INTERNATIONAL PAPER CO (IP) Earnings Report: Q1 2016 ... · also contains copies of the first quarter 2016 earnings press release and today's presentation slides. Lastly, relative

CompanyName:InternationalPaperCoCompanyTicker:IPSector:ConsumerGoodsIndustry:ConsumerNon-Durables

EventDescription:Q12016EarningsCallMarketCapasofEventDate:17.62BPriceasofEventDate:44.18

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

INTERNATIONALPAPERCO(IP)EarningsReport:Q12016ConferenceCallTranscriptThefollowingINTERNATIONALPAPERCOconferencecalltookplaceonApril27,2016,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JayRoyalty;InternationalPaper;InvestorRelationsMarkSutton;InternationalPaper;Chairman&CEOCarolRoberts;InternationalPaper;CFOTimNicholls;InternationalPaper;SVP,IndustrialPackagingMikeAmick;InternationalPaper;SVPofN.A.Papers,PulpandConsumerPackaging

OtherPart icipants

AdamJosephson;KeyBancCapitalMarkets;AnalystMarkWilde;BMOCapitalMarkets;AnalystSteveChercover;D.A.Davidson&Company;AnalystPhilipNg;JefferiesLLC;AnalystMarkWeintraub;BuckinghamResearchGroup;AnalystGeorgeStaphos;BoAMerrillLynch;AnalystLarsKjellberg;CreditSuisse;AnalystMarkConnelly;CLSALimited;AnalystJohnDunigan;BarclaysCapital;AnalystDebbieJones;DeutscheBank;AnalystChrisManuel;WellsFargoSecurities,LLC;AnalystChipDillon;VerticalResearchPartners;AnalystDannyMoran;MacquarieResearch;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetotheInternationalPaperfirst-quarter2016earningscall.

(OperatorInstructions)

IwouldnowliketoturnthecallovertoMr.JayRoyalty,VicePresidentofInvestorRelations,tobegin.

JayRoyalty(InvestorRelations):

Thanks,Operator.Goodmorning,everyone.ThankyouforjoiningInternationalPaper'sfirstquarter2016earningsconferencecall.

OurkeyspeakersthismorningareMarkSutton,ChairmanandChiefExecutiveOfficer;andCarolRoberts,SeniorVicePresidentandChiefFinancialOfficer.

Duringthiscall,we'llmakeforward-lookingstatementsthataresubjecttorisksanduncertaintieswhichareoutlinedonslide2ofourpresentation.Wewillalsopresentcertainnon-USGAAPfinancialinformation.




AreconciliationofthosefigurestoUSGAAPfinancialmeasuresareavailableonourwebsite.Ourwebsitealsocontainscopiesofthefirstquarter2016earningspressreleaseandtoday'spresentationslides.

Lastly,relativetotheIlimJV,slide4providescontextaroundthejointventure'sfinancialinformationandstatisticalmeasures.Withthat,I'llnowturnthecallovertoMarkSutton.

MarkSutton (Chairman&CEO):

Thankyou,Jay.Goodmorning,everyone.Thankyouforjoiningourcall.

I'mgoingtostartonslide5.InternationalPaperdeliveredasolidfirstquarter,drivenbycontinuedstrongperformanceinourNorthAmericanIndustrialPackagingbusiness,alongwithimprovedresultsinourGlobalPapersbusiness.Demandacrossourbusinesseswasatorslightlybetterthanexpectations.Ouroperationsperformedwellandinputcostswerefavorable.

TheRiegelwoodconversiontofluffpulpwascompletedseveraldaysagoandwehavecommencedstartupandqualifications.TheIlimJVhadanotherstrongquarterofresults.Andweannouncedacoupleofimportantstrategicmoves,bothofwhichwillbenefitIP'sreturnsandarereallyallaboutmakingourbestbusiness,ourIndustrialPackagingbusiness,evenbetter.

WereachedadefinitiveagreementtosellourAsiaIndustrialPackagingbusiness,whichisexpectedtocloseinthesecondquarter.Wealsoreachedanagreementtoacquireastate-of-the-artnewsprintmillinSpainfromHolmenPaper,whichweplantoconverttohighperformancerecycledlinerboardtostrengthenourvaluepropositiontoourcustomersandenhancetheresultsforourEuropeanIndustrialPackagingbusiness.Weplantouseallofthatcontainerboardinsideofourconvertingsystem.

Turningtoslide6.Justliketogiveyoualittlemorecoloronourfinancialperformance.IP'srevenuedeclinedyear-over-year.It'sprimarilyduetothesaleoftheSunjointventureinChina,whichtookplaceinthefourthquarterof2015.Wealsoincurredcostsofabout$45million,exclusiveofoutageexpenses,associatedwiththeRiegelwoodconversion,andthiswasasignificantdragtoearningsinthequarter.Marginswouldhavebeenabout100basispointsbetter,absentthisimpact.Ourfreecashflowof$311millionwasonparwithlastyear'sfirstquarter.

Atthispoint,whatI'dliketodoisturnitovertoCarolandshe'llwalkusthroughtheperformanceofourindividualbusinessesandthesecondquarteroutlook.

AndI'llreturntowrapitupandwe'llopenitupforyourquestions.Carol?

CarolRoberts (CFO):

Thanks,Mark.Goodmorning,everyone.AsMarkmentioned,IPdeliveredasolidfirstquarterat$0.80EPS,withfavorableoperationsandinputcostsoffsetbylowerprices,seasonallylowervolume,andheavymaintenanceoutages,includingtheRiegelwoodconversion.ThepositiveswingatIlimisFXrelated,primarilyduetothestrengtheningoftherubleasitrelatestotheJV'sUSdollardenominatednetdebt.

Turningtothebusinessesonslide8.IndustrialPackaging,asMarksaid,hadastrongquarter.Wehadfavorableoperationsandlowerinputcosts,buttheyweremostlyoffsetbylowerexportandboxpricing,seasonallylowerboxvolume,asexpected,andhigherplannedmaintenanceoutageexpense.Exportvolumedidreboundfromaweakfourthquarter.

TheNorthAmericanbusinesstook212tonsofeconomicdowntimetobalanceoursupplywithourdemandandadjustourneedstomatchamoreefficientsupplychain.InputcostswerepositivelyimpactedbylowercostofOCCanddieselfuel.




