Most of International Paper’s transformative work is nearly finished, and the separation of DS Smith is coming in weeks. CEO Andy Silvernail revealed what led to the decision to split the company just a year after the acquisition closed, in addition to offering predictions for economic headwinds resulting in a “slog” in 2027, during the Baird Industrial Conference on Wednesday.

Silvernail joined IP as CEO in May 2024, a time when “the level of the transformation required for International Paper was monumental,” he said.

The company has since removed some structural costs, including by shrinking its North American footprint via closures, consolidations and layoffs. But IP also doubled the amount of investments in its assets, including through upgrades, new buildouts and acquisitions.

“As long as I am CEO, we are never going to make the mistakes that we made the past 15 years,” Silvernail said, pointing a finger at previous leadership’s lack of investment into the core business following the Great Recession, starting around 2010 or 2011. In the late 2010s, operating expenses started going up because the company didn’t focus on capital expenditures in facilities, he said.

A few years later when the COVID-19 pandemic occurred, “massive demand went on the system, and that showed the underinvestment in IP,” Silvernail said, emphasizing the importance of consistent investments year after year. “By 2022, we were dead last of the majors” in customer satisfaction, but “we’re now back to being No. 1.”

Investment now isn’t easy because of how much costs have increased, he said, stating it’s 50% to 75% more expensive to build a box plant now than in 2020. But the overall transformation work is paying off, Silvernail said. IP started to see a profitability inflection in the third quarter in terms of EBITDA margin, and that’s expected to continue in Q4.

“The last 2.5 years have been a heck of a journey,” he said, noting the “insanity of the external world in terms of tariffs and wars and inflation, and now the separation of IP from DS Smith.”

The big split

When DS Smith spins off from International Paper, it will be “a really important milestone” in IP’s transformation, Silvernail said. The separation is still on track to happen soon — Q1 2027 at the latest — and DS Smith might be sold in the process. 

The announcement about the acquisition came in 2024 just weeks before Silvernail officially joined IP. “I was right there as that decision was being concluded,” he said. Silvernail reports being forthright during those conversations and saying, “I reserve the right to change anything.” 

He exercised that right following a multimonth stint visiting operations in Europe last year after the deal closed. That trip resulted in some conclusions about the two businesses’ synergies — or lack thereof — in terms of both customers and costs.

“On the surface, both of those arguments were true,” Silvernail said. “When you get into the fundamentals of how it really worked, that was not true” about the cost and customer synergies.

Significant differences were visible to him in areas such as market structures, competition, customer purchasing and energy use. The European market handles more fast-moving consumer goods, so innovative changes happen faster. It also works more with recycled fiber and does more packaging lightweighting than the U.S. market. And the U.S. market heavily factors in logistics because goods are shipped longer distances.

Therefore, during a late 2025 discussion with IP’s board, Silvernail said: “We need to separate this.” 

“Of course, you can imagine what the whole world said was, ‘Really?’” Silvernail said while chuckling. “We went and did a lot of deeper work around those hypotheses. ... But once you've made that conclusion, you should move. Time is not your friend.” 

Slogging through 2027

When faced with internal or external challenges, Silvernail prefers to “just tackle it” and “position your business to thrive within whatever world that we're in.” That approach could prove valuable in the coming quarters considering his projections for next year.

“I don't see a miracle in 2027 in terms of economic change,” Silvernail said. “I think we should expect '27 to be a slog. I really do. And I think it's going to be a slog in terms of demand.”

The DS Smith separation is expected to leave IP with $30 million of “stranded costs,” and “that will whittle down over time,” Silvernail said. Next year, IP anticipates cutting between $250 million and $350 million of incremental costs and achieving $900 million to $1.1 billion of benefits from price increases.

Silvernail credits business transformation efforts with helping IP weather challenging economic conditions in recent months. Price increases during his tenure have “basically covered inflation” and “almost zero” inflation has hit the bottom line incrementally, he said.

Inflation this year is projected to have a $250 million impact, and that will likely more than double to about $600 million next year, Silvernail said. However, “our job is to overcome that. And I think we're well positioned to do that as we go into '27.”