IP Q2 Deep Dive: Transformation Progress Continues Amid Margin Pressures and Mixed Market Conditions

Packaging and materials company International Paper (NYSE:IP) reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 42.9% year on year to $6.77 billion. Its non-GAAP profit of $0.20 per share was 51.1% below analysts’ consensus estimates.

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StockStory’s Take

International Paper’s second quarter saw revenue growth driven by the full integration of DS Smith and price realization, but cost pressures and operational hurdles weighed on profitability. The market responded negatively to the results, as management acknowledged that cost performance in North America and EMEA was below expectations, with ongoing mill reliability issues leading to missed profit opportunities. CEO Andy Silvernail described the reliability challenges as stemming from years of underinvestment, stating, “We are hyper-focused on this area for improvement,” and emphasized the company’s efforts to address foundational operational basics.

Looking forward, International Paper’s outlook is shaped by ongoing transformation initiatives targeting commercial excellence and cost reduction, while macroeconomic uncertainty remains a headwind. Management highlighted plans to accelerate the 80/20 operational improvement strategy across both North America and EMEA, and expects to see benefits from strategic customer wins in the second half of the year. Silvernail cautioned that external factors such as tariffs and geopolitical volatility could impact demand, but stated, “We have momentum from our actions to drive substantial cost out and meaningful growth from our commercial wins.”

Key Insights from Management’s Remarks

Management cited the integration of DS Smith, progress on the 80/20 operational initiative, and targeted cost-out actions as central to the quarter’s developments, while also pointing to persistent cost challenges and market volatility.

• DS Smith integration impact: The acquisition of DS Smith contributed to higher revenue and brought additional operational complexity, particularly in aligning mill and box plant assets across North America and EMEA. Management described asset quality as a “mixed bag,” with ongoing efforts to drive integration and optimize the asset base.
• 80/20 operational strategy rollout: The company accelerated deployment of its 80/20 strategy, focusing resources on high-priority customers and critical assets. This initiative, already gaining traction in North America, is being extended to EMEA, with management highlighting improved on-time delivery and enhanced customer service as early outcomes.
• Cost-out and footprint optimization: International Paper announced closures and sales of several facilities in North America and proposed plant closures and regional consolidation in EMEA. These actions are aimed at reducing structural costs and enabling reinvestment in strategic assets, though management acknowledged significant work remains.
• Mill reliability issues: Persistent reliability challenges in North American mills resulted in an estimated $150 million in lost profit for the year to date. Management attributed this to historical underinvestment and stated that improving mill performance is essential for unlocking further financial gains and competitiveness.
• Market conditions and pricing: Demand in North America was stable but subdued due to economic uncertainty and tariffs, while EMEA faced sequential volume declines and rising fiber costs. Management expects EMEA demand to moderately recover in the second half, but noted that pricing dynamics remain uncertain, especially in Europe.

Drivers of Future Performance

International Paper’s forward outlook centers on executing its transformation plan, improving mill reliability, and capturing commercial wins while navigating market and cost headwinds.

• Ongoing transformation execution: Management is focused on completing the rollout of the 80/20 strategy and cost-out initiatives, particularly expanding operational improvements to EMEA. The goal is to reach a $1.1 billion commercial excellence benefit and $1.9 billion in cost reduction by 2027, with progress toward a $3.8 billion EBITDA run rate in the second half of the year.
• Mill reliability and asset investment: Addressing mill reliability is a key internal priority, as management believes improving this area will enable better asset utilization and support profitable growth. CEO Silvernail noted that accelerated reinvestment in strategic mills is underway, with the expectation that reliability gains will drive both efficiency and customer satisfaction.
• Market volatility and external risks: Unresolved tariff negotiations, macroeconomic uncertainty, and variable demand in both North America and EMEA are ongoing risks. Management remains cautious about the potential for a significant demand recovery but is optimistic that strategic wins and improved service can support growth if market conditions stabilize.

Catalysts in Upcoming Quarters

In the coming quarters, our analyst team will watch closely for (1) measurable improvements in mill reliability and cost performance, (2) successful realization of anticipated commercial wins and closing the market share gap in North American packaging, and (3) tangible progress on EMEA restructuring and demand recovery. How these factors interact with ongoing macroeconomic uncertainty and tariff developments will be key signposts of International Paper’s transformation trajectory.

International Paper currently trades at $48.36, down from $53.69 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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