Turningtoslide9.IP'sNorthAmericanboxdemandcameingenerallyasexpected,withyear-over-yearvolumeup1.3%forthefirstquarter,whichwasinlinewiththeindustry.ThequarterfinishedstronginMarchandthatmomentumhascontinuedthroughApril.

Asyoucanseeinthetable,whichhighlightsseveralofIP'skeycustomersegments,weseeseveralencouragingtrends.Wecontinuetoseestronggrowthinonlineretail,whichhasbecomemoremeaningfulforoveralldemand.Thelargeprocessedfoodsegmentisbeginningtoshowsomepositivesigns,asthemajorcompaniesaremakingmovestoadjusttochangingconsumerpreferences.

Theagriculturalsegment,towhichIPisamajorsupplier,isenjoyingthemostfavorableweatherconditionstheregionshaveseeninafewyears,andthispointstosolidgrowthfor2016.Andtheoutlookfortheimportantproteinsegmentisimproving.Sonet-net,afairlyfavorableoutlookforthebusiness.

TurningtoEurope,asMarkmentioned,werecentlyannouncedastrategicmovetoacquireauniqueassetthatcanbeconvertedtoveryeffectivelycomplementourcorrugatedpackagingnetworkintheregion.

Thistransactionwillcreatesignificantvaluefrombothacustomerofferingandafinancialstandpoint,asitwillenableIPtoproducehighperformance,light-weightrecycledcontainerboardinregion.Wewillacquirethemill,alongwithassociatedrecyclingoperationsandHolmen'sownershipposition,inanon-siteco-generationfacility.

Uponclosingofthedeal,wewillinitiateplansfortheconversionofthestate-of-the-artnewsprintmachinetoafirstquartiletestlinermachine,whichweexpecttocompleteinlate2017.

Oncereconfigured,themachinewillproduce420,000shorttonsofrecycledcontainerboard,whichwillenableIPtointegrateamajorityofourtestlinerneeds.Thetotalinvestmentfortheacquisitionandconversionisexpectedtobeapproximately$160million,withanexpectedIRRofmorethan15%.

Ifyouturntoslide11,inadditiontotheattractiveageandtechnologyofthemachine,aswellasthemill'sconfiguration,thelocationofthemillinrelationtothemajorityofourboxnetworkisveryattractive.

Thegradesofhighperformancetestlinerthatweintendtoproduceonthismachinehavethegreatestapplicationforourbroadbaseofindustrialcustomers,andmostoftheseareservedoutofourboxplantsinSpain,FranceandNorthernItaly,asshownonthehighlightedareaofthemap.Soonceagain,we'reexcitedabouttheprospectsofthismoveandwhatitcandoforourcustomersandInternationalPaper.

Turningtoslide12,letmetalkaboutConsumerPackaging,wherewesawaseasonallyslowerquartercombinedwithsomepricepressures,alessfavorablemix,andheavieroutageexpense,resultedinlowerearningsforthebusinessinthefirstquarter.Mostofthepricingpressurewasfeltinthecommodityplatesegment.Thetimingofvolumeandhighervaluemixinthefoodservicebusinesswasslowertomaterializethanwehadexpected,aswell.Additionally,thesaleandexitoftheCoatedBristolsbusinessnegativelyimpactedresultsinthequarter.

Movingtoslide13andtalkingaboutourPrintingPapersegment.Theslideshowsthesequentialbridgefortheentiresegment,whichdoesincludeourPulpbusiness.

Aswasmentionedearlier,thecostimpactoftheRiegelwoodconversion,alongwithasuboptimizedoperationatRiegelwoodastheconversionofPM18wasunderway,significantlyimpactedsegmentresultsforthefirstquarterbyapproximately$45millionintotal.

Wewillcontinuetoseecostimpactfromtheconversioninthesecondquarter,alongwithstartupandqualificationcoststhatwillcontinuetoimpactresultsinthesecondquarterandthesecondhalfof2016.ThisisconsistentwiththeoutlookweprovidedlastquarterandisfullycapturedintheoutlookthatI'll




sharewithyoushortly.

Slide14showstheresultsoftheGlobalPapersegment,excludingPulpandtheimpactoftheconversion.Volumewasseasonallyweaker,asweexpected,largelyinBrazil,whiledemandinNorthAmericawassolid.Goodoperationsandlowerinputcostscontributedfavorablytotheresults,asdidlowerplannedmaintenanceoutageexpense.

PriceswerelowerinNorthAmerica,buthigherinEurope,RussiaandBrazil,aswebegantoseethebenefitoftheimplementationofpreviouslyannouncedpriceincreases.AndpriceincreasesareannouncedinNorthAmericaandarebeingimplementedinthesecondquarter.

LetmegivealittlemorecoloronRiegelwood.AsMarksaid,wearepleasedthattheconversionhasbeencompletedontimeandonbudgetinthemonthofApril,andstartupandqualificationofthemachinehascommenced.Productionofsoftwoodmarketpulpisunderway,andthenwe'llmovetothequalificationoffluffpulp.Weexpecttobeginflufftrialsinthethirdquarter.

Thecurrentpricingenvironmentforsoftwoodmarketpulp,whichisusedforpapertowelandtissueproducts,isunderpressureinthenearterm.AswerampupandproduceSBSKonthenewmachinethroughtherestof2016,thesecurrentconditionswilladverselyaffectearnings.Thiswillimproveaswequalifyfluffpulponthenewmachineandoptimizeproductionacrossoursystem.

TurningnowtotheIlimJV.TheJVhadanotherverystrongquarter,withoperationalEBITDAof$176million,asstrongmanufacturingperformancepartiallyoffsetlowerpulppricesandseasonallylowervolume.Overthecourseofthefirstquarter,therublestrengthenedslightlyagainstthedollar,whichresultedinafavorablenon-cashFXgainontheJV's$600millionofUSdenominatednetdebt,andthatimpactedourfirstquarterearningsfavorablyby$0.03pershare.Lowerpulppricesandseasonallyhigherwoodcosts,alongwithplannedmaintenanceoutagesattheBratskand[Quorioshlin]mills,areexpectedtonegativelyimpactsecondquarterresults.

