International Paper Co /New/ Q2 FY2021 Earnings Call

Good morning, and thank you for being here. Welcome to the International Paper Second Quarter 2021 Earnings Conference Call. All lines are currently muted to eliminate background noise. After the presentations, there will be a chance for questions. I will now hand over the call to Guillermo Gutierrez, Vice President of Investor Relations. Guillermo, please proceed.

Thank you, Shelly. Good morning and thank you for joining International Paper's second 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 2, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is also available on our website. Our website contains copies of our second quarter 2021 earnings press release and today's presentation slides. Lastly, relative to the Ilim joint venture, Slide 2 provides context around the joint venture’s financial information and statistical measures. I will now turn the call over to Mark Sutton.

Thank you, Guillermo. Good morning, everyone. We will begin our discussion on Slide 3. International Paper delivered solid earnings growth and strong cash generation in the second quarter. We continue to see very strong demand for corrugated packaging and containerboard and solid demand for fluff pulp. In our papers business, demand recovery accelerated in the second quarter across our key geographies. We grew revenue by 15% as compared to the second quarter of last year, with price realization accelerating in all of our business segments. Our mill and converting system performed well. However, we operated with extremely low containerboard inventory across our packaging network due to two facts: the lingering effects of the winter storm in the first quarter and our planned maintenance outages in the second quarter. These operating conditions, along with a severely stressed transportation environment, adversely affected volume and operating costs in the second quarter. Input costs and freight were significant headwinds in just about every category. I would call out the sharp rise in recovered fiber costs in North America and Europe. Although this certainly had a significant cost impact, it is another indication of the strong demand environment. Our Ilim joint venture delivered outstanding performance with equity earnings of $101 million in the second quarter and a strong outlook as we move into the third quarter. On capital allocation, we made significant progress strengthening our balance sheet. In the second quarter, we reduced debt by $796 million. We also returned $258 million to our shareholders, including $57 million of share repurchases. During the second quarter, we monetized our remaining stake in Graphic Packaging. I'm really pleased with the return on our investment. We structured the transaction in 2018, maximizing the value of the Consumer Packaging business for our shareholders. Looking ahead, we're making excellent progress on the spin-off of our Printing Papers business, which we expect to complete on October 1. Across IP, the team is doing an outstanding job managing complexity. We remain diligent in applying COVID-19 layers of protection for our employees and contractors. I really appreciate our team's commitment to execute well, take care of each other, and take care of our customers as we work together to build a better IP for our shareholders and all of our stakeholders. I'm going to turn to Slide 4 now, which shows our second quarter results. We delivered EBITDA of $793 million and free cash flow of $633 million, which brings our free cash flow generation to more than $1 billion for the first half of 2021. Revenue increased by $750 million or 15% as compared to last year, driven by higher average prices in our three businesses, as well as volume growth in our Packaging and Papers businesses. Margins improved sequentially with price realization outpacing higher input and transportation costs. We expect margins to expand meaningfully in the second half of the year as price realization outpaces rising input and transportation costs and, importantly, as we stepped down from our highest maintenance quarter of the year. Now I'll turn it over to Tim, who will cover our business performance as well as our third quarter outlook. Tim?

