IP · Q3 2025 Earnings

Cautious

International Paper

Reported October 30, 2025

30-second summary

Management explicitly downgraded the multi-year plan: FY2025 EBITDA set at $3B (first explicit FY EBITDA number, replacing a qualitative "holding" stance), free cash flow flipped to a –$100M to $300M range (from +$100–300M), and the original 2027 EBITDA target was pushed back with a new $5B 2027 anchor. Revenue of $6.22B (+56% YoY) is almost entirely DS Smith optics — the GAAP loss of $0.81/share, $675M of accelerated depreciation from mill closures, and a $224M adjusted operating loss are the real signal. The narrative pivot is unmistakable: from "2025 transformation on track" last quarter to "the soft market cost us $500M+ this year and full capture slips to 2028."

Headline numbers

EPS

Q3 FY2025

$-0.43

Revenue

Q3 FY2025

$6.22B

+56.3% YoY

Free cash flow

Q3 FY2025

$0.15B

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$6.22B	+56.3%	$6.77B	-8.1%
EPS	$-0.43	—	$0.20	-315.0%
Free cash flow	$0.15B	—	$0.05B	+177.8%

Guidance

FY2025 guidance substantially revised lower: net sales held at $24B, EBITDA target reduced to $3B (from implicit hold), and free cash flow swung to negative range (-$100M to $300M vs. prior +$100M to $300M); company introduced FY2027 $5B EBITDA target signaling medium-term recovery confidence.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q3 FY2025	stronger global revenue expected	$6.222 billion	in-line with qualitative expectations	Met
Adjusted EBITDA (continuing operations)	Q3 FY2025	~$3.8 billion run rate (H2 ex-GCF)	$859 million	in-line with run-rate basis (Q3 portion of H2 guidance)	Met

New guidance

Metric	Period	Guide	YoY
Packaging Solutions North America Adjusted EBITDA	Q4 FY2025	approximately $600 million	—
Packaging Solutions EMEA Adjusted EBITDA	Q4 FY2025	approximately $230 million	—
2027 Target Adjusted EBITDA	FY2027	$5 billion	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Free Cash Flow	FY2025	$100 million to $300 million	negative $100 to $300 million	shifted from positive to negative range; -$100M to +$300M vs prior +$100M to +$300M	Lowered
Net Sales	FY2025	holding guidance (no explicit number provided in prior)	$24 billion	explicit target of $24B set; prior Q2 guidance was qualitative hold	Lowered
Adjusted EBITDA	FY2025	holding guidance (no explicit number provided)	$3 billion	explicit $3B target set; prior was qualitative 'hold'	Lowered

Segment KPIs

Q3 FY2025

Segment	Q3 FY2025	YoY
Packaging Solutions North America	$3.898B	+7.1%
Packaging Solutions EMEA	$2.31B	+616.1%
PS NA Sequential EBITDA Improvement	28% improvement	—
Accelerated Depreciation Charges	$675 million (mill closures & 80/20 actions)	—
Global Cellulose Fibers Adjusted EBITDA	$153 million (discontinued)	—

Other KPIs

Q3 FY2025

Segment	Q3 FY2025
Adjusted EBITDA from Continuing Operations	$859 million
Adjusted EBITDA (including discontinued operations)	$1,010 million
Adjusted Operating Earnings (Loss)	$(224) million
Operating Cash Flow	$605 million

Management tone

Q2 FY2025 — Transformation aspirational → Q3 FY2025 — Capitulation on timeline, pivot to 2027/2028

At the March Investor Day the 2027 plan was the anchor; in Q2 FY2025 management held 2025 EBITDA and reaffirmed 2027 targets while disclosing $150M of mill reliability profit leakage; this quarter management explicitly lowered both 2025 and 2027 targets and reframed full opportunity capture as a 2028 event. Silvernail's framing on the call: the soft market has cost more than $500 million in profit this year alone, the profit opportunity remains, it is simply going to take a year longer to achieve, and management now expects to capture the full opportunity by 2028. (The transcript reads "$500 billion" — a clear misspeak; the Q&A consistently confirms $500 million is the intended figure.) This is the first explicit timeline slip and removes the option for management to claim, in future quarters, that the original Investor Day path is intact.

Last quarter Q4 FY2025 upside was conditional on tariff resolution; this quarter the macro is now framed as a persistent headwind into 2026. The shift: from "we now expect industry shipments to be down approximately 1 to 1.5% for the full year" (vs. original +1 to 1.5%) and "market headwinds throughout 2025 will likely persist into 2026." Volume assumptions underpinning the 2027 plan have been reset to 1–1.5% NA and 1–2% Europe — a downgrade from the "more robust in Europe" assumption that anchored the original target.

