International Paper Co /New/ Q2 FY2024 Earnings Call

Good morning, and thank you for joining us. Welcome to International Paper's Second Quarter 2024 Earnings Call. It’s now my pleasure to turn the call over to Mark Nellessen, Vice President of Investor Relations. Please go ahead.

Thank you, Allan. Good morning, and thank you for joining International Paper's second quarter earnings call. Our speakers this morning are Andy Silvernail, Chairman and Chief Executive Officer; and Tim Nicholls, Senior Vice President and Chief Financial Officer. There was important information at the beginning of our presentation including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. These and other factors that could cause actual results to differ materially from such forward-looking statements can be found in our press releases and reports filed with the U.S. Securities & Exchange Commission. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains copies of the second quarter earnings press release and today's presentation slides. With that, I'll turn it over to Andy Silvernail.

Thanks, Mark. Hey, good morning to everybody in the Americas and good afternoon to all of our friends in Europe. I'm excited to have joined the IP team with our rich history, important mission, and dedicated, talented people. Prior to joining IP, I spent a decade as CEO of IDEX Corporation, where we delivered strong, consistent results through great teams, customer obsession, and embracing an 80/20 operating system. I also spent several years working with private equity, where speed and impact are at a premium. I've been asked many times since my announcement, why IP? The bottom line is that through my deep diligence, very similar to how I approach acquisitions, I found a company that matters in terms of its mission, a company with solid underpinnings, and a company with a lot of opportunity for improvement and significant upside potential. It is absolutely a diamond in the rough. I spent my first 90 days on a learning journey with the goal of getting fact-based insights, aligning the team, dimensionalizing the opportunity, and launching the improvement plan. It's been a powerful experience, an opportunity to speak with employees, customers, suppliers, and investors. All of this has reinforced my initial beliefs and opened new insights. Let's turn to slide five. So before we go through the quarter, I'm going to talk about the case for change at International Paper. And later in the presentation, I'm also going to talk about what we're planning to do differently to drive significant change at IP and significantly improve performance. The data and feedback have told me that most of our performance issues are self-induced. As a result, these can be fixed with intense focus on the right strategy and courage to do what must be done. I'm going to start on slide six. You can see 10 years of data here. These are the facts that I know as owners of IP you appreciate. We have underperformed on every meaningful metric. You can see the realities of sales, margin, and profitability decline. Although it's not on this chart, our return on invested capital has followed the same trend and is underwater today. I want you, as our shareholders, to know I understand this is totally unacceptable, and we are going to fix it. But to fix it, we need to understand the root cause, face the brutal facts, and do something very different. Let’s go to slide seven. IP's performance deterioration has been exacerbated by some very important choices in capital allocation and resource allocation. Over the past decade, we've spent more than $35 billion, including returning cash to shareholders, making investments, and improving the balance sheet. Let me start with the efforts around the balance sheet. We made excellent choices here, deleveraging and funding our pension. A strong balance sheet is foundational and gives us great degrees of freedom for value creation. But we've also spent more than $12 billion on dividends and share repurchases. Both tools can create substantial value if used well, but are value destructive if used poorly. IP will pay an attractive dividend. We can support our dividend at the current level and we will grow into it as performance improves. But as I think about share repurchases, when and how you do it really matters. As with most companies, IP purchased shares when cash was generated, but not in the mind of maximizing the opportunity based on market factors and intrinsic value. The remaining spend, $2 billion on acquisitions and $12 billion on CapEx have not generated the returns we expect. I'm now turning to slide eight. Our spending since 2018 on investments that drive performance for customers and productivity have lagged. I'm not saying that we can't be more efficient with capital than our competition, but we pushed the envelope too far. While our mills are well-capitalized and advantaged, we spent too much on unproductive