Thank you, Mark. Moving to the quarter-over-quarter earnings bridge on Slide 5, second quarter operating earnings per share were $1.06 as compared to $0.76 in the first quarter. Price and mix improved by nearly $0.50 per share sequentially, driven by very strong price realizations across all of our business segments. Volume was essentially flat versus last quarter. Demand for corrugated packaging is very strong, and demand for fluff pulp is solid, while demand for papers continues to recover in all key regions. Second quarter volume in our North American packaging business was constrained by severely low containerboard inventory, and fluff pulp shipments were hampered by significant port congestion. Our mills and converting system performed well. Operating costs were adversely impacted by a highly stressed supply chain environment for both inbound materials to help down shipments as well as exceptionally low containerboard inventory conditions and our North American packaging system. Maintenance outage costs increased by 18% sequentially as we completed our highest maintenance outage quarter of the year. On an absolute level, maintenance costs were $250 million in the second quarter. Input costs were a significant headwind for most materials, and energy costs remain elevated, providing little relief following the winter storm. OCC represented about half of the sequential increase in input costs. Although some of the pressure in input costs could be transitory, such as the impact of heavy rainfall on our wood cost in the Gulf region, the extremely tight transportation environment will continue to put pressure on all inbound materials. Every mode of transportation is tight, and we expect them to remain tight as we move into the second half of the year. Corporate expenses benefited from favorable reserve adjustments. Our tax rate of 24% in the second quarter was sequentially lower, primarily due to a discrete period tax benefit, and equity earnings improved substantially on very strong performance from Ilim. Turning to the segments and starting with Industrial Packaging on Slide 6, we continue to see strong demand across all channels, including boxes, sheets, and containerboard. As Mark indicated, we operated with extremely low containerboard inventory in the U.S. system. These conditions impacted volume and operating costs in the quarter. We are working to replenish inventories following the winter storm and maintenance outages as we manage through a tight transportation environment. Taking a look at our second quarter performance, volume was sequentially flat. Strong demand in our North American box and containerboard channels offset lower seasonal demand in our EMEA business. Volume across our U.S. channels grew by 10% as compared to last year, which includes our U.S. box system, open market containerboard customers, and our recent equity partnerships with strategic sheet feeders. Price and mix increased by about $110 million in the quarter. We're making excellent progress on the realization of our margin increase. Our mills and converting systems performed well. However, operating costs were impacted by severely low containerboard inventories and a stressed transportation environment with congestion across all modes. Maintenance outage costs increased sequentially as we completed the highest maintenance outage quarter of the year. In our Industrial Packaging business, we've completed about 75% of our planned maintenance outages in the first half of the year. Input costs were a significant headwind in the quarter, primarily driven by higher costs for OCC, chemicals, and distribution. About $10 million of the sequential increase in input cost occurred in our EMEA packaging business, primarily for OCC and energy. Taking a closer look at OCC, we consume about 5 million tons annually across our U.S. mill system and Spain. We see the rise in OCC cost as a reflection of the underlying strength and global demand for corrugated packaging. We expect OCC costs to rise further in the third quarter, even as seasonal generation improves. We expect continued U.S. and export demand, especially from India and Southeast Asia, which were largely offsetting pre-restriction OCC exports to China. Turning to Slide 7, we're well-positioned for strong earnings growth and margin expansion in our packaging business in the third and fourth quarter. Demand is strong across all our channels. We expect continued robust volume growth across our U.S. channels, and we're making excellent progress on the price realization of our margin increase. Our containerboard inventories will enable operational and supply chain efficiencies as we move through the second half of the year. We do expect further transportation challenges in the third quarter, with substantial pressure on OCC and transportation costs. Our teams are doing an admirable job managing costs in this tough environment. We expect further opportunities to be more efficient as inventories normalize. In addition, our commercial initiatives are outpacing cost pressures and position us for strong margin expansion in the second half of the year. Turning to Global Cellulose Fibers on Slide 8, demand from fluff pulp is solid and the end-user demand signal for absorbent hygiene products is healthy. Looking at our sequential earnings, price and mix improved by $104 million in the second quarter, with price realization accelerating across all regions and segments as expected. Volume was moderately lower due to significant U.S. port congestion and frequent vessel schedule changes that delayed our shipments. Mill performance was strong; however, operating costs were impacted by the type of supply chain environment. We expect these conditions to continue in the third quarter. Maintenance outage costs decreased as expected, and input costs were moderately higher, with lower wood costs in the Mid-Atlantic region offset by higher chemical and energy costs. Turning to Printing Papers on Slide 9. Our papers business delivered earnings of $76 million in the second quarter with continued strong cash generation. Our Printing Papers business carries strong momentum as we approach the spinoff on October 1, and it continues to recover in all of our key regions. Additionally, our volume recovery is outpacing the industry through the strength of our global brands and commercial excellence. Looking at the second quarter performance, price and mix improved by nearly $30 million with price realization across all regions. Fixed absorption improved with lower economic downtime in our North American mill system. However, operating costs were impacted by the tight transportation environment. We executed the heaviest maintenance outage quarter of the year as well. And on input costs, we experienced pressure on wood, chemicals, and freight. As I said earlier, we're on track to spinoff the papers business on October 1; separation planning is progressing well and we expect to file the Form-10 with details of the spinoff in the first half of August. As you would expect, there is significant flexibility. Our teams are doing an outstanding job managing the business as we prepare for a successful separation. Looking at the Ilim results on Slide 10, the joint venture delivered equity earnings of $101 million in the second quarter with an EBITDA margin of 47%, driven by strong price realization for pulp and containerboard. Volume improved sequentially on strong demand for pulp and containerboard, as well as more shipping days in the second quarter, following the impact of the Chinese New Year in the prior quarter. Underlying demand remains stable following inventory restrictions during the first half of 2021; shipping capacity is tight, and supply chains to China are stretched. Third quarter volume is expected to decrease moderately as Ilim executes the majority of its annual maintenance program. So now we'll turn to the outlook for the third quarter on Slide 12. As Mark said earlier, we expect meaningful earnings and margin expansion as we move into the third quarter. Looking at industrial packaging, we expect price and mix to improve by $110 million on the continued realization of our March 2021 price increase. Volume in North America is expected to improve by $10 million, while volume in Europe is expected to decrease by $10 million. Operating costs are expected to improve by $5 million, with the North American system benefiting from a gradual recovery in containerboard inventory levels. Staying with industrial packaging, maintenance outage expenses are expected to be down by $122 million. Input costs are expected to increase by $85 million, with OCC representing about 60% of the expected increase. In Global Cellulose Fibers, we expect price and mix to increase by $60 million on realization of prior price movements. Volume is expected to increase by $10 million. Operating costs are expected to decrease, reducing earnings by $5 million on continued supply chain stress due to port congestion. Maintenance outages expense is expected to decrease by $15 million, and input costs are expected to increase by $10 million on higher wood and chemical costs. In printing papers, we expect pricing and mix to increase by $25 million. Volume is expected to increase by $5 million. Operating costs are expected to be unchanged. Maintenance outage expense is expected to decrease by $23 million, and input costs are expected to increase by $10 million, primarily due to higher wood costs. Under the equity earnings, you'll see the outlook for our Ilim joint ventures. I want to take a moment to update you on our capital allocation actions in the quarter. We're committed to maintaining a strong balance sheet; we're comfortable taking leverage below the target range of 2.5 times to 2.8 times debt-to-EBITDA on a Moody's basis. In the first quarter, we reduced debt by $796 million, bringing our debt reduction to $904 million in the first half of 2021. Returning cash to shareholders is a meaningful part of our capital allocation framework. In the second quarter, we returned $258 million to shareholders through dividends and share repurchases. Share repurchases were $57 million, which represented 1 million shares at an average price of $60.80. We have about $1.5 billion available under the company's share repurchase authorization at the end of the second quarter. Lastly, in the second quarter, we monetized our remaining stake in Graphic Packaging for about $400 million, bringing our total cash proceeds on the investment to $1.3 billion before expected cash taxes of about $300 million in the second half of 2021. As a reminder, we also have a tax receivable agreement with Graphic Packaging under which we expect to receive about $100 million in cash proceeds during the second half of 2021. With that, I'll turn it back over to Mark.

