filings.toolsItem 2. [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#ifba6e37b77444babb431acefa4f904f894)
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Item 2. [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#ifba6e37b77444babb431acefa4f904f894)
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, 2025 (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 and subsequent quarterly reports, particularly under "Risk Factors" and "Forward-Looking Statements" of this Form 10-Q. Please see our "Cautionary Statement Regarding Forward-Looking Statements" below.
EXECUTIVE SUMMARY
First Quarter 2026 Financial Summary
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Net sales of $5.97 billion
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Earnings from continuing operations of $76 million
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Adjusted EBITDA (non-GAAP) from continuing operations of $677 million (1)
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Received $1.1 billion of net proceeds from the sale of our Global Cellulose Fibers ("GCF") business and used a portion of those proceeds to pay down $660 million of debt
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Cash provided by operating activities of $611 million
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Free cash flow (non-GAAP) of $94 million (1)
(1) See "Non-GAAP Financial Measures" for a list of our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures.
Overview
The Company’s first quarter results reinforced the importance of discipline around controllable costs in a dynamic operating environment. Renewed pressures stemming from macroeconomic developments, coupled with the impact of severe winter weather events, resulted in higher operating costs. Revenues were sequentially lower, as expected, due to seasonality and the exit of non‑strategic export business in our Packaging Solutions North America ("PS NA") segment following the shutdown of our Savannah, Georgia mill. Despite the challenging environment, we continued to realize incremental commercial and operational benefits driven by our 80/20 performance system.
In North America, adjusted EBITDA was sequentially lower, driven by normal seasonal volume declines and the impacts of a severe winter storm, partially offset by higher export pricing and productivity improvements. Commercial volumes, although down sequentially, reflected above‑market growth with box shipments exceeding industry demand by approximately 3%. First quarter marked the third consecutive quarter in which our North America sales volumes outpaced industry growth. Higher operating and energy costs stemming from the January severe winter storm were partially offset by productivity gains across both our box and mill systems. Since the third quarter of 2024, efficiency initiatives in the box system continued to improve as "lighthouse" practices - proven best-performing operating methods - expanded across the network, delivering significant run‑rate benefits. Productivity across the mill system also improved, with capacity utilization increasing over that same period. These gains were supported by increased capital investment and reinforced by the continued rollout of "lighthouse" best performance practices across the system.
In EMEA, adjusted EBITDA was sequentially lower, primarily due to higher costs, partially offset by expanded packaging margins and moderately higher volumes. Despite a challenging and dynamic macroeconomic environment, the Company continued to execute its strategy and mitigate near‑term volatility in the region. Focused cost‑reduction initiatives, including footprint optimization and overhead efficiency actions, improved structural cost competitiveness while maintaining service and operational stability. Run‑rate savings associated with cost‑out actions increased by approximately $40 million from the fourth quarter, resulting in total announced savings in excess of $200 million. The Company also continued to leverage its disciplined hedging program to mitigate the impact of higher regional energy prices during the first quarter.
Looking ahead, we expect adjusted EBITDA to be sequentially lower in the second quarter across both regions. In North America, significantly higher planned maintenance outage spending is expected to be partially offset by an improved sales mix, seasonally higher volumes and seasonally lower energy costs. We expect the most significant outage-related impact in PS NA during the second quarter, which represents North America’s peak maintenance outage spending, including paper machine
conversion activity at our Riverdale mill in Selma, Alabama. In PS EMEA, sales mix is expected to be unfavorable in the second quarter. Higher distribution costs and lower energy subsidies are expected to be partially offset by higher sales volumes. We expect the improving sales trends observed toward the end of the first quarter to continue into the second quarter. In addition, we anticipate incremental contributions from new business secured in 2025 to ramp through the second quarter.
Recent Strategic Portfolio Actions
During the first quarter of 2026, International Paper Company continued to execute strategic initiatives designed to optimize our portfolio and reinforce our position as a leading packaging solutions provider. As part of the Company's strategy, the Company intends to guide investments and align resources to win with our most strategic customers, while reducing complexity and cost across the Company.
Acquisition of North Pacific Paper Company("NORPAC"): The Company has entered into an agreement to acquire NORPAC, a portfolio company of One Rock Capital Partners, for $360 million. The facility expands our capabilities to serve the growing West Coast region and is intended to complement IP's existing mill system, increasing system flexibility, reducing costs and expanding capabilities to support growing customer demand for lightweight, high-performance recycled containerboard. The consummation of the acquisition is subject to customary closing conditions, including regulatory approval.
New Sustainable Packaging Facility: The Company plans to construct a new 468,000-square-foot sustainable packaging facility in Rankin County, Mississippi. The $225 million investment reinforces our commitment to strategic growth, operational and customer excellence and long-term value creation. The new plant is designed to strengthen International Paper's cost position, improve reliability and product quality and enhance service capabilities across the Mid-South region. By replacing older infrastructure with a modern, highly efficient facility, the investment is expected to reduce structural costs and support growth in key market segments. The modern design and updated equipment should provide the latest innovations in safety and efficiency for employees. Construction is expected to begin in June 2026, with commencement of operations anticipated in the fourth quarter of 2027.