capacity and haven't stayed ahead of the curve. We have under-invested in our box system. On the right-hand side, you can see this show up. We've underspent on maintenance and repair, which is the heartbeat of our operations and drives reliability for our customers and productivity. These numbers are supported by the conversations I'm having with our folks across our system, particularly in maintenance. We've got an incredibly long list of great opportunities that need capital to drive performance for our customers and expand profitability. When we're driving excellent reliability internally, we get excellent reliability externally, and we will excel for our customers and get paid for value. That means we've got to spend some money. I believe we can do that with capital playing in the range of $1 billion to $1.1 billion per year. If opportunities exist and drive results, we will do so. I'm turning to Slide nine. This is probably the most important slide that we're going to go through today, that and capital allocation. The lack of investment back into the businesses has directly contributed to a cost problem. Operating costs have ballooned on modest sales growth. The good part here is that it's in our control. We can attack this and control our own destiny. What doesn't show up on this page is the impact of the slippage of reliability for our customers. Reliability, defined as quality, delivery, and service, is the most important factor for the vast majority of our customers. We made our own bed here by underinvesting in cost, which has lost its market share over the past decade. The share loss will continue over the near term, but again, we know how to reverse this and control our own destiny. We've done a lot of work commercially to position ourselves correctly in the market. We've made sensible value over volume trade-offs recently, and we're ramping up our commercial talent, capability, and incentives. We have lost share where we let customers down. We will change this by being the leader in reliability. We've made some solid progress in on-time delivery, and our corrugator and converter capacity is up. But we have more to do to arrest the share slide. I'm now turning to slide 10. I'll talk about this of where to build from and things to improve. IP has a strong culture of ethics. We work with integrity. This is a really hard thing to change within an organization, and we have a great foundation here. We have talented, experienced people up and down the organization. I'm finding them willing to face the reality and embrace significant change. My team wants to win. They are tired of getting their teeth kicked in. My job is to focus and align them on the critical few and away from the trivial many. The strongest foundation we have is our North American Packaging franchise. Our packaging franchise is incredibly valuable and has tremendous upside potential with the right strategy. We have a strong financial foundation. Turning to the opportunities for improvement, we are embracing an 80/20 operating system to do four things. First, an outside-in customer-driven strategy that differentiates through reliability and leverages our reach. Second, optimize our cost structure. Third, align our team and resources toward differentiation and profitable growth. Finally, we will instill a high-performance culture that achieves superior results. In a little bit, I'm going to talk about how we are embracing 80/20 to drive results. So now let me turn to the second quarter about performance and the outlook. I'll share some highlights and then turn it over to Tim to walk through the details. I'm now on slide 12. Our second quarter earnings were higher than the first quarter but relatively unchanged year-over-year. We saw a sequential improvement driven by higher sales prices across our portfolio, and we benefited from seasonally higher box volumes. Regarding the market environment, it was stable to moderately better demand. However, IP's packaging volumes came in below our expectations and continued to lag the overall market, and that will continue for some time. We've seen expected volumes decline from repositioning and optimizing value and volume. We do have a residual effect from a history of underinvesting in certain regions and markets where we have ongoing reliability and capacity issues that we are addressing and have already seen improvement in. We need to ensure that we are close to the market, pricing appropriately, and investing to be the leader in reliability. As I mentioned earlier, we're focused on investing in differentiation, and we are seeing specific results that are leading indicators of positive change. However, it will be messy over the next three to four quarters. We expect near-term performance to be challenged by seasonally lower volumes and higher mill outage expenses. With that, I'll turn it over to Tim to provide more details about our second quarter performance and our outlook.