Tim, thank you very much for all the detail. As we look forward, we're positioned for strong earnings and margin expansion in the second half of 2021. My confidence in making this statement stems from the following. Our commercial initiatives are driving revenue growth, and our building converting systems will regain meaningful operational and supply chain efficiencies as we replenish inventories. Although rising input costs will likely linger, we are confident we can successfully navigate the environment given the strong demand backdrop. Our papers business carries strong momentum as we approach the October 1 spinoff. Our team is doing an outstanding job managing the business and taking care of customers. I want to take this opportunity to thank our employees for their tireless efforts as we plan for a successful separation. As we move through 2021, we have significant operating and non-operating cash catalysts, and we are laser-focused on the capital allocation framework that Tim just described. All of our cash will flow through our framework with one objective: maximizing value creation for our shareholders. I'm excited about the actions we're taking to build a better IP, accelerating earnings growth, and building a foundation for long-term success. We're looking forward to sharing more about that with you in the months ahead. With that, we're ready to take your questions.

Thank you. Your first question comes from George Staphos from Bank of America.

Hi, everyone. Good morning. Thanks for the details. Thanks for taking my question. I guess my first question, Mark, you and Tim have talked about this in the past about running the cash flow generation that the company has, both from an operating standpoint and non-operating, since you have so many transactions that have been occurring this year and will continue to occur this year through your framework. What should we take away from that in terms of what tools you have in your quiver may be more applicable now versus what might have been the case three and six months ago? And Tim, what gives you comfort and why do you think it's appropriate in your view for leverage to drop below your target range? What are the things that you think make that a prudent strategy, if you can give us a couple of thoughts there? And then I had a follow-on.

Sure. Good morning, George.

Good morning, Tim.

