Q1 2021 International Paper Co Earnings Call
Good morning, and thank you for standing by.
To today's international papers first quarter 2021, Investor Earnings Day Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, you'll have an opportunity to ask questions.
To ask a question press star one on your telephone keypad to withdraw your question press the pound key.
I'd now like to turn today's conference call over to Guillermo Gutierrez, Vice President of Investor Relations.
Thank you Maria and good morning, and thank you for joining and international paper's first quarter 2021 earnings call. Our speakers. This morning are Mark Sutton, Chairman and Chief Executive Officer, and Tim Nicholls Senior Vice President and Chief Financial Officer. There is important information at the beginning of our presentation on slide two including certainly.
Disclaimers for example, during this call we will make forward looking statements that are subject to risks and uncertainties, including the impact of COVID-19.
We will also present certain non U S GAAP financial information and <unk>.
Conciliation of those figures to U S. GAAP financial measures is available on our website.
Our website also contains copies of our first quarter 2021.
Earnings press release, and today's presentation slides relative to the old joint venture and graphic packaging and subsequent slides two and provides context around the financial information and measures presented on those on news I will now turn the call over to Mark Sean.
Thank you Pierre and good morning, everyone.
And when we get our discussion on slide three.
International paper and delivered solid earnings and strong cash generation and the first quarter.
Our mill and converting system performed well and to mitigate a significant impact on the winter storm and support and strong customer demand across all on our packaging channels.
Input costs, and transportation, where I had one and the first quarter.
<unk> four and.
Energy, which was impacted by the duration on the severe cold temperatures and the southern U S.
We see momentum building and continuing.
To build across our three businesses with very strong demand for corrugated packaging and containerboard and solid demand for absorbing Paul and.
And and papers, and we're seeing and improve supply and demand backdrop and all of our key geographies.
On capital allocation from the first quarter, we repaid $108 million and debt and.
And we returned $331 million to shareholders, including $129 million.
Share repurchases.
Our performance again demonstrates the agility and resilience and international paper to perform well.
<unk> many different circumstances.
We're passing the one year mark of the global pandemic and I could not be any proper and the commitment of our employees to take care of each other and take care of our customers.
The vast majority of our 48000 team members working our mills and converting plants, each and every day and their health and safety remains our most important and responsibility.
We also made solid progress on the spinoff and our printing papers business, which we expect to complete late in the third quarter of this year.
Our team is also making strong progress to develop and 11 and multiple streams of earnings initiatives to achieve.
$350 million to $400 million and incremental earnings and accelerated growth by the end of 2023.
As we work to build a better IP and we remain laser focused on debt.
Delivering superior solutions to our customers executing well.
And meeting our commitments to our shareowners and our other stakeholders.
Turning now to slide four which shows our first quarter results.
We delivered EBITDA of $730 million and.
Free cash flow of $423 million.
Spite, the $80 million pretax earnings impact from the winter storm and the Southern U S.
Revenue increased by more than $100 million.
Sequentially, primarily driven by price realization and our packaging and global cellulose fibers businesses.
And again free cash flow and a strong and a continued focus on running our business as well.
On a cost and actively managing our working capital.
Now I'll turn it over to Tim who will cover our business performance and our second quarter outlook Tim.
Thank you Mark and good morning, I'll start on the quarter over quarter earnings bridge on slide five.
First quarter operating earnings were <unk> 76.
And winter storm impact on pretax earnings by $80 million or 15% Tim.
Packed to operating EPS.
Still on the very early stages of the insurance process and do not have a recovery estimate at this time.
Looking at the bridge price mix was strong driven by prior period price flow through and packaging and cellulose fibers.
Volume was essentially flat with continued strong demand for corrugated packaging and consumer going forward.
Overall papers volume continues to recover even though we saw the expected seasonal decline from papers and Brazil, and the first quarter.
Operations and costs were favorable mill and box system performance was solid and helped mitigate the impact of the winter storm, which was a cost have line of $55 million to operations and.
Maintenance cost increased sequentially, and we expect to complain about 65% of our maintenance outages and the first half of the year.
Input costs were unfavorable which included a $20 million cost impact from the storm, mostly for energy and raw materials, such as starch and adhesives.
Overall, we're seeing higher costs from recovered fiber energy and chemicals and distribution, which we expect to continue and the second quarter.
Transportation and conditions are challenging and we're experiencing significant rail truck and ocean transportation transportation and congestion.
Higher corporate expenses were driven by a noncash foreign exchange loss on intercompany loans and lower equity earnings partly attributed to the reduced ownership position and G. P. J.
Turning to the segments and starting with industrial packaging on slide six we continue to see strong demand across all of our channels, including box sheets and containerboard.
For the quarter volume was essentially flat.
The last 145000 tons of containerboard production and due to the winter storm.