Progress Continues with Strategic Separation of EMEA Packaging Business: As previously disclosed, the Company plans to separate its North America and EMEA packaging operations into two independent, publicly traded companies: International Paper will be comprised of its current business in North America including both legacy IP and DS Smith assets, and the EMEA packaging business will be comprised of both legacy DS Smith and IP assets in EMEA. The Company expects that creating two regionally focused businesses will allow each to tailor strategies to their distinct markets, enhance management focus, and support long-term value creation.
The separation is expected to be structured as a spinoff, with International Paper retaining a meaningful ownership stake of approximately 20 percent. The EMEA packaging business is expected to be listed on both the London Stock Exchange and the New York Stock Exchange.
During the first quarter, the Company made strides toward the strategic separation including formation of transition and separation management offices. The transaction is expected to be completed within 12 to 15 months from the announcement, subject to customary approvals, including final approval by IP’s Board of Directors, filing and effectiveness of a registration statement with the U.S. SEC and publication of a prospectus approved by the U.K. Financial Conduct Authority.
We remain confident that the initiatives undertaken as part of our transformational journey will deliver operational excellence and create value for our employees, customers and shareowners.
Macroeconomic and Market Conditions
In the first quarter, industry demand in both North America and EMEA remained subdued, reflecting continued consumer caution amid ongoing economic uncertainty. Against a backdrop of persistent geopolitical tensions, freight costs represent the most significant near‑term cost pressure across both regions. Higher diesel prices are pressuring transportation and logistics costs throughout the supply chain, which adversely affects cost of goods sold and margins. While the Company expects to recover higher freight costs through pricing actions, such recovery typically occurs with a time lag and does not provide immediate offset in the near term.
In North America, higher diesel prices are also flowing through to old corrugated container (“OCC”) and chemical costs, reflecting elevated transportation expenses and oil‑linked input pricing. In EMEA, OCC pricing remained relatively stable during the first quarter due to adequate supply conditions; however, the Company expects higher collection and distribution costs to impact results in the second quarter.
NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures presented in this Form 10-Q as referenced below 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. Users are cautioned not to place undue reliance on any non-GAAP financial measures presented in this Form 10-Q.
Below are the Company’s key non‑GAAP financial measures and their definitions:
Adjusted operating earnings (loss) and adjusted operating earnings (loss) per share are defined as earnings (loss) from continuing operations (a GAAP measure) excluding net special items and non-operating pension expense (income). Earnings (loss) from continuing operations and diluted earnings (loss) from continuing operations per share are the most directly comparable GAAP measures. The Company calculates adjusted operating earnings (loss) by excluding the after-tax effect of non-operating pension expense (income) and net special items, as described in greater detail below, from earnings (loss) from continuing operations reported under GAAP. Adjusted operating earnings (loss) per share is calculated by dividing adjusted operating earnings (loss) by diluted average shares of common stock outstanding. Management uses these non-GAAP financial measures to focus on ongoing operations and believes that such non-GAAP financial 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 from continuing operations. The Company believes that these non-GAAP financial measures, viewed alongside the most directly comparable GAAP measures, provides for a more complete analysis of the Company's results of operations.
Adjusted EBITDA from continuing operations is defined as earnings (loss) from continuing operations (a GAAP measure) before income taxes and equity earnings (loss), interest expense, net, net special items, non-operating pension expense (income) and depreciation and amortization. Earnings (loss) from continuing operations is the most directly comparable GAAP measure. Management uses this measure to focus on on-going operations and believes this measure is useful to investors. Management uses this non-GAAP financial measure to focus on on-going operations and believes this measure is useful to investors to perform meaningful comparisons of past and present consolidated operating results from continuing operations. The Company believes that adjusted EBITDA from continuing operations, viewed alongside the most directly comparable GAAP measure, provides for a more complete analysis of the Company's results from continuing operations.
Free cash flow is defined as cash provided by (used for) operations less capital expenditures, and the most directly comparable GAAP measure is cash provided by (used for) operations. Management 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.
Operational income tax provision and operational effective income tax rate are calculated by adjusting the earnings (loss) from continuing operations before income taxes and equity earnings (loss), income tax provision (benefit) and rate to exclude 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.
Below are reconciliations of the non‑GAAP financial measures noted above to their most directly comparable GAAP measures:
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 (loss) 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.
See Effects of Special Items Expense (Income) for additional detail regarding the net special items expense (income) referenced in the tables below.