The way we're thinking about it is we are trying to maximize value. We have a lot of cash coming in right now. Everything looks positive as we go forward, but we recognize this as a cyclical business to some extent. The relationship to the balance sheet is where we are trying to build strength, reduce risk, and also create flexibility and optionality. Taking it down below the target range, which is really a target range through a cycle, sometimes we'll be below and sometimes will not be a little bit above. But we view it, that coupled with our robust performances, derisking the company, share repurchases, and dividend returns is very important. That is, over time, not necessarily quarter by quarter, but year by year. We look to be returning substantial amounts of cash to shareholders, and then everything else gets tested, whether it's organic or small bolt-on types of acquisitions, it gets tested against that.

As a follow-on, would the accelerating performance that you are seeing into the second half guide or compass point for you in terms of how you may further allocate capital, especially to value return over the rest of the year into 2022? Or is it really not so much because you look at this on a longer-term basis? And what are the whys and why not on that? And then my related question, I'll turn it over for everyone. Do you have any kind of view that you could share with how much cash Sylvamo will need to operate on an ongoing basis? Thank you very much.

Yes. Just on the last, we do. And that will be - the Form 10 is going to be coming out here in short order, and I think that will answer all the questions. To your first part of your question, I think we try to look at both. We try to look at circumstances in the moment, but we definitely have a long-term view and we're thinking about how to create value and what our value is over time. So I hope we try to take those into account for the future.

Tim, if I could, and George, just to wrap up that was a lot of ground covered in the capital allocation questions that you asked. We do take a long-term view, and as I said last quarter, we're really excited about where we are positioned for the first time in recent memory for our entire capital allocation levers. We have a strong balance sheet, ability to pay strong dividends, share repurchases at the right times, and very importantly, smart investments in our business, whether organic or inorganic. We have all of these levers available at the same time. And as you all know, our past history has been we’ve had two or three, or maybe two out of four, and sometimes only one out of four. That's what we’re excited about as we progress. As we separate into two companies, the new IP will have a capital allocation posture that we haven't had in a long time. That's very exciting for our shareholders; it's very exciting for the company because we have options to grow the businesses that are growing, to manage our return of cash, and all generating, hopefully, outstanding shareholder return.

Thank you very much.

Your next question comes from the line of Gabe Hajde from Wells Fargo Securities.

Good morning, Mark and Tim. Thanks for taking my question. I guess not to deliver the point here, but – and I appreciate that there is somewhat of a wall of worry out there. But I think one of your peers kind of talked about potentially a structurally higher level of demand for corrugated for various reasons, whether it's e-commerce or potential onshoring and manufacturing activity. So I guess, asking the question a little bit differently, your balance sheet and pension probably have not been in as good a shape for two to three decades. Is there something that you see around the corner that gives you pause in terms of any of your businesses, and it sounds like, again, pretty near constructive near-term outlook? I'll stop there.

No, Gabe. I think we also view the corrugated packaging market as potentially having a bit of a reset through this last year-and-a-half. We've listened to our customers, which I'm not sure where it's 8% every quarter-over-quarter and quarter out like it was in the last quarter. But definitely, a step up from low single-digit growth rates. That's what we want to be positioned for. When we talk about growing at a minimum with the market, we mean over time and a reasonable assumption of growth in the U.S. market, and that's a number that I think is leaning towards the higher end, just because of a couple of things. The adoption of e-commerce through the pandemic has proven to be very sticky and a valuable proposition that fiber-based packaging represents to people in terms of its circularity, renewable natural resources, making energy in carbon-neutral biomass way, and a high recycling rate is finally getting attention, all the talk about sustainability and climate, and a number of other issues finally getting attention all the way down to the consumer level. So we're very excited about the corrugated packaging outlook. We want to ensure we're there with the right asset base, the right customer list, and the right technical capabilities to grow – to share in that growth.

All right. Thank you, Mark. And I guess switching gears, are you guys prepared at all, it's been call it eight months or so since you've announced the $350 million to $400 million of cost reduction to provide maybe a little bit more detail, either cadence of that and how we might expect it to flow through. I'm assuming maybe we've seen a little bit here in the first half, but – and then maybe by segment what you expect to see or is that something you prefer to wait to talk about?

Yes, Gabe, we plan on starting that as we head towards the third quarter release and then for the end of the year to get an expectation about 2022 performance.

Your next question comes from the line of Anthony Pettinari from Citi.