And although our mills and box plants and the region and recovered quickly the storm net impact sales in the quarter.
We have nearly 30 box plants, and Texas, Louisiana, and Mississippi and affected by the storm, which impacted our box shipments and the quarter.
Price and mix from strong.
Our November increases essentially implemented fully with the $131 million.
Dollar first quarter realizations.
And I would add this is one on the SaaS implementations that we've seen.
Operations and costs includes about $55 million impact from the winter storm.
Half of which is due to unabsorbed fixed cost and the balance is related to repairs and higher distribution costs.
Overall mill and box plant performance was solid and we leveraged our system to support strong customer demand across all of our channels.
Maintenance outage costs increased sequentially.
We did defer about $30 million of maintenance outages from the first and the second quarter due to the significant production and loss, resulting from the winter storm.
We expect to complete about 75% of our planned maintenance outages for packaging and the first half of the year.
Input costs were a significant headwind and the quarter, including about $20 million related to on the winter storm due to higher energy.
Distribution on raw materials, and our mill system and box plants.
Higher recovered fiber costs were another significant headwind and the quarter.
And we expect continued cost pressure from recovered fiber and energy distribution and the second quarter and we're still seeing the lingering effects and certain chemicals produced in Texas, and Louisiana and suppliers recover from the winter storm.
Turning to slide seven as we entered the second quarter and we're seeing continued strong demand across all of our channels U S and export containerboard demand is strong with low inventories and all regions.
Our first quarter shipments were impacted by the significant production loss, resulting from the storm on.
Working with our customers to recover from extensive backlogs.
And our U S box system demand remains robust as more states start lifting of restrictions.
E Commerce again grew at a strong double digit pace from the first quarter and we believe the majority of the accelerated consumer adoption and this channel is permanent.
And the states starting to reopen and we're also seeing improved demand and segments with greater exposure to restaurant and foodservice channels, such as produce and protein, although we're still not back to pre COVID-19 levels.
Non durables, excluding food and beverage represents about 30% of U S box demand across a wide range of consumer and industrial products.
Segment is benefiting from strong consumer demand and the broad manufacturing sector recovery and <unk>.
Lastly, and demand for durable goods, which had the immediate and pull back due to COVID-19 is benefiting from a healthy housing market.
We're well positioned and have the scale and footprint to serve just about every corrugated segment and a meaningful way and our packaging team continues to focus on delivering superior packaging solutions to help our customers succeed.
Turning to slide eight I'll provide an update on the progress, we're making and our EMEA packaging business.
Our objective is to bring this business back to sustainable mid teen margins and generate returns above our cost of capital and we're well on our way to achieving our goal.
And the first quarter, we improved adjusted EBITDA by nearly $20 million compared with last year.
And Madrid mill is fully ramped.
And we have more integration and cost opportunities available.
We're integrating our world class lightweight recycled containerboard and with our box network and southern Europe to provide customers with a broader array of packaging solutions.
We've improved our footprint and the Iberian peninsula through selective acquisitions, including two box plants and spending and acquired at the end of the first quarter.
These acquisitions provide additional integration opportunities with the Madrid mill and more importantly, and enhance our commercial capabilities on the region.
Yes.
We continue to make progress on our box system performance and have more opportunity ahead.
All of our clients have clear commercial and operational plans and were leveraging the skills and resources from across the company to deliver on our commitments.
Map on the slide shows our packaging footprint and Europe. After the sale of our Turkey packaging business, which we expect to close.
And the second quarter and.
After the sale the EMEA packaging business will have to recycled containerboard mills, and 21 box plants and <unk> plants and again, our commitment is to bring this business to sustainable returns above our cost of capital.
Moving to global cellulose fibers on slide nine price and mix was favorable with price realization and accelerating across all pulp segments on the first quarter.
Volume was moderately lower due to the shipping day delays related to port congestion.
Demand for fluff is solid and we have healthy backlogs.
Operations and costs improved sequentially driven by the non repeat of the $20 million write off and the fourth quarter as.
And as well as solid operations and good cost management.
These improvements were partially offset by about $10 million of higher seasonal energy consumption.
And on FX loss, and our mill and Canada.
Maintenance outage costs decreased as expected and input cost increase.
And a higher wood costs and the mid Atlantic region, as well as higher energy costs.
Demand and improved as we entered the year and the end use demand signals for absorbent hygiene products and yourself.
Turning to printing papers on slide 10.
Our business on papers business has demonstrated outstanding resilience throughout the past year.
Our performance reflects the talent and commitment of our team the scale and capabilities of our global footprint.
And the strength of our highly valued brands.
We continue to see steady recovery and demand across all regions, which we expect will accelerate with broader return to office and returned to school activity.
I would also add and we've seen significant improvement and supply demand dynamics, both within the U S and outside the U S.