The accountability framing has hardened. Management explicitly states "we're focused on what we can control" and attributes the $500M+ profit miss to volume and price shortfall rather than execution, then defends unchanged cost and commercial targets from the March Investor Day. The reframing is deliberate: the operating bridge is intact, the market broke. Whether investors accept that depends on Q4 FY2025 PS NA delivering the ~$600M EBITDA print.

The decision to switch primary guidance metric from adjusted EBIT to adjusted EBITDA mid-transformation is its own tell — $675M of accelerated depreciation from mill closures runs through EBIT but not EBITDA, making the new metric materially more flattering during the restructuring window.

Recurring themes management leaned on this quarter:

Transformation execution through 80-20 playbook (simplify, segment, resource, grow)North America showing proof of concept with 40% YTD EBITDA growth despite softer marketsAggressive cost actions and footprint optimization delivering immediate near-term benefitsMarket share gains offsetting industry volume declinesEMEA early-stage optimization facing headwinds from demand softness and negative price movementStrategic exits and business simplification to focus on sustainable packaging

Risks management surfaced:

Trade uncertainty impacting box industry demandSoft consumer sentiment and weak housing marketEuropean demand softness and downward paper price index movementD.S. Smith acquisition integration challenges in difficult macro environmentStranded overhead costs of $60 million annually post-GCF sale requiring active management

Q&A highlights

Mark Weintraub · Seaport Research Partners

What are the differences in cost takeout and commercial opportunities between EMEA and North America? Specifically, are there similar excess capacity opportunities and prior commercial pricing mistakes that can be reversed in EMEA as there were in North America?

Management explained that EMEA lacks the same magnitude of mill/paper excess capacity as North America but has significant excess box capacity and underutilized middle business. The cost opportunity is proportionally as large or larger when looking at the cost structure. Key difference: EMEA's complexity sits in the above-country structure rather than at corporate center. Unlike North America, there are not large magnitude commercial decisions needed (EMEA didn't underprice contracts dramatically). Instead, commercial opportunity in EMEA is to refocus diffused resources on key large customers (ADs customers). Of the 1.4B bridge to 2027 targets, the company expects 50-50 split net basis between cost and commercial (more cost on gross basis due to inflation), with price expected to reach mid-cycle in North America by 2027 (estimated one price revision away) and modest price improvement expected in Europe.

EMEA cost opportunity is as large or larger than North America on a proportional basisNorth America: 1-1.5% volume growth assumption; Europe: 1-2% over timeOf 1.4B to reach 2027 targets: ~50-50 split cost vs commercial (net basis)North America expected to reach mid-cycle pricing by 2027, likely one price revision away

Matthew McKellar · RBC Capital Markets

What volume growth and market performance assumptions underlie the 2027 targets, particularly given positive box shipments in September/October and expected above-market Q4 2026 performance? Also, what is the strategic rationale and expected returns for the Riverdale conversion investment?

Management reaffirmed 1-1.5% North America and 1-2% Europe volume growth assumptions going forward, noting these are soft market assumptions. The company lowered 2027 targets because the $500M lost from volume/price shortfall would require major volume pickups that aren't realistic. Management is focusing on what they can control. For Riverdale: ~$250M investment focused on lightweighting, expecting near 20% returns. This converts a business perpetually operating below cost of capital into one with attractive returns. Management emphasized this is the right trade versus keeping Savannah operational.

Volume growth assumptions: 1-1.5% North America, 1-2% EuropeInitial 2027 assumptions: +1 to 1.5% in U.S., more robust in Europe (disappointed)Riverdale investment: ~$250M for lightweighting initiativeRiverdale expected returns: near 20%

George Staffos · Bank of America

What drove the significant free cash flow guidance change (from +$1-300M to comparable deficit)? Are the commercial and cost targets from March guidance still unchanged? Also, what is driving box shipment improvements in September/October and Q4 2026 expectations, and how does IP's competitive position compare given industry volume reductions and IP's 17%+ margins while other players have excess volume at low margins?

Management attributed the cash flow decline primarily to market slowdown ($500M+ profit impact from volume/price expectations miss). Incremental costs higher than expected due to aggressive action timing (~$50-100M more). Cost and commercial targets from March guidance remain unchanged. Management emphasized they are NOT pulling back on CapEx because transformation requires full speed when conditions permit. North America turnaround highlighted: reversed market share losses, EBITDA up 40% YoY through Q3, moving to above cost of capital by year-end. Box shipment improvement driven by customer-centric focus, 22% more salespeople added, improved quality/on-time delivery, focus on attractive select customers and markets. Management stressed disciplined approach to avoid chasing low-margin volume, noting 65-70% material margin contribution allows optionality competitors don't have with lower cost position. Three pillars: cost advantage, customer experience, relative strength in key markets.