BeforeIturnitbackovertoMark,letmegiveyouthesecondquarteroutlook.Earningswillincrease,duetoseasonallyhighervolumeinNorthAmericanboxandBrazilpapers.TheadditionalboxvolumeisexpectedtofavorablyimpactNorthAmericanIndustrialPackagingearningsbyroughly$40million.TheimpactofseasonallystrongerdemandinBrazilisexpectedtopositivelyimpactearningsby$10million.

MovingontopricinginNorthAmerica.Theexpectedimpactoflowerpulppricesandalessfavorablemixassociatedwiththeramp-upofRiegelwoodonsoftwoodpulpinthesecondquarterisaboutanegative$20million.ThisisnetofthebenefitsofthepreviouslyannouncedpriceincreasesinuncoatedfreesheetinNorthAmerica.

PricingforNorthAmericanIndustrialPackagingwillbeimpactedbylowerexportpricing,alongwiththeflow-throughoftheJanuaryPPWindexchangethatwillmovethroughtoboxes.Combined,thisisexpectedtonegativelyimpactearningsintherangeof$25millionto$30million.

PricesareexpectedtoimproveinBrazilpapers,asthepreviouslyannouncedpriceincreasesareimplemented.Thiswillfavorablyimpactearningsbyabout$10million.

OperationalcostsinNorthAmericanIndustrialPackagingareexpectedtoimproveasaresultofseasonallystrongerdemandandutilization,alongwithothercostreductionandimprovementinitiatives.Thiswillbeabenefitofroughly$30million.Operationalcostsacrosstheotherbusinessesareexpectedtoremainfavorableandinputcostsareexpectedtoremaingenerallyfavorable,aswell,althoughwedoexpectsomeslightpressureinEurope.

Maintenanceoutageexpenseswillcontinuetobeheavyinthesecondquarter,butareexpectedto




decreasebyatotalof$22million,asshownontheslide,mainlyduetotheloweroutagecostsatRiegelwood.AndrelativetotheIlimJV,theitemsyouseeonthechartareexpectedtonegativelyimpactIPequityearningsbyapproximately$10millionto$15million.

Andadditionally,weareassumingstableFXcomingoutofthequarter.Asyouknow,wedon'tattempttoforecastcurrency.Sotheoutlookassumesanon-repeatofthe$0.03gainfromthefirstquarter.

Sowiththatoverview,letmeturnitbackovertoMark.


Thanks,Carol.Soletmewrapthingsupbeforewetakeyourquestions.Ifeelreallygoodaboutourexecutionandresultsfromthefirstquarter,andI'mencouragedthatdemandfeelsmorefavorableacrosstheprimarymarketsthatweserve.

Ourfocusremainsonexecution,andwesawbenefitfromoureffortsinthefirstquarterintermsofgoodoperationalperformanceandlowercost.TheconversionatRiegelwoodwentwell,wasontimeandonbudget,andourteamisnowrampingupandqualifyingthenewcapabilities.AllofthiswillenableInternationalPapertocontinuetogeneratestrongfreecashflow,whichwewillallocatetocreateadditionalvalue.

We'vealsomadesomekeydecisionsthatwillimproveIP'sportfolioandmakeitstrongerandfurtherimprovereturnsoninvestedcapital,namely,ourdecisionsinAsiaandMadrid.Andyou'llseemoreofthisaswemoveforward,whereitmakessenseforInternationalPaperandourstakeholders.

Wehavewinningstrategiesintherightmarketsandourfocusisclear,asyou'reseeinginthemoveswearemaking.We'refocusedonproducingproductswherewehaveadistinctadvantage,withgoodaccesstofiberandlowcostmanufacturing.We'reconcentratingoureffortsonthemarketsandproductlinesthatgiveIPthegreatestpotentialtogeneratemeaningfulearningsandattractivereturns.

Sowiththat,I'llturnitbackovertotheoperatorandwe'llbehappytotakeyourquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

AdamJosephsonofKeyBancCapitalMarkets.

AdamJosephson (Analyst-KeyBancCapitalMarkets):

Thanks.Goodmorning,everyone.MarkandCarol,two-partquestionformyfirstquestion.DoyoustillexpectD&Aexpensesof$1.3billionthisyear,justgiventhattheyfellabitbelowwhatIwasexpectingthisquarter?Andrelatedly,yourEBITDAwasdown14%inthefirstquarter.

Doyoustillthinkyoucanbeclosetoflatthisyear?Orifnot,whatdoyouthinkreasonableexpectationsarealongthoselinesforEBITDA?

Thankyou.

CarolRoberts (CFO):

Adam,thisisCarolandI'lltakethefirstone,ontheD&A.Yes,wedostillexpecttobeintherangeof$1.3billion.Whathappensisthere'ssomevariabilitytoit.Whenyouhavemillsdownforoutages,youstopyourdepreciationforthatperiodoftime.Soit'sreallyjustsomelumpinessinit.Butoverall,$1.3




billionisstillagoodnumberfortheyear.


Adam,onEBITDA,yourquestionabouthowwefeelaroundtheflatyear-over-year.It'sobviouslygotsomestretchinit,withsomeofthepricingheadwindsthathaveoccurred.Butatthesametime,asImentionedinmycomments,wefeelreallygoodaboutourexecutionandourabilitytomakeimprovementinourbusinesses,bothcommerciallyandoperationally.SoIthinkwe'reverymuchstillintherangeofbeingabletoaccomplishthat.We'vegotalotoftheyearleftandwe'vegotsomerealpositivetrendsonourcommercialfront,andwe'reoperatingvery,verywell.SoweareallaboutfocusedonhittingthatEBITDAthatwetalkedabout.


Thanks,Mark.Andjustoneoncontainerboardexports.Canyoujustcomment--forgivemeifImissedthis--onwhatyourexportvolumesweresequentiallyandyear-over-year.Obviously,thetradepresshastalkedaboutexportpricesfallingtocashcostsforsomeofthehighercostmillsintheUS.I'mjusthopingyoucanaddressthisissue.Andthanksverymuch.

