and global presence; (iii) risks associated with our planned divestiture of five wholly-owned European subsidiaries required as a condition precedent to closing the DS Smith acquisition including achievement of negotiations, closing conditions and regulatory approvals; (iv) our failure to comply with the obligations associated with being a public
company listed on the New York Stock Exchange and the London Stock Exchange and the costs associated therewith; (v) risks with respect to climate change and global, regional, and local weather conditions, as well as risks related to our targets and goals with respect to climate change and the emission of greenhouse gases and other environmental, social and governance matters, including our ability to meet such targets and goals; (vi) loss contingencies and pending, threatened or future litigation, including with respect to environmental related matters; (vii) the level of our indebtedness, including our obligations related to becoming the guarantor of the Euro Medium Term Notes as a result of our acquisition of DS Smith, risks associated with our variable rate debt, and changes in interest rates (including the impact of current elevated interest rate levels); (viii) the impact of global and domestic economic conditions and industry conditions, including with respect to current challenging macroeconomic conditions, inflationary pressures and changes in the cost or availability of raw materials, energy sources and transportation sources, supply chain shortages and disruptions, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products, and conditions impacting the credit, capital and financial markets; (ix) risks arising from conducting business internationally, domestic and global geopolitical conditions, military conflict (including the Russia/Ukraine conflict, the conflict in the Middle East, the further expansion of such conflicts, and the geopolitical and economic consequences associated therewith), changes in currency exchange rates, including in light of our increased proportion of assets, liabilities and earnings denominated in foreign currencies as a result of our business combination with DS Smith, trade policies (including but not limited to protectionist measures and the imposition of new or increased tariffs as well as the potential impact of retaliatory tariffs and other penalties including retaliatory policies against the United States) and global trade tensions, downgrades in our credit ratings, and/or the credit ratings of banks issuing certain letters of credit, issued by recognized credit rating organizations; (x) the amount of our future pension funding obligations, and pension and healthcare costs; (xi) the costs of compliance, or the failure to comply with, existing, evolving or new environmental (including with respect to climate change and greenhouse gas emissions), tax, trade, labor and employment, privacy, anti-bribery and anti-corruption, and other U.S. and non-U.S. governmental laws, regulations and policies (including but not limited to those in the United Kingdom and European Union); (xii) any material disruption at any of our manufacturing facilities or other adverse impact on our operations due to severe weather, natural disasters, climate change or other causes; (xiii) our ability to realize expected benefits and cost savings associated with restructuring initiatives; (xiv) cybersecurity and information technology risks, including as a result of security breaches and cybersecurity incidents; (xv) our exposure to claims under our agreements with Sylvamo Corporation; (xvi) the qualification of the Sylvamo Corporation spin-off as a tax-free transaction for U.S. federal income tax purposes; (xvii) risks associated with our review of strategic options for our Global Cellulose Fibers business; (xviii) our ability to attract and retain qualified personnel and maintain good employee or labor relations; (xix) our ability to maintain effective internal control over financial reporting; and (xx) our ability to adequately secure and protect our intellectual property rights. These and other factors that could cause or contribute to actual results differing materially from such forward-looking statements can be found in our press releases and reports filed with the U.S. Securities and Exchange Commission. In addition, other risks and uncertainties not presently known to the Company or that we currently believe to be immaterial could affect the accuracy of any forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
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