Thank you, Andy. Good morning, everyone. I'm on slide 13 now, where I'll provide the details around the second quarter as we walk through the sequential earnings bridge. Second quarter adjusted operating earnings per share was $0.55 as compared to $0.17 in the first quarter. Recall that the first quarter included a $0.10 per share drag related to the January freeze and the Ixtac box plant fire. Price of mix was higher by $0.23 per share driven by the flow-through of prior price index movements as well as margin and mixed benefits from successfully executing our Box Go-to-Market strategy and our GCF optimization strategy. Volume was favorable by $0.06 per share. Although we continue to see favorable demand trends, deploying our commercial strategies across the portfolio continues to impact volumes in the near term as expected as we transition based on our strategy. Operations and costs were unfavorable by $0.01 per share sequentially, primarily due to the impact of inflation, higher selling and administrative expenses, and spending to improve reliability in our packaging business. This was partially offset by mill efficiencies following the pulp machine closure at our Riegelwood Mill. Maintenance outages were lowered by $16 million or $0.03 per share in the second quarter, and input costs were overall flat sequentially with decreased costs for energy and freight offsetting increased costs for old corrugated containers (OCC) and chemicals. Finally, corporate items favorably impacted earnings by $0.07 per share sequentially due to a lower effective tax rate. Turning to the segments and starting with industrial packaging, second quarter results on slide 14, price and mix was higher due to the realization of approximately $45 million of benefits from prior index movements. Additionally, benefits from our Box Go-to-Market strategy contributed approximately $25 million of earnings benefit from improved margins and mix. Higher export and mix contributed approximately $21 million. Volume was higher by $27 million sequentially due to stable to improving demand trends. However, as expected, our Box Go-to-Market strategy is about making choices that impact our volume in the near term. Although we expect to trail the industry for the next few quarters, we believe our Box Go-to-Market strategy will allow us to improve our margins and mix over the long-term. Operations and costs were $43 million unfavorable sequentially due to the impacts of inflation, higher selling and administrative expenses, and spending to improve reliability. Planned maintenance outages were higher by $3 million sequentially, and input costs were $3 million favorable primarily due to lower energy costs more than offsetting higher OCC costs. Moving to slide 15, I will cover the Global Cellulose Fiber second quarter. Price and mix were sequentially higher by $22 million due to the price index movement and GCF optimization strategy driving benefits from a higher absorbent pulp mix and the reduction in commodity grades. Volume sequentially was relatively flat overall as improved demand for absorbent pulp was offset by lower sales of commodity grades as we continue to focus on strategically aligning our business with the most attractive customers and segments. Operations and costs were favorable sequentially by $36 million. A large portion of this benefit is related to the pulp machine closure at our mill in Riegelwood, North Carolina. Planned maintenance outages were lower in the second quarter by $19 million as planned. Lastly, input costs were higher by $1 million with lower energy costs not quite offsetting higher chemical and wood costs. Turning to slide 16, I'm going to provide our outlook for the third quarter. As Andy said earlier, we expect lower sequential earnings due to volume decline and higher costs offsetting benefits from the prior price index increases. For our industrial packaging segment, earnings are expected to decrease sequentially in the third quarter by approximately $160 million. Earnings will be relatively flat for Global Cellulose Fibers. Now let me give you the breakdown. Starting with industrial packaging, we expect price and mix to improve earnings by approximately $60 million sequentially. This is the result of prior index movement in North America as well as higher export prices to date. I would also note that approximately $13 million of the expected improvement is related to our Box Go-to-Market strategy. Volume is expected to decrease earnings by approximately $65 million due to one less shipping day and seasonally lower demand. We expect operations and costs to decrease earnings by approximately $80 million. This includes higher reliability spending, labor and benefits costs during the summer months, and higher unabsorbed fixed costs. Higher maintenance outage expense is expected to decrease earnings by approximately $44 million. Lastly, higher input costs are expected to decrease earnings by approximately $30 million, primarily due to higher energy costs. Switching to Global Cellulose Fibers, we expect price and mix to increase earnings by approximately $10 million as a result of prior index movement. Volume is expected to decrease earnings in the third quarter by approximately $5 million due to seasonally lower demand. We expect operations and costs to decrease earnings by approximately $25 million, largely due to higher distribution costs and timing of spend, as well as higher unabsorbed fixed costs. Lower maintenance outage expense is expected to increase earnings in the third quarter by approximately $25 million, and lastly, input costs are expected to be stable. With that, I'll turn it back over to Andy.