T imNicholls (SVP,IndustrialPackaging):

Hello,Adam,it'sTim.Demandactuallyisholdingupreasonablywell.Inthefourthquarter,Ithinkwecalledoutourvolumewasdown.Wecalledoutsomereasonsaroundthatthatweresituationalandwethoughttemporary.Andinthefirstquarter,wesawareboundinexportvolumes.Wewerestillalittlebitlowerintotalthanwewereinthefirstquarterlastyear.

Partofthat--infact,abigpartofit--isreallyTurkeyandthedumpingtariffthathasbeenimposedandjustsimplyhowwe'rethinkingaboutourparticipationinthemarket.It'sstillaverykeymarketforus,butnoteveryaccountthereisequal.Andsowemadesomedecisionsintermsofhowweweregoingtopositionourselvesinthefirstquarterandgoingforward.

I'dsaydemandisgood.Pricegetswrittenaboutalot.Itdoesn'tfeellikeourexperienceisquiteasnegativeasallthethingsthatiswrittenaboutit.Butthere'snodoubtthere'ssomecompetitivesituationsoutthereandthereisalittlebitofpricepressure.Thatwillprobablycontinueaswegothroughthesecondquarter.


Thanksverymuch,Tim.Appreciateit.


Sure.

Operator :

Dr.MarkWildeofBMOCapitalMarkets.

MarkWilde (Analyst-BMOCapitalMarkets):

Goodmorning.


Goodmorning.





Mark,Iwonderedifyouguys,maybeyouandTim,couldjusthelpusalittlebitaswethinkaboutthesePPWadjustmentsbackinFebruaryandhowtheyrollthroughfirstquarter,secondquarterandintothesecondhalf.


Mark,I'llletTimtakethat.


Goodmorning,Mark.Carolspottedyouanumber.Itwasfairlyminimalinthefirstquarter.We'redealingcustomerbycustomerandcontractbycontractandtheydon'tallworkexactlythesameway.AndgiventhetimingofthePPWadjustmentinthefirstquarter,notverymuchofthatflowedthroughinthequarter.Itwillrampupinthesecondquarter,andCarolpointedoutacombinationofPPWandexportbeingbetween$25millionand$30million.Thebulkofthat,wethink,isbecauseofthepriceadjustmentwiththeindex.Andwe'lltalktoyouaboutthirdandfourthquarteraswegothroughtheyear,aswecontinuetoworkthroughallofthecustomercontracts.Butyou'llseeafairlysignificantstep-upfirsttosecond.


Okay.AndTim,aswethinkabouttryingtomodeloutthethirdandfourthquarter,woulditbefairtoassumesomeadditionalbleed-throughcarryingintothirdandfourthquarter?


Possibly.It'shardtosay,Mark.I'dratherusdotheworkandgetthroughitandthentalktoyouaboutwhatwethinkitwillbeinthethirdquarteraswefinishthesecondquarter,thesamewaywedidgoingintothisquarter.


Okay.Allright.That'sfair.AndjuststayingonthecontainerboardandIndustrialPackagingbusiness,you'vetakenabout440,000tonsofeconomicdowntimeoverthelastsixmonths.Iwonderedifyoucantalkabouthowyou'retakingthat.Areyouslowingback?Areyouactuallyidlingmachinesforaweekortwohereorthere?Andisthereapointwhereyouneedtoconsideralongertermmoveonthesupplyside?


Well,we'llsee.Ithinkthepowerofwhatwe'redoing,itjustshowsthepowerofthesystemandtheflexibilitythatwe'vebuilt.Andsomeoftheinvestmentsthatwe'remaking,it'sallaroundbuildingcapabilityandflexibilityinthesystem.Weknowthatwhenyou'restretchingthesystemintermsofutilizationrate,thingsdon'talwaysworkoutthewayyouwantthemto.Andwe'vebuiltatremendousamountofflexibilityinaverystrongsystem.

SoIcan'tsaywhatitwillbegoingforward.WhatIcansayiswelookoveramulti-period,multipleperiods,outmonthsatatime,notjustwithinaquarter,andwetargetwherewethinkweneedtobeintermsofhowwerunthesystem,andthenweadjustthatalmostdaytodaytodayandweektoweek,basedonavarietyoffactors.

Onethingthathappenedinthefourthquarter,reallylatethird,andcontinuestobeafactorisjusthowefficientlythesupplychainnetworkisrunningrightnow.Andsowhatit'smeantforusatamomentintimeiswejustneedlessinventory,andsowe'veadjustedourproductionaccordinglytomatchthat.We'll




havetomonitorthatovertime.Thingsdon'tstaythesame.Theyhaveatendencytomovearound.Sowe'llhavetoseehowsupplychainperformsthroughtherestoftheyear.


Mark,ifIcouldjustaddtoTim'scomment.Oneofthethingswe'velearnedasoursystemhasbeenoptimizedandit'sgottenaslargeasit'sgotten,isweclearlycreatemorevalueinourcontainerboardandboxsystemwhenthereisabitofflexibilityinthesystemandwecreatelessvaluewhenwetrytoruneverythingtoitslimits.AndImeancommercialvalue,inourabilitytorespondtocustomers,runanefficientboxnetwork,andalsoactualcostvalueinproperlymaintainingtheequipmentbeforetheexpensivefailuresoccur.Andsothatfewpercentonmaintenanceandthatfewpercentoneconomicflexibility,economicdowntime,reallyendsupcreatingthebestopportunityforustogeneratethehighestmargin.Soit'ssomethingthatwedon'tlooktosolvetozero;becauseIthinkifitwaszero,wewouldhaveaverydifficultcommercialpropositionforourcustomers.


Allright.That'sreallyhelpful,Mark.Goodluckinthesecondquarterandthroughthebalanceoftheyear.I'llturnitover.


Thankyou.

Operator :

SteveChercoverofD.A.Davidson.

SteveChercover (Analyst-D.A.Davidson&Company):

Thankyouandgoodmorning,everyone.

CarolRoberts (CFO):

Goodmorning,Steve.


Firstquestion.Hello,Carol.IwantedtoaskabouttheannouncementofanewfluffpulpmillinArkansasatacostof$1.3billion.Willthatseriouslyupsetthesupply/demanddynamic,andwhatdoesitsayaboutthevalueoffluffpulpassets,perhaps?