Reconciliation of Earnings (loss) from continuing operations to Adjusted operating earnings (loss)
| Three Months Ended March 31, | Three Months Ended December 31, | ||||||||||||||||
| In millions | 2026 | 2025 | 2025 | ||||||||||||||
| Earnings (loss) from continuing operations | $ | 76 | $ | (124) | $ | (2,363) | |||||||||||
| Add back - Non-operating pension expense (income) | (18) | 3 | (6) | ||||||||||||||
| Add back - Net special items expense (income) | 26 | 237 | 2,626 | ||||||||||||||
| Income taxes - Non-operating pension and special items (a) | (3) | (43) | (300) | ||||||||||||||
| Adjusted operating earnings (loss) | $ | 81 | $ | 73 | $ | (43) |
(a) For the three months ended March 31, 2026, this amount includes tax expense of $4 million on the non-operating pension income and a tax benefit of $7 million associated with special items. The three months ended March 31, 2025 includes a tax benefit of $1 million on the non-operating pension expense and a tax benefit of $42 million associated with special items. The three months ended December 31, 2025 includes a tax benefit of $271 million related to the EMEA goodwill impairment. This amount also includes tax expense of $2 million on the non-operating pension income and tax benefit of $31 million associated with special items.
Reconciliation of Earnings (loss) from continuing operations to Adjusted operating earnings (loss) on a per share basis
| Three Months Ended March 31, | Three Months Ended December 31, | ||||||||||||||||
| 2026 | 2025 | 2025 | |||||||||||||||
| Diluted earnings (loss) per share from continuing operations | $ | 0.14 | $ | (0.28) | $ | (4.48) | |||||||||||
| Add back - Non-operating pension expense (income) per share | (0.03) | 0.01 | (0.01) | ||||||||||||||
| Add back - Net special items expense (income) per share | 0.05 | 0.54 | 4.98 | ||||||||||||||
| Income taxes per share - Non-operating pension and special items | (0.01) | (0.10) | (0.57) | ||||||||||||||
| Adjusted operating earnings (loss) per share | $ | 0.15 | $ | 0.17 | $ | (0.08) |
Reconciliation of Earnings (loss) from continuing operations to Adjusted EBITDA from continuing operations
| Three Months Ended March 31, | Three Months Ended December 31, | ||||||||||||||||
| In millions | 2026 | 2025 | 2025 | ||||||||||||||
| Earnings (Loss) from Continuing Operations | $ | 76 | $ | (124) | (2,363) | ||||||||||||
| Add back: Income tax provision (benefit) | 17 | (32) | (291) | ||||||||||||||
| Less: Equity earnings (loss), net of taxes | — | (1) | — | ||||||||||||||
| Earnings (Loss) from Continuing Operations Before Income Taxes and Equity Earnings (Loss) | 93 | (155) | (2,654) | ||||||||||||||
| Interest expense, net | 76 | 84 | 95 | ||||||||||||||
| Special items | 37 | 237 | 2,626 | ||||||||||||||
| Non-operating pension expense (income) | (18) | 3 | (6) | ||||||||||||||
| Depreciation and amortization | 489 | 520 | 697 | ||||||||||||||
| Adjusted EBITDA from continuing operations | $ | 677 | $ | 689 | $ | 758 |
Reconciliation of Cash provided by operations to Free cash flow
| Three Months Ended March 31, | |||||||||||
| In millions | 2026 | 2025 | |||||||||
| Cash provided by operations | $ | 611 | $ | (288) | |||||||
| Adjustments: | |||||||||||
| Capital expenditures | (517) | (330) | |||||||||
| Free cash flow | $ | 94 | $ | (618) |
Reconciliation of Income tax provision (benefit) to Operational tax provision (benefit) and the reported effective income tax rate to the operational effective tax rate
| Three Months Ended | ||||||||||||||||||||
| March 31 | December 31, | |||||||||||||||||||
| In millions (except rates) | 2026 | 2025 | 2025 | |||||||||||||||||
| Provision (Benefit) | Rate | Provision (Benefit) | Rate | Provision (Benefit) | Rate | |||||||||||||||
| Income tax provision (benefit) and reported effective income tax rate | $ | 17 | 18 | % | $ | (32) | 21 | % | $ | (291) | 11 | % | ||||||||
| Income tax effect - non-operating pension (income) expense and special items | (3) | (43) | (300) | |||||||||||||||||
| Operational tax provision (benefit) and operational effective tax rate | $ | 20 | 20 | % | $ | 11 | 13 | % | $ | 9 | (26) | % |
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, | |||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2025 | ||||||||||||||||||||||||||||||||||||
| In millions | Before Tax | After Tax | Before Tax | After Tax | Before Tax | After Tax | ||||||||||||||||||||||||||||||||