Good morning. On Industrial Packaging, the FPA and AF&PA data would suggest that industry inventories are kind of closer back to a normal or more of a normally historic level for July. I'm just wondering if it's possible to quantify or put a finer point on how far below you are, sort of normal or comfortable levels of inventory, and sort of where that was exiting the quarter, and maybe as we're here at the end of July?

Yes. I mean through the second quarter, we saw the lowest inventory levels in our system that we've probably ever experienced. Coming out of the second quarter into July, we're able to start recovering a little bit of that, but look, we're – the winter storm impacted us hard, 145,000 tons, followed by that normally high outage quarter in the second quarter. So it's going to take a little bit of time for us to recover that as we go through the third quarter and probably into the fourth quarter to some extent. So yes, we were at our lowest levels we've ever seen in the second quarter.

Anthony, I think the other perspective on inventories is, and I've seen a lot written by analysts on normal inventories and one, just a thing to remember. Normal inventories average from the past tend to correlate with normal supply chain environments, normal transportation, velocity, and so forth. We are nowhere near any kind of normal supply chain performance, especially with third-party partners in the transportation world. So our inventory view in IP for the next quarter and the quarter after that is also influenced and adjusted by what's happening in the transportation and supply chain networks. So I would expect that normal right now should be higher levels of inventory to perform the same with customers as we had when transportation velocity was much higher.

Your next question comes from the line of Mark Weintraub from Seaport Research.

Thank you. Wanted to first just get maybe more color on the targeted volumes, solid up 3.9% industry though was up 8.2%. You mentioned supply chain and other challenges you had. Did that actually suppress where your volumes otherwise would have been, and if that was the case, is that business that when your system is operating easily comes back or can you kind of give us some color on how to understand the volume situation?

Mark, I think the way to think about it is, I was looking at what we had – what we sort of put in our outlook in the first quarter call. We actually had stronger performance than we thought we were going to have, but we didn't know, like a lot of people, that the market was going to grow 8%. We had the inability to pick up incremental business in some cases during the quarter. We didn’t lose any business because our core customer list remained strong. There may be some business that we didn't bid; most of it is shorter-term business. The answer is, yes, we have people still calling on us today, asking if we can supply them with more boxes. In some cases, we can; we just couldn't do it in the second quarter. So I'm not concerned about losing anything permanently. We basically had a classic mismatch between the available capacity in our system and the demand in a 90-day period.

And when you say the available capacity, is that because your capacity during these 90-days were constrained by unusual factors, or basically, you're just pretty much running full to your system?

Yes, the two factors I mentioned Mark in my opening comments: we have more than one quarter of recovery from the winter storm, 140,000 tons just evaporated from our containerboard supply chain. On top of that, we had the highest maintenance quarter in IP in the last 10 years. So if you just normalize what was above normal maintenance plus that winter storm, that's a chunk of containerboard capacity that could not be converted into a box. And that's coming back; it's just going to take a little while to get it back. What we had available ran wide open, but we have the capacity offline for maintenance, and we have the lingering effect of the 140,000 tons from the first quarter. None of those are permanent; all of those will be significantly improved as we navigate through the second half.

Your next question comes from the line of Paul Quinn from RBC Capital.

Yes. Thanks much. Just a question on pulp, I understand you guys are making some operational improvements, and I’m just trying to balance that with the Q3 guide here, where you've got op costs up five million stories, there's something on the cost side that more than offsetting the operational improvement that you're seeing. And then if you could give us sort of a scope as to what the big bogey is there for three to five years out in terms of the things that you guys can control. I, how much improvement do you expect that that segment to have over that period of time.

On the longer term part, I'll ask Tim to look for that cost offset part of your question. But on the longer term, we believe as a combination of how we operate, so in the manufacturing sector and the kind of the cost structure of our mill system, and I've said this before, especially the part that was the legacy IP system, which is mostly converted mills from other products versus what we acquire with warehouse, which are built for purpose. They tend to have better efficiency and lower costs. We've got opportunities to lower costs, primarily in the legacy IP manufacturing system, coupled that with commercial arrangements improvements that we're implementing now. You put those two together, we should have the margin structure to have a solid business above the cost of capital with a slight growth potential. So that's what we are working on. We see a path to that. It will be a steady path, quarter by quarter, and that's where we're heading.

On the cost side, it's modest, but it's really transportation. I mean, we're continuing to battle transportation in general. I think part of the transportation issue in this business, Paul is export port congestion, much more exposed to international causes break than the other businesses in the company.