Thanks, Tim. I'll pick back up on slide 17. For over a decade, I've embraced an 80/20 operating system that has consistently produced superior results for customers and shareholders. At IDEX, 80/20 became part of our DNA, and we delivered over 500% total shareholder return over my tenure. One of the reasons I joined IP is that, through my diligence, I found a very compelling case where 80/20 can produce significant results. 80/20 is a data-driven methodology that creates laser-like focus on customers, products, and resources that drive dramatic profitable growth. It’s about simplifying so we can say yes to the critical few and no to the trivial many that create value-destroying complexity. Using this approach, we are reviewing the entire portfolio and sub-segments as well as our enterprise functions. I'm now turning to slide 18 to talk about our 80/20 methodology. There are four steps to 80/20 that we're taking our entire business through and then sub-segments of our business and the enterprise. Step one is about simplifying customers and products quickly to focus on attractive markets. We should never become good at something we shouldn't have done in the first place. Step two, we want to segment unlike businesses so we can focus on winning for the customer and driving results. Step three, we're going to align minimum resources. Different businesses have different resource intensity. We need to give them uniquely what they need to win. Step four is accelerating profitable growth through customer obsession that shows itself in great quality, delivery, service, value-based pricing, and innovation. Now let's turn to slide 19. The most important insight of 80/20 is the misalignment of what drives a business and how resources are typically applied. I've deployed 80/20 dozens of times and found this to be universally true. We had 40 businesses at IDEX, and I brought the approach to private equity also. The bottom line is that, if unaffected, complexity grows out of control and each resource. IP is a very complex business, but we're complex by choice, not by necessity. We will simplify and focus IP. We will improve profitability while at the same time liberating resources to invest in differentiated capabilities for the most attractive customers, products, productivity, and capital allocation. My experience is that 80/20 is a highly differentiated approach that demands facing the brutal facts and making courageous choices that dramatically improve results. Now let's turn to slide 20. So what will you, our customers, and our team experience? First, we will simplify to focus on the businesses, customers, and products where we will invest long-term and differentiate. Second, we'll segment the businesses to stand on their own. Third, we will zero up each business. You're going to hear that term 'zero up' often, but we're going to zero up each business. This means we will rigorously understand what resources are needed to win for customers and deliver attractive profitability. Fourth, we will commit and align our people and our investment. Finally, we'll place authority and accountability close to the customer and decision-making to drive outstanding results. We'll take the same approach to the corporate center. Through the zero up, we are determining the minimum resources required to be a public company and then being very strategic about a small handful of things we will invest in to differentiate across the company. Turning to slide 21. We will be relentless in applying 80/20 across IP. We launched 80/20 shortly after I joined. We actually started the data process before I joined. We've completed much of the analytics that point us towards opportunity. IP has attractive and substantial upside. I believe that the current portfolio of IP has the potential to deliver $4 billion of EBITDA in a mid-cycle environment. The key drivers will be optimizing our cost structure to improve profitability, and very importantly, liberating resources. Investing in box plants for reliability and productivity. Investing in our mills for long-term performance and cost advantage. Investing in our commercial capabilities for innovation and sales talent. Ultimately, these will allow us to win for our customers and be rewarded for the value that we create for our customers. I'm turning to my final slide on 22. We're going to be laser-focused, working with the teams to accelerate 80/20 and begin implementation. I commit to continue to engage with you and share updates. We're planning a roadshow in September, and we're also attending conferences. We'll update you on our progress at our next earnings call in October. We expect that required disclosure documents related to the DS Smith acquisition will be published in late summer, and related meetings held in the early fall. We will offer an 80/20 101 webinar on August 14th to give you an opportunity to learn more about 80/20 and how it drives change and results. So you'll receive an invitation to attend that. Finally, we're going to have an Investor Day in March. This will give us an opportunity to share our progress at that time. The last thing I want to say is thank you to the IP team. I have pushed them very hard in a very short period of time. I found people to be willing and able to tackle this important mission. People are bought into what we're trying to do; they understand the stakes at hand, and we're going after it. With that, let me turn it over to the operator for questions.