| Severance and other costs | $ | 23 | $ | 17 | (a) | $ | 83 | $ | 63 | (a) | $ | 162 | $ | 128 | (a) | |||||||||||||||||||||||
| PS EMEA spin-off costs | 11 | 8 | (b) | — | — | — | — | |||||||||||||||||||||||||||||||
| PS EMEA goodwill impairment | — | — | — | — | 2,467 | 2,196 | (c) | |||||||||||||||||||||||||||||||
| DS Smith combination costs (benefits) | — | — | 221 | 183 | (b) | 10 | 8 | (b) | ||||||||||||||||||||||||||||||
| Net (gains) losses on sales and impairments of businesses | — | — | — | — | 10 | 8 | (d) | |||||||||||||||||||||||||||||||
| Net (gains) losses on sales and impairments of assets | — | — | (67) | (51) | (f) | (18) | (12) | (f) | ||||||||||||||||||||||||||||||
| Other | 3 | 2 | — | — | (5) | (4) | ||||||||||||||||||||||||||||||||
| Total | 37 | 27 | 237 | 195 | 2,626 | 2,324 | ||||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||||||||
| Income tax refund interest | (11) | (8) | (e) | — | — | — | — | |||||||||||||||||||||||||||||||
| Interest Total | (11) | (8) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total Net Special Items | $ | 26 | $ | 19 | $ | 237 | $ | 195 | $ | 2,626 | $ | 2,324 |
| (a) | Severance and other costs associated with the Company's 80/20 strategic approach which includes the realignment of resources and mill strategic actions. | ||||
| (b) | Transaction, integration and other costs/benefits that the Company believes are not reflective of the Company's underlying operations. | ||||
| (c) | Non-cash goodwill impairment related to the Company's PS EMEA business segment. | ||||
| (d) | Includes charges related to the sale of the Company's kraft paper bag business and the sale of five European box plants in Mortagne, Saint-Amand and Cabourg (France), Ovar (Portugal) and Bilbao (Spain) to satisfy regulatory commitments in connection with the DS Smith combination. | ||||
| (e) | Interest income related to an income tax refund. | ||||
| (f) | Includes gains on assets sales related to our permanently closed Courtland, Alabama paper mill and Orange, Texas containerboard mill and net charges associated with the sale of the Company's aircraft and other assets. |
The following summarizes our results of operations for first quarter of 2026 compared with the first quarter of 2025 and the fourth quarter of 2025:
| Three Months Ended March 31, | Three Months Ended December 31, | Change Compared to March 31, 2025 | Change Compared to December 31, 2025 | |||||||||||||||||||||||
| In millions | 2026 | 2025 | 2025 | $ | $ | |||||||||||||||||||||
| Net sales | $ | 5,971 | $ | 5,264 | $ | 6,006 | $ | 707 | $ | (35) | ||||||||||||||||
| Cost of products sold | 4,244 | 3,805 | 4,123 | 439 | 121 | |||||||||||||||||||||
| Selling and administrative expenses | 510 | 487 | 545 | 23 | (35) | |||||||||||||||||||||
| Depreciation and amortization | 489 | 520 | 697 | (31) | (208) | |||||||||||||||||||||
| Distribution expenses | 513 | 417 | 543 | 96 | (30) | |||||||||||||||||||||
| Taxes other than payroll and income taxes | 41 | 87 | 42 | (46) | (1) | |||||||||||||||||||||
| Restructuring charges, net (a) | 23 | 83 | 162 | |||||||||||||||||||||||
| Impairment of goodwill (a) | — | — | 2,467 | |||||||||||||||||||||||
| Net (gains) losses on sales and impairments of businesses (a) | — | — | 10 | |||||||||||||||||||||||
| Net (gains) losses on sales and impairments of assets (a) | — | (67) | (18) | |||||||||||||||||||||||
| Interest expense, net | 76 | 84 | 95 | (8) | (19) | |||||||||||||||||||||
| Non-operating pension expense (income) | (18) | 3 | (6) | |||||||||||||||||||||||
| Earnings (loss) from continuing operations before income taxes and equity earnings (loss) | 93 | (155) | (2,654) | |||||||||||||||||||||||
| Income tax provision (benefit) | 17 | (32) | (291) | |||||||||||||||||||||||
| Equity earnings (loss), net of taxes | — | (1) | — | |||||||||||||||||||||||
| Earnings (loss) from continuing operations | 76 | (124) | $ | (2,363) | ||||||||||||||||||||||
| Discontinued operations, net of tax | (16) | 19 | $ | (21) | ||||||||||||||||||||||
| Net earnings (loss) | $ | 60 | $ | (105) | $ | (2,384) | ||||||||||||||||||||
| Diluted earnings (loss) per share | $ | 0.11 | $ | (0.24) | $ | (4.52) |
(a) Refer to special items discussion on page 30
Refer to the Effects of Net Special Items Expense (Income) section on page 30 for details of net special items expense (income) discussed below.
Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025
Net sales
The increase compared to the first quarter of 2025 was primarily driven by three months of DS Smith activity in the first quarter of 2026 compared to two months of activity 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
Cost of products sold increased by $439 million compared to the first quarter of 2025. Three months of DS Smith activity is included in the first quarter of 2026 ($1.6 billion) compared to two months in the first quarter of 2025 ($1.0 billion). For IP legacy, first quarter 2026 cost of products sold was impacted by lower maintenance and manufacturing costs of $63 million and lower raw materials and operating materials of $10 million, partially offset by higher fuel and utility expense of $19 million compared to the first quarter of 2025. Net special items charges of $70 million in the first quarter of 2025 are included in cost of products sold.
Selling and administrative expenses
Selling and administrative expenses increased by $23 million compared to the first quarter of 2025. Three months of DS Smith activity is included in the first quarter of 2026 ($121 million) compared to two months in the first quarter of 2025 ($74 million). For IP legacy, first quarter 2026 selling and administrative expenses were impacted by increases in incentive compensation and medical benefit costs compared to the first quarter of 2025. Net special items charges of $14 million and $101 million in the first quarter of 2026 and 2025, respectively, are included in selling and administrative expenses.
Depreciation and amortization
Depreciation and amortization decreased by $31 million compared to the first quarter. Three months of DS Smith activity is included in the first quarter of 2026 ($269 million) compared to two months in the first quarter of 2025 ($107 million). Depreciation expense includes accelerated depreciation of $16 million in the first quarter of 2026 compared to $197 million in the first quarter of 2025 associated with our site closures.
Distribution expenses
Distribution expenses increased by $96 million compared to the first quarter of 2025. Three months of DS Smith activity is included in the first quarter of 2026 ($228 million) compared to two months in the first quarter of 2025 ($144 million). For IP legacy, distribution expense was impacted by higher freight and warehousing expense in the first quarter of 2026 compared to the first quarter of 2025.
Taxes other than payroll and income taxes
Taxes other than payroll and income taxes decreased by $46 million compared to the first quarter of 2025. Three months of DS Smith activity is included in the first quarter of 2026 ($9 million) compared to two months in the first quarter of 2025 ($6 million). Net special items charges of $50 million are included in taxes other than payroll and income taxes in the first quarter of 2025.
Interest expense, net
Interest expense, net decreased by $8 million compared to the first quarter of 2025. Three months of DS Smith activity is included in the first quarter of 2026 ($36 million) compared to two months in the first quarter of 2025 ($25 million). Net special items interest income of $11 million is included in interest expense, net in the first quarter of 2026.
Income tax provision (benefit)
A net income tax expense from continuing operations of $17 million was recorded in the first quarter of 2026 and the reported effective income tax rate was 18%. Excluding a $7 million net tax benefit for other special items and $4 million tax expense related to non-operating pension income, the operational tax provision (benefit) (non-GAAP) for the first quarter of 2026 was $20 million, or 20% of pre-tax earnings before equity earnings.
A net income tax benefit from continuing operations of $32 million was recorded for the first quarter of 2025 and the reported effective income tax rate was 21%. Excluding a $42 million net tax benefit for other special items and a $1 million tax benefit related to non-operating pension expense, the operational tax provision (non-GAAP) for the first quarter of 2025 was $11 million, or 13% of pre-tax earnings before equity earnings.
Refer to "Non-GAAP Financial Measures" for a reconciliation of the net income tax provision (benefit) (GAAP) to the operational income tax provision (benefit) (non-GAAP) and the reported effective income tax rate (GAAP) to the operational effective income tax rate (non-GAAP).
Discontinued Operations, Net of Tax
On January 23, 2026, the Company completed the previously announced sale of its GCF business to AIP. See Note 9 - Divestitures of Condensed Notes to Consolidated Financial Statements for further details.
Discontinued operations includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $3 million and $12 million for the first quarter 2026 and 2025, respectively, and includes non-operating pension expense of $19 million for the first quarter 2026.
Three Months Ended March 31, 2026 Compared to the Three Months Ended December 31, 2025
Net sales
The decrease in the first quarter of 2026 compared to the fourth quarter of 2025 was primarily driven by lower sales volumes. Additional details on net sales are provided in the Business Segment Operating Results section below.
Cost of products sold
Cost of products sold increased by $121 million compared to the fourth quarter of 2025. For IP including DS Smith activity, the increase compared to the fourth quarter of 2025 was driven by higher maintenance and other costs of $183 million and fuel and utility expense of $57 million, partially offset by decreases in raw materials and operating materials of $123 million. Net special items income of $5 million in the fourth quarter of 2025 is included in cost of products sold.
Selling and administrative expenses
Selling and administrative expenses decreased by $35 million compared to the fourth quarter of 2025. For IP including DS Smith activity compared to the fourth quarter of 2025, there were decreases in medical benefit costs offset by incentive compensation and other costs. Net special items charges of $14 million and $10 million in the first quarter of 2026 and fourth quarter of 2025, respectively, are included in selling and administrative expenses.