Looking at our first quarter performance price and mix was stable across the segment volume decreased sequentially due to the lower seasonal demand in Brazil, and Russia as expected.
I'd also note that the export supply chain are stretched and much most regions operations and cost improved on solid operations and good cost management as well as a favorable FX and Brazil are about $10 million.
Fixed cost absorption improved with economic downtime decreasing by 40000 tons sequentially across the system.
Maintenance outages increased modestly as expected and input cost increased primarily due to higher wood and energy costs and North America.
Looking at <unk>.
On slide 11, the joint venture delivered $49 million and equity earnings on the first quarter with on EBITDA margin of nearly 35% driven by higher average pricing.
Volume decreased sequentially, primarily due to fewer shipping days because of the Chinese new year as well as the impact of tight shipping capacity and China.
Underlying demand remained strong as we enter the second quarter.
And lastly in April we received a $144 million dividend payment from <unk>, which is $44 million higher than the estimate we provided last quarter.
Now, we can turn to the outlook on slide 12 and <unk>.
And with industrial packaging.
We expect price and mix to improve by $75 million on realization of our March 2021 price increase.
Volume is expected to decrease by $10 million on lower seasonal demand and Spain, and Morocco as the citrus season winds down.
Operations and costs are expected to improve by $15 million with.
With a full recovery on the winter storm impact, partially offset by higher and incentive compensation accruals related to a stronger outlook.
Staying with industrial packaging.
Maintenance outage expense is expected to increase by $77 million.
And then the costs are expected to increase by $20 million due to higher OCC energy raw materials and distribution costs.
And global cellulose fibers, we expect price and mix and increased by $100 million on realization on a prior price movements.
Volume is expected to increase by $5 million.
Operations and costs are expected to decrease earnings by $10 million.
Maintenance outage expense is expected to decrease by $10 million and input costs are expected to be standard.
Turning to printing papers, we expect price and mix to increase by $25 million.
Volume is expected to increase by $5 million operations and costs are expected to decrease earnings by $10 million due to the non repeat of a foreign currency gain and Brazil during the first quarter.
Maintenance outage expense is expected to increase by $22 million and input costs are expected to increase by $5 million.
And under equity earnings you will see the outlook for our drilling joint venture loans.
Turning to slide 13, I wanted to take a moment to update you on our capital allocation actions and the first quarter.
We're committed to maintaining a strong balance sheet, we have no significant near term maturities and and the first quarter, we reduced debt by $108 million.
We also returned $331 million to shareholders, including $129 million of share repurchases, which represented about $2 6 million shares and an average price of $50 and 28.
We acquired two box splits and staying at the end of the first quarter. You can expect M&A to continue to focus primarily on bolt on opportunities and North America and Europe.
And lastly, and the first quarter, we monetized about $400 million of our steak and graphic packaging after that transaction, we now hold about seven 4% ownership and the partnership.
And with that I'll turn it back over to Mark.
Thank you Tim.
Turning to slide 14.
As we enter the second quarter and mindful that we are scaling the midst of a global pandemic and there is still significant uncertainty and the geographies and markets that we operate.
Having said that we see momentum building in our three businesses. We continue to see very strong demand for corrugated packaging and containerboard and North America and Europe.
We're also seeing solid demand for absorbing Paul with more favorable supply demand dynamics as paper grade pulp demand recovers.
And printing papers were seeing a steady recovery and demand.
And in areas, where schools and offices have reopened and we're seeing a step change improvement.
Overall, we're seeing a much better supply and demand backdrop.
We expect price flow through from prior price increases across our three businesses, we expect margins to improve EBIT as we manage through the impact of higher input costs from recovered fiber energy and transportation.
In addition, we expect productivity and other cost initiatives to offset general inflation.
All of this contributes to a more favorable outlook for 2021.
And I'll and our prepared remarks on slide 15, and just wanted to take a moment to reflect on what has now been a full year and learning and working and a global pandemic environment.
When we share and our first quarter performance last year, and we talked about all the protocols, we quickly put in place to keep our employees and contractors safe.
And that we can continue taking care and our customers.
We stay diligent about adhering to those protocols and we will remain steadfast for as long as it takes to get fully and sang from past the whole gamut.
We continue to operate in this environment with a view towards and short term and long term success and sustainability of international paper for all of our stakeholders with an unwavering commitment and health and safety of our employees and contractors to understand and and taking care of our customers needs as they also adapt and rapid change to supporting the cash.
Nicole needs and our communities and to building a better IP for all of our stakeholders.
Since the pandemic began non a day goes by and I don't think about the commitment of our employees and especially our frontline teams for their ability to adapt well and perform at a high level and cross circumstances and geographies and <unk>.
Once again I want to take this time and thank each of our employees for their role and making our company strong and resilient.
And with that Tim and I are happy to take your questions.
