- Persistent destocking: International Paper executives said during April’s Q1 earnings call that they anticipated the inventory destocking trend to be nearly over by the end of Q2. “We did not see that as expected,” said Clay Ellis, senior vice president of global cellulose fibers, during Thursday’s Q2 earnings call. Destocking hit IP’s volumes, accounting for “a large portion of overall demand declines this year,” said CFO Tim Nicholls. However, executives noted improvements in June and July, and said that shipments per day were up.
- Uneven impact to box volumes: Destocking and low demand haven’t affected box volumes evenly across all sectors, according to executives. Boxes were hit harder in the consumer durables and non-durables area versus more resilient sectors such as perishable goods like produce, which is also a bigger sector for IP’s finances. “I think it’s because the shelf life is so long [for durables] that they build up their supply chain cover for risk,” said Chief Commercial Officer Tom Hamic, adding that box demand shouldn’t be significantly affected beyond those areas.
- Foreign markets: The export market in the first half of 2023 was “incredibly weak,” said Jay Royalty, senior vice president of containerboard and recycling. However, Q2 brought some inventory stabilization and improvements to order patterns, especially in Latin America. Orders also picked up early in Q3 in Asia, Europe, Africa and the Middle East. “We’re seeing about a 200,000 ton pickup in the run rate of the second half versus the first half,” Royalty said. International Paper has been working for months on divesting from Russia due to the war in Ukraine, but approval of the sale of its 50% interest for its Ilim joint venture is still pending approval by Russian authorities. Sutton said that everything that’s going on in Russia is “a bit of a distraction factor from getting these kinds of [deals] completed,” and he wouldn’t offer a prediction on when the deal might close because “it’s not worth much.”
- Outlook: Executives expect continued improvement in the second half of the year for demand and daily shipments as destocking winds down. They anticipate better volumes in Q3 will increase earnings by $5 million compared with Q2, and declining input costs will increase earnings by $10 million. The company targets capital expenditures of $1.1 billion to $1.2 billion in 2023, with greater investments particularly toward the U.S. box business, which will “expand our capabilities and improve productivity for future growth,” said CEO Mark Sutton. “We are seeing real potential to leverage advanced technology and data analytics.” New tools and capabilities employed over the past year to increase efficiencies and reduce costs already are reaping benefits in areas like reliability and sourcing, and that’s expected to increase as the technologies are implemented across IP’s manufacturing infrastructure, he said.
International Paper says destocking is impacting box volumes unevenly
Early Q3 volumes are starting to tick up, which executives expect to continue through the year.