Depreciation and amortization
Depreciation and amortization decreased by $208 million compared to the fourth quarter of 2025. Depreciation expense includes accelerated depreciation of $16 million in the first quarter of 2026 compared to $86 million in the fourth quarter of 2025 associated with our site closures. Depreciation and amortization expense in the fourth quarter of 2025 was higher primarily due to the finalization of the valuation of assets and changes to the estimated lives associated with the acquisition accounting of DS Smith.
Distribution expenses
Distribution expenses decreased by $30 million compared to the fourth quarter of 2025. For IP including DS Smith activity, the decrease compared to the fourth quarter of 2025 was driven by lower warehousing expense.
Taxes other than payroll and income taxes
Taxes other than payroll and income taxes were relatively flat in the first quarter of 2026 compared to the fourth quarter of 2025.
Interest expense, net
Interest expense, net decreased by $19 million compared to the fourth quarter of 2025. Net special items interest income of $11 million is included in interest expense, net in the first quarter of 2026.
Income tax provision (benefit)
A net income tax benefit from continuing operations of $291 million was recorded for the fourth quarter of 2025 and the reported effective income tax rate was 11%. This includes a tax benefit of $271 million related to the EMEA goodwill impairment. Excluding this item, a $31 million net tax benefit for other special items and $2 million tax expense related to non-operating pension income, the operational tax provision (benefit) (non-GAAP) for the fourth quarter of 2025 was $9 million, or (26)% of pre-tax earnings before equity earnings.
Refer to "Non-GAAP Financial Measures" for a reconciliation of the net income tax provision (benefit) (GAAP) to the operational income tax provision (benefit) (non-GAAP) and the reported effective income tax rate (GAAP) to the operational effective income tax rate (non-GAAP).
Discontinued Operations, Net of Tax
Discontinued operations includes the operating earnings of the GCF business. Discontinued operations also includes net special items expense of $3 million and $69 million for the first quarter 2026 and the fourth quarter of 2025, respectively, and includes non-operating pension expense of $19 million for the first quarter 2026.
BUSINESS SEGMENT OPERATING RESULTS
The Company currently operates in two segments: PS NA and PS EMEA.
The following tables present net sales and business segment operating profit (loss), which is the Company's measure of segment profitability and is defined as earnings (loss) before income taxes and equity earnings (losses), including the impact of less than wholly owned subsidiaries and excluding interest expense, net, corporate expenses, net, net special items and non-operating pension expense. 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 20 - Business Segment Information to the Condensed Notes to the Consolidated Financial Statements.
PS NA
| 2026 | 2025 | |||||||||||||||||||
| In millions | 1st Quarter | 1st Quarter | 4th Quarter | |||||||||||||||||
| Net Sales | $ | 3,626 | $ | 3,702 | $ | 3,715 | ||||||||||||||
| Business Segment Operating Profit (Loss) | $ | 248 | $ | 142 | $ | 319 | ||||||||||||||
PS NA sales were lower compared to the fourth quarter of 2025 as higher export pricing and a favorable mix were more than offset by seasonally lower volumes. Cost of products sold increased by $15 million and was impacted by manufacturing costs and input costs, partially offset by lower planned maintenance outage costs. Manufacturing costs were unfavorable affected by winter storm impacts and higher costs for goods and services which more than offset footprint cost out benefits and improved mill and box system productivity. Input costs also increased due to higher natural gas costs and utility costs driven by the winter storm. Planned maintenance outage costs were lower due to the deferral of an outage to the second quarter of 2026. Depreciation and amortization expense decreased by $14 million driven by lower accelerated depreciation associated with the previously announced site closures. Selling and administrative expenses were flat compared to the fourth quarter of 2025. Distribution expenses were $15 million lower reflecting lower sales volumes.
PS NA results include three months of sales and business segment operating profit (loss) for the legacy DS Smith North America business in the first quarter of 2026 compared with two months in the first quarter of 2025. Compared with the first quarter of 2025, IP legacy PS NA sales in the first quarter of 2026 were lower driven by lower sales volumes reflecting the impact of our mill strategic actions and lower export volumes. Sales prices were higher for boxes and export containerboard. Cost of products sold decreased by $28 million driven by lower sales volumes reflecting the impact of our footprint cost out benefits and lower planned maintenance outages partially offset by higher manufacturing costs and input costs. Manufacturing costs were impacted by higher costs for goods and services and winter weather. Input costs were higher as the benefit of lower recycled fiber costs were more than offset by increased winter storm utility costs. Depreciation and amortization expense decreased $193 million due to accelerated depreciation associated with the mill closures in 2025. Selling and administrative expenses increased by $53 million reflecting higher overhead costs.
Entering the second quarter of 2026, sales volumes are expected to be seasonally higher compared to the first quarter of 2026 and include the impact of one additional shipping day in the second quarter of 2026. Price and mix are expected to be higher, primarily due to a favorable export mix, partially offset by the negative impact of previously published price movements. Operating costs are expected to be lower. Planned maintenance downtime costs are expected to be higher in the second quarter of 2026 compared with the first quarter of 2026. Input costs are expected to be lower.