Thank you and as a reminder to ask a question press Star one.
And with July question press the pound key.
We do and that you. Please try to limit yourself to one question and one follow on.
Please hold while we compile the Q&A roster.
Our first question comes from line from Mark Willoughby of Bank of Montreal.
Good morning, Mark Good morning, Tim Good morning.
Good morning.
Mark and I'm, just curious it does seem like the.
Containerboard business really has accelerated globally, not just containerboard and corrugated and.
And if the market is quite tight and I'm, just curious about how that might be impacting your thinking about the potential conversion of the second line down at Soma.
That's a good question Mark we obviously.
And I have looked at that and.
And what product and we might need and the future. If you just play out the current conditions you would probably look at you.
Using some of that from a <unk>.
<unk> standpoint sooner.
Outside of interruptions like we talked about with winter storm and one offs, we have largely the containerboard we need when you look at all of our channels domestic and on.
And one box.
Domestic up and market and export from what we believe is the foreseeable future.
It's a good option for us and in the future.
And it depends on the type of range, whether it's medium or linerboard that we need one is quicker and less expensive and the other but and so on our on our radar screen and we don't see and Egypt immediately do that right now when we operate well and we.
And the interruptions like we had and the first quarter, we feel quite confident and our containerboard quality type of grade and overall capacity.
Okay, and just as a follow on and I could mark I know that.
Both European producers and North American producers have been sort of pulling out of the export market and kind of re channeling volume did their domestic businesses and domestic customers.
And I'm curious about how you think about this and the context of taking care of long term export customers because I think there's some real concern by converters and places like Latin America that have always relied on on imported board.
Yes, it's definitely important to us IP is probably the largest provider of craft line of warning Latin America, and Europe for long term customers, who use it because it's needed and that's critically important to us and we've talked about the important importance of our chat.
And as to market, especially for Kraft liner things.
Things are very tight right now disruptions make that.
And further.
And the more difficult for the supply chain.
I think where we are right now as inventories were very low through the system with our customers and are on processes and we are working individually with each of our customers and I can't speak from others, obviously to make sure. We can provide as much of their needs as possible and the time that they need it but I think.
Looking at a tight supply chain, especially.
And especially for Kraft liner for the foreseeable future.
Okay, Great I'll turn it over thank you Mark.
Yes.
Our next question comes from the line from George Staphos with Bank of America.
Hi, everyone good morning, and.
I hope you're doing well. Thanks. Thanks for the details I guess my first question is really around the corrugated volume.
And Mark you mentioned that from what Youre seeing and the <unk>.
Acceleration from E Commerce that you think the and I'm on.
Paraphrasing and.
And the new consumption levels and new usage of targeted they are more or less here to stay.
We intend or don't expect that to receipt. So can you tell us why what evidence youre seeing that suggests that and and how your volumes have looked to the extent and you can comment early and the second quarter.
So it's a great question George I think one of the things we look at is what our customers look at it and on the E Commerce part of your question.
Being really important winning customers investing more and their capability and putting real dollars and real equipment and real capability and hiring employees and their data analytics around customer repeat buying and all of that gives them confidence to believe that a good portion of this share.
On E Commerce weighted retail is permanent and it may not be 100% permanent but it is and majority of it so and we look for to use from our customers instead of trying to.
Wish you and guess at it.
And I'm certain is as things return to a more normal environment, what does traditional retail do.
Is it a net loss to e-commerce or is it.
A hybrid where theres still going to be some.
Normal return to in store and brick and mortar type retail and you can look and a lot of information studies and listened to companies earnings reports that are and those businesses and it's hard to conclude from that so our box volumes in April for our <unk>.
One make box.
And the boxes, we made.
It looks the trends look like Theyre continuing from the first quarter that I'll remind you we serve multiple channels. So we are up and we're in the box market, whether we make the box whether we have a long term strategic partner using our containerboard and making specialty boxes on whether it's a pure open market and we're seeing those volumes up.
Close to double digit for the debt.
And overall exposure, we have for the North American box markets. So it looks like more on the same we.
We do see some channel shifting which is good news, we see obviously, some foodservice and restaurant supply picking up where that shows up for IP and we're overweight in this area is fresh food produce and kinds of things restaurants by on a.
Twice weekly three times weekly basis, which really got hit hard and the pandemic. So we're encouraged by what we're seeing and the demand trends and the segment exposure that we have.
Thanks, Mark just a point of clarification, the close to double digit reference that you just made what was that referring to.
And it's all the channels to market that we provide.
And the U S box market, so our vertical channel and our own box business, we have some strategic partnerships, where we either partial ownership on our majority ownership downstream and the converting and usually thats specialty type products and then we have just the pure off and market, where we have long term arrangements.
And when we look at the activity and the.