Steve,wesawthat.Wehavealittlebitofknowledgeaboutthebackgroundthere.It'shardtopredictwhatthatfacility'sgoingtodoandwhen.Ithinkfluffpulpisahighlytechnicalproduct.Youhavetohaveacustomerlistandatrackrecord.Soitwillbeanopenquestionaboutwhetherornotamillthat,intheory,canmaketheproductactuallyendsupwithalargebookofbusinessinthat.Andtherearedifferentdegreesofabsorbentproductsthatarelooselylumpedintofluff.Whatweconcentrateonisthehigherend,highperformanceproductsthataremedicaldevicetypeofproducts.

Socan'tspeculateonwhatthatparticularcompany'sgoingtotrytodo.Butobviously,there'salottobeingsuccessfulinfluffpulpoverthelongterm,primarilybecauseofthebrandednatureoftheconsumerproductthatitgoesinto.Andwe'vebeenatitforawhileandhaveapremiumcustomerlistthatwantsustocontinuetoprovidethemnewmaterial.





Didyouwanttotakethebaitonthevalueoffluffpulpassetsingeneral?


Imustnothave,becauseIdidn't.(Laughter)No,Ithinkmycommentsonallfluff'snotcreatedequalandtheirtypesofproductsshouldcharacterizethevalueoffluffpulpisahighlyvaluableproduct,giventhetechnicalnatureofitandtheconsumerbrandedequitythat'sbehindthoseproductsthatitgoesinto.


Great.Thankyou,Mark.AndthenaquickoneforCarol.Weknowthattheaveragesharesoutstandingwas414million.Wastheendingsharecountsignificantlydifferent?Didyoumayberampuptherepoasyourconfidencegrewthroughthequarter?

CarolRoberts (CFO):

Ithinkwe'llshowthattherepointhequarterwas$100million.AndI'mlookingatmycolleagueshereonthefinalsharecount,butIthinkyoucanfactorinthe$100millionpurchaseandthat'swhatwedidinthequarter,Steve.Soit'scontinuingtomovedownandourintentistocontinuetobeopportunisticwithourbuyback.


Thankyouverymuch.Iappreciateit.

Operator :

thelineofPhilipNgofJefferies.

PhilipNg (Analyst-JefferiesLLC):

Hello,guys.PostRiegelwood,Iwouldimagineaverylargechunkofyourbusinessismoreonthefoodserviceside,whichisholdingupokay,Iwouldimagine,especiallyonthecupside.ButwiththePBWcutonSBS,isitabout40%ofyourbusinessthatgetsimpacted?AndthenhowshouldwethinkaboutthelagintermsofitflowingthroughyourP&L?

MikeAmick(SVPofN.A.Papers,PulpandConsumerPackaging):

Hello,Philip.ThisisMikeAmick.Thenumber'sgoingtoberoughly30%to35%ofourbusinesscouldpotentiallybeimpactedbythatin2016.Andweprimarilyseethisbeingasecondhalfphenomenon.


Andhowwouldyouguyscharacterizesupply/demandinthebleachboardmarket?Certainly,Riegelwoodshouldhelp.ButIguessoneofyourcompetitorsdidbringbackanidledmill,andthenyou'vegotsomeofthatpotentialcapacitymakingitswayintotheUSmarketfromtheEuropean.Howdoyouguysthinkaboutsupply/demandmediumtolongerterm?Thanks.


Philip,thisisMikeagain.Iwouldcharacterizethedemandasokay.Idon'tknowthatI'dusethetermreallystrong.Butthroughthequarter,we'veseenimprovingbacklogsandorderbacklogsbyalmost50%aswemovedthroughthequarter.SoIthink--Iknowrightnow,sittingwhereareinthefirstpartofApril,we'reaboutwherewewerethistimelastyear.





Okay.Andjustonelastonefromme.Mark,youtalkedabouthowdemandinthequarterforcontainerboardfirmedupwithagpickingupande-commercecertainlyseeingalift,aswell.Canyouremindushowyou'rethinkingaboutboxshipmentsforthefullyearnow,inlightofsomeofthestrengthyou'veseenin1Q?


I'llletTimtakethat.


Lastquarter,wesaidwethoughtitwouldbeforthefullyearfortotalmarket,1%to1.5%.Idon'tthinkourviewhaschangedthatmuch.Iwouldsaythatwedidseethequarterstrengthenaswewentthroughthefirstquarter,andMarchwasverystrongforus.Aprilcontinuestobeverystrongforus.Rightnow,monthtodate,we'reintheup2%range.Someofthesesegmentsthathavebeenweighingagainstusoverthepastfewquartersarestartingtoturn,hopefully,andwe'llseeifitholdsup.Butwefeelprettygoodrightnow.


IthinkTim'spoint,Philip,abouteveryorganizationhasamix,acustomermix,andwelikewhatwe'veseeninsomeofthetrendsofthemixthat'sparticularlyheavyforInternationalPaper.Sothatshouldleadustotrackingalotmoreconsistentwithwhattheoverallmarket'sdoingversusmaybeourpastexperience.Sowefeelgoodaboutthat.


Andthemixdynamicwithproteinpotentiallypickingupinthebackhalf,withthebeefcycleturning,thatshouldbeapositiveforyouguys,aswell.Arewethinkingaboutthatright?


Yes,Ithinkso.Proteinhopefullyhasstabilizedandwe'llseehowitplaysouttherestoftheyear.Processedfood,actuallyforus,themixofcustomersthatwehave,trendedprettyfavorablyduringthefirstquarterandlookslikeit'sholdingupinthesecondquarter.I'mnotgoingtogointospecifics,butwesawindividualnamesbeingup2%,3%,4-pluspercentinthequarteranditgotstrongeraswewentthroughthequarter.

Soit'sag.California'sgettingrain,that'sagoodthing.Sowe'rewellpositionedinthatpartofthemarket.Andtheneverybodytalkse-commerce,butit'sreallydistribution.We'vegotamixofcustomersacrossthee-commercespace,aswellasdistribution,andit'sshowingprettygoodstrengthacrosstheboard.


Okay.Thanksalot.Appreciatethecolor.

Operator :

MarkWeintraubofBuckinghamResearch.