Thank you. Our first question comes from Mike Roxland with Truist Securities.

Thanks very much, Andy, Tim, and Mark for taking my questions, and congrats on a good quarter.

Good morning, Mike.

Morning. Wanted to get a little more color for you, Andy, on the 80/20 and also the box strategy. Obviously, you're pooling the portfolio for unprofitable business. How much of the business you intend to walk away from, or that you have walked away from, is truly unprofitable, where IP is actually losing money, rather than maybe it's just lower EBITDA or lower EBITDA margin business relative to other businesses?

Yes, Mike, that's a great question. So, look, a lot of people have the first experience that effectively what you're saying is you're going to exit a bunch of business. What I have found to be true is, having done this many times, that is actually not practically what happens over a very short period of time, an intermediate period of time, call it a year or two. Essentially, what ends up happening is you are segmenting your business, understanding the drivers for those customers and products, and aggressively aligning resources, minimum resources, for what's required to win. When we think of profitability, if you peanut butter spread overheads, which is what most companies do, you effectively say your most attractive customers and products typically get overburdened with overhead. This shows them in a typical accounting system, where overheads are usually spread by revenue. What you end up having is an understatement of profitability for your most attractive segments and an overstatement of profitability for your less attractive ones. When you structure this correctly and go through segmentation, you're aligning the appropriate resources. When you do that, we use a gardening analogy. Think of it as you’re farming and you decide you're going to farm tomatoes and pumpkins. So you simplify down to that. When you segment, you realize tomatoes and pumpkins need different resources. If you put them together and give them just enough water for both, they both die. So our focus will be to segment and give them just the water they need.

I understand clearly. My follow-up question is about your plans for implementing the 80/20 strategy with DS Smith. Doesn’t that introduce some complexity to the system? You mentioned the importance of keeping things simple, so once DS Smith is finalized, could you explain how you intend to implement the 80/20 approach both independently and in conjunction with DS Smith? Thank you.

Yes, Mike, that's another great question. The first thing is let's start with first principles when we buy the business: we want to segment. The reality is what happens in the North American market has very little influence on what happens in the European market. From a competitive standpoint because of the geography and the fact that the box businesses compete within a 150 to 200-mile radius, the competitive issues don't overlap. And frankly, the teams don't overlap. As we acquire DS Smith, it's really important to treat it as its own platform in Europe. So there are three different pieces of integration to consider. There's a relatively simple integration that happens in the Americas. They have a small handful of assets that will integrate into our mills into our box system; it's a small footprint. And in Europe, it's really DS Smith integrating our European footprint. They have done large acquisitions in the past, and they have a capable team of people. We're going to end up with a terrific overall team in Europe. However, the integration is going to happen this way. We'll focus our 80/20 efforts specifically in those regions and sub-regions where they matter. The third part is corporate, and I was clear to the top leadership this morning that we need to be smart about this integration at the corporate level. There are a few things shared that need to happen, and it's a small team that needs to work on that. More importantly, we need to bring them in to close the books and be compliant. This is a capable public company, and we need to avoid overburdening them with unnecessary administrative tasks that destroy value.

Our next question will come from Charlie Muir-Sands with BNP Paribas. Go ahead.

Good morning. Thank you for taking my questions.

Hi, Charlie.

Regarding the reliability spending, which is one of the sequential increases in the costs you've called out in the bridge into Q3. I guess you were talking about that a quarter ago already. How much of this $80 million step up relates to that kind of spending versus seasonality and other aspects? How much of that should we think about being part of an ongoing run rate now, or is it just a sort of short surge and then you compare it back again? Thank you.