And that we participate in the U S box market, it's really strong okay. Thanks for that and my other question. Recognizing this was a very different and first quarter from a storm and outage standpoint and.
Clearly, we can understand why you saw such a pickup and energy costs and the quarter.
Looking back over time, it looks like Ip's consumption of energy has been relatively constant.
There given what we've seen the last quarter and given that experience.
What are the areas that you see where perhaps IP can become even more efficient within its mill network in terms of energy consumption. Thanks, guys and good luck on the quarter. Thanks, George It's a good question on energy.
And the main thing we can do on our mill system side is maximize our own make energy and our fully integrated Kraft liner mills, where we make anywhere from 75% to 85% of our LNG with carbon neutral biomass and there's more we can do there sometimes it takes investment as you know what we've done with our capital investment program over the last couple of years.
And navigate some strategic projects like Riverdale, and then the pandemic and managing on our entire liquidity situation.
Those are the type of projects that you can go back and get later, sometimes it's unfortunate, but we're delaying them, even though they have really good returns and so we've got more investment we can make fuels.
Fuel switching and we've done a lot of natural gas from other higher cost skills and in the converting plants, we don't make our own energy. So part of its geographical exposure to the grid and part of it is energy efficiency.
Through the use of energy and the plant most all of that wherever you are now and our company in terms of consumption. Most all of that is part of our investment profile and usually George those projects have the highest highest returns and we plan to invest and increase our investments and those areas.
Now that all phases of our financials.
Condition on barring a much stronger.
Thank you Mark.
Our next question comes from the line from Mark Weintraub of Seaport Global.
Sure.
Thank you.
First question was you really did have a lot more pricing in the industrial packaging business flow through than I think.
Your original guidance had been and you mentioned Tim debt. This was one of the fastest.
Pass throughs or.
And your ability to get price what turned out to be very good can you give us more color on what.
Happened and and what it tells you.
It's a difficult question Mark because.
There is so many customers and so many.
Commercial agreements I think the general answer is when you have this type of demand and and a lot of our customers are dealing with multiple supply chain challenges. It's not just the packaging that they get the other inputs.
Thank the discussion time about the grey area and every commercial relationship about how fast or how slow no on modest price increases obviously that dynamic just lends itself to let's get this done and get our get our material in and get it in as quickly as possible because.
Got 17 problems and the box is only one of them and that's just a general answer and the dynamic out there right. Now is as things are very tiny in multiple parts of the supply chain from a lot of our customers.
And everything at the final net.
And when you implement tends to be a human to human negotiation and it just went faster.
Great and can you give us a sense.
Recognize that certainly by the end of the quarter was all in is there still some carryover impact debt included in that $75 million that youre looking for and the second quarter versus the first quarter or was that actually genuinely all from the new initiatives.
Yes.
And Mark there's probably just a little bit.
And from the first price increase but virtually all of it Tim.
And so we're looking forward now to the margin increase implementation.
And one last and sort of and the same vein, but and the pulp business, where great to see that hopefully second quarter will actually be a little bit and the black.
And I imagine no closer to the way those contracts are laid out debt even based on the price is price increases you've already implemented.
There should presumably be more to come in the second half of the year.
Is that valid and B do you have pretty do you begin to have pretty good visibility on that or is that going to be negotiations and conversations yet to come.
Yes.
And we gave an outlook I think that number was $100 million and price and the second quarter and Thats as far as we're going to go on that but we like as I said in my closing our prepared remarks, and really like the momentum and cellulose fibers right now a big part of that line is the movement on pricing, but I don't want to go out into the third or into the third quarter and.
And fourth quarter, but.
And can you just take that.
And the confidence we have and the trajectory and thank you can make some conclusions.
Thank you.
Our next question comes from the line of Adam Josephson with Keybanc.
Hope Youre well.
And Tim one question on the guidance.
2021 momentum building spot and I asked the same basic question on the last call, but so everything seems to be getting better.
And you go through the year.
Why not resume providing guidance at this point I know about all the on there are many uncertainties as there always are so.
Did you how much consideration did you get to doing that and why did you reach that conclusion at least for now that you don't want to resume doing so.
Yes, that's a good question Adam.
And we don't provide guidance as such we give an outlook.
It is true that in prior periods, we had talked about our full year outlook and.
Expectations, sometimes within a range.
It's something that we look at every quarter I think were.
Some of the uncertainty around COVID-19 is seems to be diminishing.
But I think maybe as we get to the middle of the year, we'll have a better feel for vaccination rates and what's reopening and what's not and so it was just.
Not enough and onward view.
At this point and time to start talking about full year guidance, but.
We do have a lot of optimism about how we see the year playing out.
Adam.
Yes, Tim.
Just to add to and it's a good question. We have we have given the investment community as Tim said and at least on EBITDA range couple of other numbers for full year expectations. I think what's missing is that EBITDA number we did talk about our capital expenditures for example.