MarkWeintraub(Analyst-BuckinghamResearchGroup):

Thankyou.Onequickfollow-upontheDD&Aquestionfrombefore.IsawthattheConsumerPackagingbusinesswasdownquiteabit.WasthatallRiegelwood?AndInoticedthatthepulphadn't




goneup.Doesthatgouponcetheconversion'stakenplace?

CarolRoberts (CFO):

Yes,Mark.Whatwedidiswemovedthatmill,Riegelwood,whichwasasharedmillbetweenthetwosegments,boththeCoatedPaperboardsegmentandthePapersegment,andthat'snowmovedallthewayoverintoNAPP.Soit'slesscoatedpaperboard,hencethechangethere.Andwiththemilldownmostofthequarterfortheconversionandtheiractualannualoutage,that'swhatyousaw.SothatwillnowshowupintheNAPPsegment.


Okay.SotheConsumerPackagingrunsatthis$25millionaquarternowinNorthAmerica,insteadofthe$45millionithadbeenforDD&A?

CarolRoberts (CFO):

Yes.


Okay.Andthenonuncoatedfreesheet,isitfairtosaythatyouarenotreflectingalotofimpactfromthepriceincreasewhichisjustcurrentlyunderwayinthesecondquarter,andsosuccessonthat,ifitcomesthrough,wouldlargelyshowupinthethirdquarterandmaybeifyoucouldmodifyalittlebit?


Well,Mark,you'reaccurateinyourstatement.Itwillbe--westartedtoseealittlebit--we'llstarttoseealittlebitinthesecondquarter,butitwillprimarilybeasecondhalfevent.Andyes,primarilysplitbetweenthethirdandlatterpartofthirdquarter,maybealittleinthefourth.


Okay.Thankyou.

Operator :

thelineofGeorgeStaphosofBankofAmerica.

GeorgeStaphos (Analyst-BoAMerrillLynch):

Hello,everyone.Goodmorning.Congratulationsontheperformance,especiallyinIndustrial.Hadacouplequestions.Firstofall,inIndustrial,canyouupdateusonyourthoughtsastohowyoumightbeabletoincreaseyourverticalintegration?Areyouseeingopportunitiesforinvestment,eitherorganicallyorthroughM&A,tobeabletoacceleratethat,ifthat'sstillagoal?

Andtherelatedpointoncontainerboard,doyouhaveaneedforanysimilarmoveslikeyoudidwithHolmen,andwhataretheimplicationsofthatinvestmentrelativetoyoursupplychaininNorthAmerica?AndIhadaquickfollow-on,ifpossible.


Yes,onyourfirstquestion,George,it'sTimhere,onintegration,Iwouldsaywelikeallofthechannelsthatwe'rein.Weoperateinmultiplechannels.Obviously,theIntegratedchannelisthelargestandit'sveryimportanttous.It'sgoingtocomedowntohowwewinaccountsinthemarketplaceandalignourselveswithcustomerswithinsegments.Sothere'snostatedspecificgoalthatwehavetoreacha




certainintegrationlevel.

Acquisitions,wedon'tcommentonspeculationbutwelookatalotofthings.Andsowe'llcontinuetodothatandifonemakessense,thenwe'llbetalkingtoeveryoneaboutwhatitisandwhywethinkitmakessense.

IntermsofHolmen,Idon'texpectabigimpactfromoneregiontoanotheratall.Buttherelatedquestionaroundaretherethingslikethat,Ithinkthat'swhatyouseeusdoingwithsomeoftheseinvestmentsthatwe'remaking.We'vetalkedaboutincreasingcapacityandaddingflexibility.It'snotthatallcapacityisthesame.Whatwe'redoingiswe'readdingcapabilityaroundcertainproductsthatwethinkaregrowingthroughoursegmentsandthatwethinkweneed,andwe'rebuildingthatcapability.Soit'ssimilartoHolmen.It'sjustdifferent.We'vegot16millswherewecanlookattheproductmixthatweneedandmakeinvestmentsaccordingly.

GeorgeStaphos (Analyst-BoAMerrillLynch):

Okay,Tim.I'llturnitover,sinceIhadmytwo,andI'lltrytocomeback.Thankyou.


Thanks,George.

Operator :

LarsKjellbergofCreditSuisse.

LarsKjellberg (Analyst-CreditSuisse):

Hello.JustaquestionactuallyontheHolmentransaction.WhenI'mlookingatyourIndustrialPackagingbusinessinEurope,theproblemsseemtobethatyouhaveverylowmarginsinyourboxbusiness.Thisdoesn'tnecessarilyfixthatproblem.Sohowdowe--areyouthinkingaboutaddressingthatbusinessinitself,becausejustaddingupstreamintegrationdoesn'tnecessarilyfixwhatseemstobealowmarginbusiness.


Lars,hello.ThisisMark.Theway,buildingonTim'scommentaboutchannels,thewaywelookatourEuropeancorrugatedbusiness,it'saveryfocusedbusiness.Welookatitasoneofourchannelstomarket.Wemoveveryhighquality,highperformancecraftlinerthroughthatsystem.Ifyoulookatthegeography,we'resouthernfocusedaroundfreshfoods.

Andsoourviewofthatbusinessisaspartofourintegratedchanneltomarket.AndtheintegrationofhighperformancerecycledlinercoupledwithourUSproducedhighperformancecraftlinermakesthatwholevaluepropositionbetter.Itallowsustoimproveourcustomermixand,asyouknowfromtheEuropeantheater,therecycledboardthat'savailableisgeographicallyavailable.Soyouhavetohavewhatyouneed,whereyouneedit,inareliablewaytobuildoutyourofferingforyourcustomers.Andthat'swhatthisdoestoimprovethatbusiness.SowhatwefocusoninourEuropeancorrugatedbusinessisverygoodfortheCompany.AndwhenyoutakeitbackandlookatthewaywethinkaboutIndustrialPackagingglobally,it'sareallygoodbusinessforIP.


Justafollow-uponthat.There'satremendousamountofconversionsthathitsthemarkettailend2017,early2018.We'retalkingaboutalmost2milliontons.Isthataconsiderationatallforyouasanon-integratedsystemtoday?Isthistherighttimetodoit?





Well,thatphenomenon,Lars,hasbeensortofafixtureintheEuropeanmarket.There'sbeenacoupleofmilliontonsoverhang.Theproblemwiththatstatementisit'sonaverage.Andagain,recycled,highperformanceliner,it'snotallcreatedequal.Therearethreetofourgradelevels,includingmedium.