Yes. Hey, good morning, Charlie. It's Tim. So I would say there's a significant portion of it that’s directly tied to reliability. There is some timing between quarters, and we did underspend the estimate that we thought for the second quarter. So some of that is bleeding into the third. But in terms of ongoing reliability spending, I think you can think of it over the next three, four, or five quarters where we are getting the system to the point that it can sustainably be reliable and open up capacity.

Yes, I’d add to that, Charlie. I think very importantly, the 80/20 methodology, if you think of it in two buckets, one is to improve profits, which we put in our pockets, and it’s for you guys. A big piece is about liberating resources. We know full well that we’re not coming to you and asking for more money. We have to figure out how to do this with the resource base we have. We’ve got plenty to work with and making tough choices. So this should be self-funding; we should liberate resources and accelerate spending on reliability. It’s hard to overstate how important this is. The vast majority of customers, 80% plus, have reliability as their primary concern. They don't want to think about us. If we are a partner that solves their problems efficiently, we’re in a great position. But we have let folks down in the last five to ten years in reliability, and that is something that’s relatively easy to fix. If you consider the focus on reliability spending, just since I’ve been here, you’re already starting to see benefits.

Thank you. My follow-up question relates back to the go-to-market strategy. It's been another 13 weeks since you effectively implemented it. It appears so far that the pace of market share losses has probably been stable. Obviously, we haven’t seen every competitor report or the industry data yet. But are you confident that there is an NPV positive payoff going on, and there's no risk that customers aren't still shopping around? Maybe in three to six months down the line you'll see another wave of departures?

That's a great question, Charlie. What I would say in terms of high confidence, so we're tracking that. We know what has been signed and what is unsigned. For accounts where we have really applied this go-to-market strategy, we are very much in line with our expectations. The negative surprise is that reliability has a lag. The stuff that was being shopped in the first and second quarter is appearing now and will continue to do so. These two factors contribute to market share loss. We have to remember that our pipeline does not operate like some businesses that enter a quarter with half their business booked. In this case, we must monitor the health of our pipeline and enhance our understanding of that as we move forward.

Our next question will come from Mark Weintraub with Seaport Research Partners.

Thank you. First, thanks for laying out an exciting vision for the future, but I'm still sort of trying to work through a little bit why the magnitude of pain, short term? And has reliability or those issues become even more significant that's leading to what looks to be an accelerated decline in the box volumes? Can you walk through how much of it was the go-to-market versus the reliability and whether that’s different?

Yes, if you look at the balance of go-to-market and other factors, the total impact is about 50-50. So it’s a combination of go-to-market, and we feel we are dialed in on that. Reliability hasn't gotten worse, but we think that the timing of how it moves through the system is crucial. The pricing environment has grown more robust, so our ability to lead with reliability is essential. It will be rocky; investments will take some time, but it’s not years away. The next three-four quarters will have challenges; I expect some bumps as we transition.

Can you share that you expect the industry to be up about 1% to 2%? Can you share what you expect IP's box shipments this year to be relative to last year?

For the quarter or for the year, Mark?

For the year.

For the year, it's really hard to forecast the fourth quarter because of issues with the transaction. Look, I think Andy said it, there's chop, and we’re going to have some ups and downs. We're working with the market, 1% to 2%, and we need to see how all of these negotiations play out regarding getting the price to a competitive level and then what that means for volume.

Just so everyone on the call is very clear, we actually have a legal responsibility through the U.K. takeover code. We cannot provide any information construed as a forecast for the fourth quarter. That would trigger a whole bunch of complexities. So we have to be very careful on this call.

Your next question will come from Gaurav Jain with Barclays.

Thank you for taking my question. So two from me. One, does this uplift in EBITDA from $2 billion to $4 billion include DS Smith’s EBITDA? Or is this just for IP?