But as we get into this year and full year guidance given in the middle of the year I think is maybe less valuable data from them and again and it was the beginning of the year and look I'm an optimistic person you know me personally.
Adam I am feeling really good about where we are but just as soon as I say that I think about our employees and Poland right now on our employees and Brazil and they are aware we were during the Christmas holidays and in January with pandemic and its effect on their economy and their lives. So I just don't want to get out over our skis and say things that apply.
And this is all behind us only gonna have to come back and stabilize that was too quick so I know its all frustrating, but we're trying to give as transparent and outlook as Tim walked through and methodically.
All of those numbers on the outlook slide and hopefully that gives people a sense of the big picture, which is things are really strong and improving and we have as Tim said on the capital allocation slide and balance sheet. That's headed very quickly to the low end of our range and.
And good cash generation flowing cash through the capital allocation framework dividends share repurchases like we committed to albeit interrupted for a pandemic not casually and so that's the message I really want investors to sure to takeaway and analysts to work with.
But your point is well taken and information you used to have that you don't have right now.
And I really appreciate that Mark and just one other question for you on on back to the ecommerce and the whole box demand issue.
And just to talk about the relationship between.
Box demand and GDP and between box demand and nondurable industrial production and you have that really good slide and your roadshow hand out to that effect.
How do you think those relationships have changed if at all given this new information you have about the presumed permanence of this e-commerce growth.
And that's a really good question and I know our team is looking at the <unk>.
You can see at that model that that creates that slide you are talking about and our roadshow, where we had the non durable and the transportation index and a number of other metrics.
I don't know if we've decided that there is a shift and it yet and I know our team is looking at it is and as soon as we have something that we feel good about and that is that it's legitimate and statistically valid.
We like to share that in our and our industrial material and we'll do that and the future.
Thanks, so much mark silicon and the quarter.
Our next question comes from the line is still Inc of Jefferies.
Hey, guys I.
I appreciate it and Theres, a greater lag and the flow through on pricing, but with fluff pulp prices approaching 2018 levels.
And the commercial initiatives you guys are implementing how quickly do you think that earnings power for cellulose, Canada returned back to 2018 levels.
Well, we gave the outlook for the second quarter and you can look at the trend there on just the pricing comment of $100 million.
I think we are we are in that part of the on.
On the pulp market dynamic and were also trying as I mentioned.
Multiple times on and we're trying to change the business model.
<unk>, primarily on how we go to market and how we interact with our customers so that we.
And we put more sustainability sustainability and less volatility and the business and that that's a lot of work.
Not work I can comment on because it's customer specific but we feel good about where and we are on it right now and we think the business can get back to and then if we can invest and the cost side.
Prove upon what numbers youre talking about from from <unk>.
And <unk>.
That's great I appreciate that color it seems like a solid game plan. The 145000 lost tons and containerboard from the winter storms is your view you would have essentially sold pretty much all of that or would that had been Canada and an effort to hang on to build inventory. The reason I'm asking I'm just trying to gauge if you view that as pent up demand for QQ and and more.
Raleigh, just given how tight things are do you have bandwidth kind of supply your customers given how strong demand is right now.
Yes.
We're working hand in glove with customers across all of our channels trying to make sure that where we are.
Meeting their needs as quickly as possible, having said that it's a challenge to 145000 tonnes a big portion of that was available for sale and ready to go and some cases as we go into the second quarter is a heavier maintenance outage quarter and so part of it is preparing for that as well but.
And definitely missed opportunities on the containerboard side, but as if not more importantly on the box side with 30 plants down and Cigna.
Significant exposure so our estimates.
And that exposure is that.
The growth that we had in the quarter would've been closer to overall industry growth, if we hadn't had that disruption.
But do you see that demand still there or your customers kind of what else were to kind of get supply just given how tight things are.
Well some of it is there some of them are still working through as I mentioned in prepared comments working through the backlog.
All of these channels have different lead times on orders and.
And when customers are expecting them and so we're working and working through it and customer by customer on that basis.
Okay Super helpful guys I appreciate it.
Our next question comes from.
Mark economy.
And finally on sales question, if we remove the storm impact that held back first quarter is there and any reason to think that IP can't match the industry shipments in 2021 or even exceed it im thinking about the outages and the maintenance timing shifts and that sort of stuff because obviously there was a lag.
A lagging performance and for Q2, so I just want to make sure we're not missing anything.
No. It's a good question Mark and Theres No reason to believe we can't match or exceed given our size exceed means.
Some basis points not multiples, but theres no reason, we can't match the market fourth quarter. We did have some operational issues. If you recall and then not.
And not an excuse but this just geography and the winter storm matched right on top of us.
Sure No reason no reason, you shouldnt expect us to perform at or better than the market.
Okay and then thank you that's helpful.