AndsowhathastohappenisaconverterlikeInternationalPaperhastohavewhatweneedwhereweneedit.Soifit'sinthenorthofEurope,it'stheoretical.Evenifit'sanoverhang,itdoesn'treallyaffect.Sowhatyouhavetolookatisregionalcapacity.Andwe'vebeenalargeopenmarketbuyerforalongperiodoftimeandwewillstillbuysome.That'showwelookatit,regionalboardfortheconversionthatyouneedandthemarketsegmentsthatyou'refocusedon,nottheaverageofcontainerboardsupplyanddemandforallofEurope,whichisaverydiversemarket,especiallyfortherecycledliner.


Verygood.Thankyou.I'llturnitover.

Operator :

MarkConnellyofCLSA.

MarkConnelly(Analyst-CLSALimited):

Thanks.Justtwoquickthings.Canyougiveusanupdateonthetimingofthe250,000tonsofnewcontainerboardcapacitythatyou'readdinghere?We'vetalkedaboutitasagradualramp.I'mjustwonderingifyoucangiveussomesignpostsandtelluswhenthatwouldbeupandrunning.Andsecond,itlookslikeyou'vecutyourcontainerboardmaintenancenumbers.Isthatachangeinscopeorjustimprovedefficiency?


Hello,Mark.It'sTim.Onthefirstquestion,thecapacity,there'sreallynodifferencethanwhatwesaidatthetimeweannouncedit.Wesaiditwasgoingtobea2016-2017setofactions.SoIdon'tknowifit'shalf,half.Butyou'llseesomeofitcomethroughthisyearandyou'llseealittlebitmorecomethroughinthefirsthalfofnextyear.

Andthenonmaintenance,maintenancevariesmillbymillandperiodtoperiod.Sothere'saplan.There'saschedulethatgoesoutyears.Andyoulookatit,pieceofequipmentbypieceofequipmentanditjusthappensthatyouwillhitperiodswhenthethingsthatneedtobetendedtoinanannualoutagecostsmorebecauseofthenatureoftheworkinagivenperiodthaninothers.

CarolRoberts (CFO):

AndIwouldaddtothat,Mark--thisisCarol--iswhileyoudoseethereductionfromthelasttimeweforecastedthesecondquarterdownisweknowasaCompanythatwe'vegotheadwinds,andsowhatwe'vebeentryingtodo,ofcourse,isyou'vegottofindotherleverstopull.Sowe're,asTimsaid,he'slookingathissystemveryhardtomakesurehe'sdoingwhatheneedstodo,andifthere'sanopportunitytotrimsomethingsuptogetmoremoneytothebottomline,that'swhatwe'reattemptingtodo.Andwe'llcontinuetodisclosethateachquartersoyoucanfollowandtrackthosechanges.


That'sreallyhelpful.





Mark,thisisMarkSutton.Justthequestion,thefirstquestionyouasked,justtotieitbacktoanearlierquestionaroundhowwerunoursystem,thatincrementalcapacitycapabilitythat'scomingfromtheseinvestment,asTimmentioned,isreallyaboutmakingsomeproductsdifferentlythanwe'vemadebefore,makingoursystemmoreflexible,meaningwecanmakesimilarproductsatthesamemilloradifferentmill,sowecanimproveoursupplychain.

Sotheissueofcapacitycomingonlineisonlywhenandifweneeditforthedemandenvironment.It'sreallythedriverisreallymakingmoreofthisandlessofthatfortheboxesthatweneedtomakegoingforward.Andasanoutcomeofimprovingthosefacilities,wehavemorecapacityifweneedmorecapacity.Sothat'sthewaytothinkaboutthat,asopposedtothisiscomingonatthisdateandthisiscomingonatthatdate.It'scomingonasanewproduct,anewbasisweight,anewdesign.Andnetcapacitycomesonifwehavetheordersforitanddoesn'tcomeonifwedon'thavetheordersforit.


Okay.That'shelpful.Thankyou.

Operator :

ScottGaffnerofBarclays.

JohnDunigan (Analyst-BarclaysCapital):

ThisisactuallyJohnDuniganfillinginforScottGaffner.Goodmorningandcongratsonastrongquarter.


Thankyou.


Mostofmyquestions,unfortunately,havebeenasked,butIdidjusthaveacouple.Inparticular,IwantedtoaskaboutwhatyouguysareseeingintheOCCpricesandhowthelowerinputshavehadanimpactonyourfirstquarterandthenwhatyou'reexpectingintermsofanoutlookgoingforwardforthatandhowitcouldaffectIP?


IthinkourforecastisthatwecouldseesomemodestpressureinOCCpricingaswegothroughthesecondquarter.Wedon'texpectit,atthispoint,tobeamajorfactor.Andyes,inthefirstquarterinputswereabitofatailwindforus,whichwe'reoperatinginacertainenvironmentandtryingtotakeadvantageoftheenvironmentthatwehave.


Okay.Andsomeofyourpeershaddiscussedsomeofthefreightbenefitsthatthey'vebeenenjoying,particularlygettingsomediscountsandevenbuildinguponsomeinventorytomeetsomejustintimedemand.CouldyoujusttouchuponwhatIP'sseeingintermsofthosecostsandhowyouguysaremaybetakingadvantage,particularlyinyourIndustrialandPackagingsector?


Well,Ithinkpartofwhatyou'veseen,justinwhatwe'veseenintermsofoursupplychainnetworkisrailandtruckavailabilityhasimproveddramaticallyinthelastpartoflastyear,earlythisyear,comparedtowherewewere,say,ayearago.Sothat'sobviouslyhavinganimpactonthediscussionsyouhavewith




carriersaboutratestructures.It'sstillaverychallengedenvironment,insomecases,intermsofthosediscussions,butwethinkwearehavingsomemeasureoftractionaswehavethosediscussions.

Thebiggerimpactinthemomentisjustwhatitmeanstohowwethinkaboutourstockingpositionsacross200-plusfacilities,andit'smeaningatthemomentthatweneedlessinventoryandwecanrunamuchmoreefficientsupplychain.Sothere'sbenefitinthat.Ithinkwhatweworryaboutishowitchangesovertimeandwilltherebeasnapbackofutilizationratesaroundcarrierslaterthisyear.