Your next question comes from Neel Kumar from Morgan Stanley.

Hi, good morning. You mentioned the wood costs being higher sequentially, partly because of the wet weather. I'm just getting a sense of the magnitude of inflation you're seeing there, and do you certainly see more of a 3Q issue, or is it going to carry over into the fourth quarter as well?

Yes, it's really due to having access to the fiber as being able to get it out of the woods based on the rainfall that we've had. So we looked at it very long lead time in terms of how we manage what inventories that mills and across basins, and it's really been the Gulf states that have been more heavily impacted but some of the Southeastern mills as well. So depending on the weather as we go through the rest of this quarter into the fourth, our inventories are in decent shape, but they're a little on the low side and it's just going to cost more to get the wood out and get it to the mills. Transportation is not helping either. I mean, we've referenced inbound materials and whatnot, and that's seemingly impacting everything.

All right, thanks. That's helpful. And then in terms of your maintenance outage expenses, and you're now forecasting $642 million for the full year, I know it's early, but I'm just curious how you're thinking about 2022 maintenance. Each I could expect down year-over-year or generally remain near 2021 levels.

Well, we're still working through that. I mean, I think a good way to look at it. The way I'm looking at it last year was an abnormally linear. This year is a little bit of a out of range high here. When you put the two of them together, it looks roughly in line. I mean, our outages can be anywhere from $500 million to a little bit less or maybe some years a little bit more pushing $550 last year, given all the uncertainty we pulled back and per sales this year. We're catching up on some of those outages from last year. So we put the two together, what's more normal. Next year, we have to take a short planning. We always provide that as we near the end of the year and look into the coming year.

Our last question for today comes from Kyle White from Deutsche Bank.

Hey, good morning. Thanks for taking the question. I just wanted to talk about some of your end markets in corrugated packaging. How is e-commerce performing relative to your initial expectations at the start of the quarter, any slowdowns there that you see, how's the recovery in food service going, any details on the end markets so you can provide?

Thank you. On e-commerce, no disappointments; still very, very strong. We're getting into the period of the year where you start to build for year-end demand increases as you move toward the holiday season. So still a very strong story. We're continuing to invest in that segment. Food service is continuing to improve. I guess there's a question mark about what happens with the Delta variant and COVID, whether everything continues to open up. I think that a big concern or a potential upside is as schools and events start to open food service related to those; obviously, that hasn't been opened during the summer as is another potential upside. The only segment that I think has seen some flattening is processed food, and I think it's directly related to the general opening of the economy and a little less stocking up of the grocery store. So we see good strong performance across the key segments, and we believe, listening to our customers and looking at order patterns, that this will continue into the third quarter.

That's helpful. And then focusing on transportation, I know it's early, but when you look to next year. Do you see any real relief or kind of stabilization in transportation costs, or do you anticipate continuing inflation headwinds? And is there anything internally maybe that you can do to provide some relief against these costs?

Internally, the best thing we can do on the cost side is to have our system optimized with the right inventories, and what that means is to make a product in the right factory so that the transportation costs to the customer, or in the case of our industrial packaging business, our containerboard mill makes containerboard for box plants that are nearby, not plants that are all the way across the country. So that's the number one thing on cost that we can do internally. I don't know for sure; looking at what the analysts that follow the transportation industry talk about, there's a belief that labor and some of the impediments to trucking capacity and the training that's required to bring on more employees and more assets in the rail industry will get better, and people will want to return to those industries. Many of those companies laid off a lot of people; you can't just bring people back in rail; there's required training and other things, same thing for trucks. The belief is that that'll get better, so capacity should improve. If the economy stays kind of red hot, it's a good problem to have, but I think capacity will get absorbed pretty quickly. We think it's really disruptive right now, and that velocity is really slow for a lot of reasons. We think part of that, at least on the human labor side, will improve. Thank you. Let me go ahead and wrap up just a couple of takeaways I would like to leave with investors. First, you heard today that we are really positive on the strong momentum we're building for the second half. Both earnings and margin expansion are very much part of our focus, and we are laser-focused on capital allocation and a balanced approach to that. We are in a very good shape, all elements of our capital allocation framework, and we're very excited about the prospects we have in front of us as we separate IP into two companies and work on building a better IP going forward. So thank you for your interest in International Paper. We look forward to talking with all of you next quarter.

Thank you for participating in today's International Paper second quarter 2021 earnings conference call. You may now disconnect.