PS EMEA
| 2026 | 2025 | |||||||||||||||||||
| In millions | 1st Quarter | 1st Quarter | 4th Quarter | |||||||||||||||||
| Net Sales | $ | 2,323 | $ | 1,550 | $ | 2,300 | ||||||||||||||
| Business Segment Operating Profit (Loss) | $ | (51) | $ | 46 | $ | (223) |
PS EMEA sales increased in the first quarter of 2026 compared with the fourth quarter of 2025, reflecting higher sales volumes. Sales prices for paper were lower and were offset by improved packaging margins. Cost of products sold increased $54 million driven by higher sales volumes and slightly higher energy costs. Planned maintenance outage costs were lower. Depreciation
and amortization expense in the first quarter of 2026 decreased $192 million as the fourth quarter of 2025 was impacted by the finalization of the acquisition accounting of DS Smith and higher accelerated depreciation associated with mill and plant closures.
PS EMEA results include three months of sales and business segment operating profit (loss) for the legacy DS Smith EMEA business in the first quarter of 2026 compared with two months in the first quarter of 2025. Compared with the first quarter of 2025, legacy IP PS EMEA sales in the first quarter of 2026 were lower driven by lower sales volumes and prices for paper. Cost of products sold were lower, reflecting lower sales volumes partially offset by lower input costs. Selling and administrative expenses were higher compared to the first quarter of 2025 driven by higher overhead costs.
Looking ahead to the second quarter of 2026, sales are expected to be higher. Operating costs are expected to be higher. Input costs are expected to be higher, driven by fiber and energy costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used for) operations, including discontinued operations, totaled $611 million and $(288) million for the first three months of 2026 and 2025, 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 $(36) million for the three months ended March 31, 2026 compared with cash provided by (used for) working capital components of $(622) million for the three months ended March 31, 2025. The change in cash provided by operations in the first three months of 2026 compared to the comparable 2025 three-month period was primarily due to certain significant payments related to the DS Smith acquisition transaction costs, incentive compensation and benefit payments and severance payments made in the first quarter of 2025 which, in total, impacted operating cash flow by $670 million.
Cash provided by (used for) investment activities, including discontinued operations, totaled $565 million in the first three months of 2026 compared with $237 million in the first three months of 2025. The increase in cash provided by investment activities is mainly due to proceeds from divestitures, net of cash divested of $1.1 billion, offset by higher capital expenditures of $187 million, lower net cash acquired from acquisitions of $415 million, lower proceeds from the sale of fixed assets of $62 million and lower proceeds from insurance recoveries of $20 million.
Capital expenditures totaled $517 million in the first three months of 2026, compared to $330 million in the first three months of 2025. Full-year 2026 capital expenditures are currently expected to be approximately $2.0 billion to $2.1 billion, or 103% to 108% of depreciation and amortization.
Financing activities for the first three months of 2026 included a $660 million net decrease in debt versus a $233 million net increase in debt during the comparable 2025 three-month period.
During the first quarter of 2026, the Company had no borrowings outstanding under its commercial paper program and its U.S. dollar denominated committed bank facility.
See Note 16 - Debt to 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, 2026.
Maintaining an investment-grade credit rating is an important element of International Paper’s financing strategy. At March 31, 2026, the Company held long-term credit ratings of BBB (stable outlook) and Baa2 (negative 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.
During the first three months of 2026, International Paper used 2.1 million shares of treasury stock for various incentive plans. International Paper also acquired 0.7 million shares of treasury stock, related to restricted stock tax withholdings during the first three months of 2026. Payments of restricted stock withholding taxes totaled $29 million during this period. Our current share repurchase program approved by our Board of Directors ("Board") on October 11, 2022, does not have an expiration date and has approximately $2.96 billion aggregate amount of shares of common stock remaining authorized for purchase as of March 31, 2026. During the three months ended March 31, 2026, no shares of common stock were repurchased under our share repurchase program.
During the first three months of 2025, International Paper used approximately 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 withholding
during the first three months of 2025. Payments of restricted stock withholding taxes totaled $62 million. During the three months ended March 31, 2025, no shares of common stock were repurchased under our share repurchase program.
Cash dividend payments related to common stock totaled $245 million and $244 million for the first three months of 2026 and 2025, respectively. Dividends were $0.4625 per share for the first three months of 2026 and 2025.
Our U.S. and U.K. qualified pension plans are currently fully funded.
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.
Long-Term Debt
The following summarizes certain material provisions of our long-term debt facilities and current obligations. The following description is only a summary, does not purport to be complete and is qualified in its entirety by reference to the documents governing such indebtedness. For additional information regarding the Company’s credit agreements, outstanding and assumed indebtedness, see Note 16 Debt of Condensed Notes to the Consolidated Financial Statements.