Market slowdown caused $500M+ profit impact; not backing away from transformation planIncremental costs: $50-100M higher than expected from aggressive timingNorth America EBITDA: +40% YoY through Q3North America: reversed from market share losses to market share gains

Mike Roxland · Truist Securities

What are the EBITDA benefits from Savannah and Riceboro closures (not highlighted in SEC filing unlike Orange and Red River)? Has the company reached a point where it can't reallocate tons and must make mill investments like Riverdale, potentially causing negative EBITDA impact in 4Q2025/early 2026? What EBITDA savings are expected from recent actions like bags business sale and IT outsourcing, and are similar actions possible in North America if market remains challenging?

Savannah closure: effectively a push on EBITDA basis (not positive), but huge win on ROIC since it's a >$1B replacement asset that would never be built to service low-value export market. It was generating positive short-term cash at times but destroying value through cycle due to required incremental capital investment. Riceboro closure: modestly positive EBITDA impact (small mill that lacked cost competitiveness; volume reallocated to other mills). Company is NOT at point of taking more capacity out in near future. Focus is on: (1) capturing ~$400M of costs from 10+ years of underinvestment in mill system through ongoing investment; (2) driving productivity gains (net productivity has been negative last 10 years; need this plus 1-1.5% growth). Recent actions (bags sale, IT outsourcing) are captured in the bridge; ~75%+ realized in 2026 with 20-25% tail to 2027. Still more overhead to address in North America; just starting Europe journey.

Savannah: ~$1B+ replacement asset value; effectively EBITDA push but ROIC winSavannah: low-value export market outlet; through-cycle not cost-of-capital positiveRiceboro: modestly positive EBITDA benefit; small mill lacking cost position~$400M potential cost recovery from addressing 10+ years of deferred maintenance/investment

Answers to last quarter's watch list

Mill reliability profit recovery — Not specifically quantified this quarter; the $150M leakage framing from Q2 was not refreshed and management folded reliability into the broader $400M "cost recovery from deferred mill investment" bucket disclosed in Q&A. The FY EBITDA print of $3B suggests the leakage did not narrow as Q2 commentary hoped.

Continue monitoring

PS EMEA operating profit inflection — Q4 FY2025 EBITDA guide of ~$230M for EMEA represents the first explicit segment Q4 number and implies modest sequential progress from the Q3 $209M print, but at ~10% segment EBITDA margin EMEA is running well below the "$900M–$1B regional EBITDA range" implied last quarter. The trough thesis is only partially validated.

Continue monitoring

PS NA gap-to-industry closure — Resolved per management's framing: September was called out as the milestone month where IP took market share and grew box shipments, with the trend expected to continue into Q4 and 2026. The +40% YoY YTD segment EBITDA supports the claim, though it arrived a quarter later than Q2's "gap closed by Q4" commitment implied.

Resolved positively

GCF divestiture close — GCF is now reported as discontinued operations with $153M of standalone EBITDA, and management disclosed $60M of annualized stranded overhead to manage post-close. The exit framework is operationally in place; specific transaction terms not disclosed in the print.

Resolved positively

FY free cash flow trajectory — Resolved negatively: FY FCF guidance was cut, with the low end moving from +$100M to –$100M and the range now spanning negative. Q3 FCF of $150M was the standalone bright spot, but the FY revision validates the watch concern that the original range was at risk.

Resolved negatively

What to watch into next quarter

Q4 FY2025 PS NA EBITDA delivery vs. ~$600M guide: This is the single most important credibility test. A miss undermines the "market broke, execution intact" narrative; a beat is the only clean evidence that the 2027 $5B path is real.

PS EMEA Q4 FY2025 EBITDA delivery vs. ~$230M guide and any FY2026 EMEA framing in January: Watch whether the ~10% segment EBITDA margin trajectory shows clear progression, and whether January FY2026 guidance keeps EMEA on the $900M+ annual EBITDA path or quietly resets it lower.

FY2026 guidance shape in January: Management deferred 2026 guidance to the January call. Watch whether the implied 2026 EBITDA bridges credibly from $3B 2025 to $5B 2027 (~$4B midpoint expected) or whether the slope is back-end-loaded toward 2027, which would extend the credibility window further.

Cash flow run-rate ex-restructuring: With $675M of accelerated depreciation and continued 80-20 charges in flight, watch underlying FCF generation. The Q3 $150M print needs to repeat or improve in Q4 FY2025 to hit even the midpoint of the revised –$100M to $300M FY range.

Mill reliability disclosure: Management dropped the explicit $150M leakage framing this quarter and folded it into a broader $400M opportunity. Watch whether January reintroduces quantified mill reliability metrics or whether the disclosure framework has been permanently softened — the latter would be a tell that the recovery is slower than the original bridge assumed.

Sources

International Paper Q3 FY2025 press release (Form 8-K Exhibit 99.1): https://www.sec.gov/Archives/edgar/data/51434/000005143425000068/nextgenip-20250930ex991.htm
International Paper Q3 FY2025 earnings call commentary and Q&A
International Paper Q2 FY2025 brief (Tapebrief, internal reference)

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