Just on EMEA.
And at Tims comments, how does the push to mid teens margins in EMEA breakout between converting and mill opportunities I'm. Just wondering if they are spending opportunities at those mills or if most of the incremental investment and improvement is coming on and converting side.
Yes, it's a good question Mark.
And we think we have additional opportunities not the so many of them require capital and the mill operations, but just in terms of how we're managing cost as we get fully up the ramp curve and integrated and it's both mill and supply chain.
So we see more opportunity.
For the mill in Spain, and the other mill is more mature mill thats been there for a while and so it's probably running at an optimal level, but and.
In Spain, and given the integration play we see more opportunity.
So, bringing some of the strengths and the integration that you have and the U S over to there okay.
And that's very helpful. Thank you.
Our next question comes from the broker.
UBS.
Hi, good morning, everybody. Thanks for taking my questions. Good morning, and Theyre, just first off I wanted to follow up on the $350 million to $400 million of incremental.
EBITDA.
And I think 300 of that was supposed to be from cost savings and I really.
Q1 was kind of challenging but I didn't hear an update on <unk>.
How much of that you've achieved to date or how much you expect to achieve this year and headed towards that 2023 exit rate.
Yes.
We didn't provide one so we're working through our plans right now and we're in the process of.
And beginning the implementation of all of that we.
And we pointed on the last quarterly call to some of the benefits that we saw coming through more of the process automation and using data analytics and technology and as we go through this year, we're looking forward to.
Probably the third quarter, and where we provide a robust update in terms of all of the plans that are being executed.
Achievement this year, but also run rate.
Expectations for 2020 two.
Okay, Alright, that's that's clear and then I guess just to follow up on the.
On the containerboard and corrugated box business could.
Could you give us just a sense of where your inventories stand.
Given the disruptions may I guess, where you are today, and and inventory level versus where you'd like to be or.
Where you've been historically on average.
And kind of what the trajectory is there on the inventory side, given the outages and the second quarter.
And the easy answer is were lower than we'd like to day.
And that's the source of the and took a lot of comment Tim just made so we need to rebuild while we serve our customers active demand and we need to be very efficient and rebuilding important roll stock inventories across the broad range of boxes, and we have to make so.
And there's more for us to do it's not unexpected and when you have this type of demand coupled with one off interruption of the store and we talked about and then just the timing of outage schedules, but.
Glenn you just we haven't really big system and is very flexible and it recovers very quickly. So we feel like we can do it but our inventories from loans and would like.
All things considered and the main thing I'm concerned with right now is our ability to support our customers.
And through their dynamic demand changes and that's what our focus is right now.
That's clear I guess just quickly.
Given what you know about the second quarter would you expect you'd be and are positioned to build inventories.
Yes.
And free effort is going to be made to try to restore inventory levels, but it's a heavy maintenance outage quarter and so.
And you are triaging and prioritizing and.
Trying to satisfy all the needs across the channel so.
Now the good news is.
Most of the outages are behind us by the time, we get to the middle of the year.
But.
These supply chains are very long and they take a long time to recover.
That's very clear.
Thanks, guys I appreciate it.
And then ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad again that is star one to ask a question.
Our next question comes from the line of Gail.
And of Wells Fargo Securities.
Mark Tim Good morning, and hope you guys are well on importing going on.
I'm thinking about integration levels and.
Corrugated operations, so industrial packaging North America and.
And whether or not you still view this as well.
The right destination and you have some competitors that.
Or maybe trying to bump that up for different reasons.
And I would also appreciate that maybe looking back and the rearview mirror.
You are kind of playing a little bit more defense and kind of making some asset changes along the way.
And now you've got some kind of more I'll call. It disposable cash to go on offense with and you made these two small box plant acquisitions.
Is that part of the strategy that maybe get back closer to something I don't know 90% or.
Do you feel good at that 80% level kind of over a longer term basis.
Okay.
Yes so.
We think what's important about integration is how we go about building it.
Our most profitable channel is our North America and vertically integrated.
Joe containerboard to box and to the customer.
And we want to grow that part of the business by delivering superior solutions on the packaging side to our customers.
So that we're building long term sustainable relationships, where we can through small M&A or some of these more creative arrangements that we've that we've just started implementing.
Growth that channel, so higher over time, but done and a very sustainable way.
Okay, and then I guess kind of to revisit the cost reduction or the 300 and the $350 million of savings and.
Trying to marry up the comments that you made about Europe are those sort of mutually exclusive meaning the $20 million or so that you saw an improvement and profitability this quarter and I.
I think what you talked about kind of getting back to mid teens implies maybe another $100 million of improvement and aggregate.
And for European industrial packaging and.
Is that more related to the mill conversion over there and that's starting to contribute or is that.
And again kind of included in that $3 to $3 50 of.