At March 31, 2026, International Paper’s U.S. dollar denominated credit facilities totaled $1.9 billion, comprised of a $1.4 billion contractually committed bank credit agreement and up to $500 million available under its receivables securitization program. Management believes these credit agreements provide sufficient liquidity to manage 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 tied to International Paper’s credit rating. At March 31, 2026, 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 contain no restrictive covenants other than the financial covenants as described in Note 16 Debt of Condensed Notes to the Consolidated Financial Statements, 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, 2026 and within the thresholds stipulated. The financial covenants do not restrict any borrowings under the credit agreements.
Commercial Paper
In addition to the $1.9 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 Company's commercial paper 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. The Company had no borrowings outstanding as of March 31, 2026 under this program.
Assumed Debt
In 2025, International Paper assumed foreign denominated debt of DS Smith in various currencies.
Euro Medium Term Notes
Our subsidiary DS Smith initiated consent solicitations with the holders of several series of its outstanding euro- and sterling denominated notes to approve certain amendments to the notes’ terms and related trust deeds (the “Euro Medium Term Notes”). The amendments were designed to align DS Smith’s reporting and covenant framework with that of International Paper following the acquisition, and to provide greater flexibility for the reorganization of DS Smith’s subsidiaries. As part of the solicitation process, International Paper agreed to provide guarantees of DS Smith’s obligations under each series of the Euro Medium Term Notes. These amendments and guarantees were implemented in March 2025 through supplemental trust deeds. All principal amounts of the affected Euro Medium Term Notes remain outstanding.
Credit and Bank Facilities
The Company amended and restated its £1.25 billion multi-currency credit facility agreement, its €200 million amortizing credit facility and €60 million committed bank facility. The amendments (i) replaced the Company's standalone financial reporting requirements with International Paper’s financial information; (ii) aligned the facility's financial covenant with those in International Paper’s existing credit facilities; and (iii) updated certain events of default and undertakings to reflect International Paper's financing framework and to provide additional flexibility for potential subsidiary reorganization within the International Paper group.
The £1.25 billion multi-currency credit facility allows for British pound sterling, euro and U.S. dollar-denominated borrowings at floating rates plus a pre-determined margin, with borrowings generally denominated to match the Company's cashflows. At March 31, 2026, the Company had €420 million and £20 million (approximately $511 million) 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, 2026, 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 £1.25 billion credit facility agreement.
The €200 million amortizing credit facility agreement provides for interest rates at a fixed rate for each facility. At March 31, 2026, the Company had €150 million (approximately $173 million) borrowings outstanding under the credit facility agreement.
The credit facility agreements do not impose restrictive covenants other than requiring International Paper to comply with the same negative covenants applicable to its existing credit facilities. IP was in compliance with all applicable covenants as of March 31, 2026, and remained well within the thresholds. The financial covenants do not restrict the Company’s ability to borrow under the credit facility agreement.
The €60 million committed bank facility, maturing in 2026, allows for British pound sterling, euro and US dollar-denominated borrowings. At March 31, 2026, there were no borrowings outstanding under this agreement. The Company has a £50 million uncommitted bank facility. At March 31, 2026, the Company had €55 million (approximately $64 million) borrowings outstanding under this agreement.
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. The Company has not made any changes in these critical accounting policies during the first three months of 2026.
The PS EMEA reporting unit approximated fair value after the December 31, 2025 goodwill impairment charge. The estimated fair value of the PS EMEA reporting unit is sensitive to the underlying assumptions and a material change in any one, or combination of assumptions, could result in material future goodwill impairment.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report 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 strategic corporate transactions. 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, costs and expenses associated with, our plans to separate our North America and Europe, Middle East and Africa (“EMEA”) operations into two independent public companies and other acquisitions, joint ventures, divestitures, spinoffs, capital investments and other corporate transactions on a timely basis or at all, including the risk that an impairment charge may be recorded for goodwill or other intangible assets, which may lead to decreased assets and reduced net earnings; (ii) our ability to successfully integrate and realize anticipated synergies, cost savings and profit opportunities from acquired companies; (iii) risks associated with our strategic business decisions including facility closures, business exits, operational changes, corporate restructurings and portfolio rationalizations intended to support the Company’s 80/20 strategic approach for long-term growth; (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 and antitrust related matters; (vii) the level of our indebtedness, 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 price increases or shortages in 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 and tensions involving military conflict and broader geopolitical tensions (including major global actors such as Russia, 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 assets, liabilities and earnings denominated in foreign currencies, 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) a 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) cybersecurity and information technology risks, including as a result of security breaches and cybersecurity incidents; (xiv) our exposure to claims under our agreements with Sylvamo Corporation; (xv) our ability to attract and retain qualified personnel and maintain good employee or labor relations; (xvi) our ability to maintain effective internal control over financial reporting; and (xvii) 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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