No, it does not. That is for the current IP portfolio.

Sure, thank you. It’s a significant jump in EBITDA, and you are not calling out any incremental CapEx over and above the run rate. The return on these incremental investments is significantly high and likely more than anything we have seen in the industry. Are you budgeting for CapEx in the guidance properly?

So I think the question was around capital spending to support the value growth.

Yes.

Yes. We’re looking at somewhere between $1 billion and $1.2 billion on a normalized basis. There could be periods where because of opportunity we might want to invest a little more than that level to support the strategy. But it's largely around the same level of capital that we normally target.

Importantly, the way that capital is going to be spent is going to be different. One of the sins of the past, if you look at all the capital spending over the last 10 years, is the peanut butter spending mentality. We chase bad investments or assets that are deteriorating. That’s eaten a dramatic amount of our investments. Our ability to focus that on the right assets in the right geographies will be critical. Our CapEx will go up a little bit but more than anything else, it will be proportioned significantly differently towards building a sustainable competitive advantage and driving productivity.

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

Good morning. I appreciate the candor, transparency, and also the pumpkins and peanut butter getting me ready for lunch. I wanted to go to Slide eight. The prior question sort of asked what I was thinking on the $1.5 million per million square feet and the $0.40 differential. Should I interpret that as maintenance costs have come up to $530 million this year? Is there another $40 million to $50 million in there? Or does that piece of it get reflected in operational costs? How should we think about that?

Yes. I think it's more just going to show up in operational costs. There is capital investment that goes into maintenance and repair, but this number is about operating costs.

Okay. And then you talked about wanting to be self-funded and free up resources to make some of these decisions on where to align capital in the right places. Have you aligned KPIs in terms of sales force and the box managers to be more aligned with reliability, pricing, net promoter scores, and customer engagement?

That's a great question. The scorecard is critical. We need clarity in metrics that drive results for our customers and drive results for our owners. Basic metrics around safety, quality, on-time delivery, productivity, and profitability must be clear. Our process environments have tons of data, but the data that really matters must stand out. I was in Cedar Rapids last week, and the team there does a fantastic job in linking reliability capability and production capabilities with metrics. So there is a general linkage between the upstream reliability and downstream productivity. We're also enhancing our commercial side to move incentives tied to profitable growth rather than just volume. Understanding the need to be competitive in the market while ensuring prices reflect our value is key to our strategy moving forward.

Your final question comes from Matthew McKellar with RBC.

Hi, good morning. Thanks for taking my questions. Are you able to give any more specificity around the approximate timeline to achieve that $4 billion EBITDA target? Can you give a sense of contribution from the Global Cellulose Fibers business that may be embedded in that target? And lastly, do you have the right people in place, and do you have the infrastructure to help you inform decisions on how to align capital in the right places?

In terms of timing, I apologize. We wrestled with this question internally. We have to be careful because of our obligations around the DS Smith process. We can’t provide anything construed as a forecast; there are messy complications. I can say it’s a mid-cycle number, and it’s not far off. We have to constantly review our portfolio and make decisions, and my focus is to achieve this sooner rather than later. The impact of GCF on that overall number is minimal, it is not a giant part of that. We’ll share more details in the proxy being filed in August and on the roadshow.

Great. Thanks very much for the help. I'll turn it back.

Yes. Thank you again to everybody. We have important work to do. We're in the data analysis phase and building implementation plans. It’s important to make decisions based on facts, and we still have data gathering to do. It's clear how much opportunity is out there, and the detailed work we've done shows this. We will provide more specific timelines as we move between now and the end of the year. The key takeaway should be that we have control of much of this. Things will move in the market, but we can control what we do, how we understand our business, and where we apply our resources by focusing on the right customers, products, and assets to drive outstanding results over time. Thank you for your time and partnership, and I look forward to talking more in the coming months.

Once again, we'd like to thank you for participating in today's International Paper's second quarter 2024 earnings call.