Savings.
Yes part of it is included but it's across commercial operational and <unk>.
Supply chain, it's all of the things that we touch on terms of.
Delivering a packaging solution to our customers. So we've got improvement plans across all aspects of the business.
Thank you guys.
Our next question comes from the line of Paul Quinn of RBC capital markets.
Yes, thanks, very much good morning, guys.
Mark.
And just had a question on global sales.
This virus.
And when I look at the quarter I mean, it's an improvement, but it's still a disappointing result, especially when they compare to your European peers, where do you see this business being mid cycle can you get up to the prop.
Profitability of your peers and when.
How long do you think thats going to take.
Well as I can.
Mentioned on the last call, we last quarter call, Paul we see the business improving quarter after quarter after quarter, and we think it'll be and very good share.
I don't have all of those European numbers and go ahead off the top of my head.
And we think it'll be and very good shape as we leave 2001 and head into 2002.
Okay.
Alright, that's all I had.
Sure.
Thanks.
Our next question comes from the line on Neel Kumar of Morgan Stanley.
Great. Thank you.
For our core data can you just talk about the cadence of volume growth through the first quarter by month and.
And then can you just give us a sense of what youre seeing and through the box shipments so far in April.
And.
April is running very close to.
And maybe a little bit ahead of how we exited the quarter.
And looking at was pretty steady throughout.
Throughout the quarter.
And.
Yes.
It started starting really strong in January and now we think a big part of that is our exposure to E. Commerce, because you not only have the Christmas pushed around the holidays, but January with returns and.
And especially sales and whatnot and it tends to be a strong months as well but.
I think it was solid throughout the quarter.
Okay. Thanks Mark.
And then in terms of your recent asset sales I was wondering if you can just touch on how youre thinking about allocating proceeds between buybacks versus inorganic and organic investments.
And then more generally.
Are you and the process of evaluating your portfolio of assets could there be additional asset sales announcements are generally complete at this point.
Well when we talked about on the acquisition side is look at what we've been doing for the past couple of years they've tended to be.
And one off operations, sometimes too.
Bolt on and nature and filling gaps and.
And capability or exposure.
We want and most of them to be honest, it's happened in Europe at this point.
In terms of the cash coming in and we.
We have a fairly robust capital allocation framework that we have talked about over time.
Including the strong balance sheet target ranges of debt.
The fact that.
On a path of share repurchases before COVID-19 hit and out of Prudence, We took a pause.
Last year, but we're back and the market, but the goal is to be thoughtful about the cash coming in and making sure that we're doing everything on our power to maximize value through the actions that we take.
And our last question comes from the line of Kyle White of Deutsche Bank.
Hey, good morning, Thanks for taking the question.
On the global cellulose fibers, just wanted to talk about the port congestion that you're experiencing and maybe how that is impacting your volumes or your supply chain and that business.
It's a good question Kyle it's it's a big issue.
We're not losing orders because it hit because we respect and and a lot of customers and <unk>.
Creating a long long supply chain. So customers are trying to figure out the new duration between placing an order and actually receiving it and in some cases I'm trying to get our help to understand.
Whether they should change their order cycles, so theres a lot of.
Water management changes being talked about and figure it out between Ips and supplier and our customers.
But it's and any FX more than our pulp.
Pulp business and flip.
And the facts are export containerboard, and we're even seeing it and our export paper business and Brazil.
And I don't think theres any immediate fix to it so and some.
And so velocity and listen on the supply chain.
Looks like we're going to have to adapt to for some period of time.
Got it that's helpful and then switching to EMEA industrial packaging.
And you guys provide kind of your integration rate for just that region and kind of where do you see it going with these recent acquisitions and Spain.
And then maybe just a longer term target for integration there as you continue kind of bolt ons in that region.
And we typically don't give a number because it's not as clean and we hope.
On the integrated on our craft liner from our U S mill system to our European box plants, we have the world class <unk>.
Just starting off a couple of years ago, and Dread Thats, almost and its full ramp which is a lot of our high performance lightweight liner, but we buy most of our medium. According to medium from the open market. So we typically haven't given on an absolute number but as Tim said building and integrating model reach.
And Ali.
Is where we have the most success commercially and on the financial metrics and so that's kind of the approach, we're taking and Europe is regional density and so right now it's the Iberian peninsula surrounding our new mill and supporting with Kraft liner from our U S system and then we have some very.
Horton suppliers and.
On the European market for granted and we don't make fortunate that make geographic sense because of price.
So we're still on large customer from some key European containerboard producers and those on long term relationships.
Got it thank you and good luck in the quarter.
Thank you so on.
Everyone's questions again, thank you for your interest and international paper and we look forward to talking with you again next quarter.
Thank you for participating in today's international papers first quarter 2021, Investor Earnings Day Conference call you may now disconnect.
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