Andyougenerallythinkintheneartermherethatyoucanstillenjoythebenefits,withpossiblyasnapbacklatethisyearormaybeearlynextyear?


Idon'tknowwhenit'sgoingtohappenorifitwillhappen.Ijustknowthatthingsdon'tstaystatic.Peopletakeactions.Andsowedon'tcountonanythinglasting.Ithinkitgoesbacktothepowerofthesystem.Wehavetremendousflexibility,andwe'retryingtocreatemoreflexibilitythroughtheseinvestmentssothatwecanpullbackwhenweneedtoandwecanrecoverquicklywhenweneedto.


Understood.Thankyouverymuch.

Operator :

DebbieJonesofDeutscheBank.

DebbieJones (Analyst-DeutscheBank):

Hello.Goodmorning.


Goodmorning,Debbie.


IwaswonderingifyoucouldtalkaboutthechangeyoumadetoyourmanagementincentiveplaninearlyFebruary.Itlookslikeyouswitcheditupbasedon50%operatingcashflowsto50%EBITDA,withROICbeingtheremainder.Isthereanythingweshouldreadintothataboutyourcashoperatingexpensesinthecomingyears?


Hello,Debbie.ThisisMark.No,Ithinkwhatwe'reattemptingtodothereiscashflowisstillfrontandcenter.Whatwe'vegotisthatparticularannualplanisfocusedonthemajorityofouremployeeswhoarerunningouroperations,that'sthelevelandtypeofjob.AndwealltalkinEBITDAintheCompany.That'swhatourplansarebasedon.That'swhatpeoplearemeasuredon.Andwe'vehadalittlebitofslippageinourEBITDAprogressoverthelastcoupleyears.Soit'sjustanattempttorefocus.

Intheoverallschemeofthings,obviouslycashfromopsstartswithgood,strongEBITDAandthenyougotothecashflow,freecashflow.Andourcapitalallocationstrategy'sclearlyunderstoodcommitmenttothedividend.SonomessageotherthanfocusingthepeoplewhoareactuallyonthatplantolookatwayswecanimproveourEBITDAandbreakthroughtheflatnatureofitoverthelastcoupleofyears.Sothat'soneplanforoneyearforacertaingroupofemployees.





CanIjustask,doyoustillexpectnopensioncontributionin2016and2017?

CarolRoberts (CFO):

Debbie,whatIwouldsayiswehavenorequiredpensioncontributionsfor2016and2017.Howwegoforward,we'llobviouslynavigatethataswemoveforward.


Okay.Andmylastquestion,Ijustwantedtoask,wetalkalotaboutthesubstitutionpotentialfromcraftlinertorecycledlinerandwhetherornotthere'sroomtogo,giventhesustainablylowOCCprices.Andyouseethisfrombothvantagepoints,havingexposuretobothmarkets.Iwaswonderingifyoucouldcommentonthis,andthenalsohowthismightimpactyourlongertermcapacityplans.


Hello,Debbie,it'sTim.Weseeincertainregions,incertainareas,there'seithermoreorlesscompetitionfromacertaintypeofproductrange.Ithinkthewaywethinkaboutitiswe'relookingwithourcustomersatbestfitandbestuseforthepackagingtheyneed,anditincludesavarietyofsubstrates,somevirgin,somerecycled,fitforuse.Butitalsoincludescapability,geography,servicelevels.Andsowe'resellingthemmorethanjustisitrecycledorisitvirgin.We'resellingthematotalproduct.Andwe'vegotthebreadthofproductstodoitlikenoother.Sothere'salwaysgoingtobecompetition.It'saverycompetitivemarket,butwefeelgoodaboutthevaluepropositionswehave.


Andthenthequestionaboutthecapacityplansinthefuture,justthinkingaboutthetonnagethatyou'readdinginthecomingyears.


Yes,Idon'twanttospeculateonwhatwewilldoorwon'tdo.We'vegotlowOCCinputcostatthemoment.It'samomentintime.Wethinkthere'sprobablyadifferenttrendovertimeandwe'llmakedecisions.It'slikeItalkedaboutthesecapacityadditions,we'renotjustaddinggenerictons.We'readdingproductsandgradesandbasisweightsforwhereweseegrowthinourchannelsandthetypesofproductsthatweneedtosupportthatgrowth.Andthenwerunitaccordingly,aswe'vesaid,towhatourdemandis.Soweconstantlylookatwhatarethoseproducts,whatdotheyneedtobe,whereshouldweaddthem.Anditwillbeanongoingevaluation.


Okay.Thanksverymuch.Goodluckinthequarter.

Operator :

ChrisManuelofWellsFargoSecurities.

ChrisManuel(Analyst-WellsFargoSecurities,LLC):

Goodmorningandcongratulationstoagreatstarttotheyear.


Thanks,Chris.





TwotopicsIwantedtotouchon.First,alittlebitmorearound--you'reprobablytiredoftalkingaboutit--butsomeofthedynamicsherewithNorthAmericancontainerboard,andthesecondtopicbeingIlim.Withrespecttothefirsttopic,Ihearhowyou'veansweredDebbieandMark'sandafewothers'questionsaroundthings.ButifIlooktodowntimeyoutookin4Qand1Q,onequarterdoesn'tmakeatrend,butit'snowbeentwoinarowthatit'sbeensolidlynorthof200,000tons.Ifweannualizethat,that'slargerthanamachine,closetoamill,900-ishthousandtonsonanannualbasisofdowntime,marketdowntime.Youalsoreferencedyouhadsomeinventoriescomingdown.Somaybeyoucouldhelpus,giveusasenseastowhenIlookatinventory--orI'msorry,industryinventories--theyhaven'treallymovedmuchthelastfewmonths,butmaybeyourshas.Couldyougiveusasense,maybeeitherintonsorinweekssupplyorhoweveryouthinkaboutit,yourinventorieshavechanged3Qto4Qto1Q?


Iwouldsaywerunaverytightsupplychainyearroundandwemakeadjustmentsaswego.Sono,I'mnotgoingtobreakouttonsorweeksofsupply.I'mjustgoingtosaythatwe'reconstantlylookingoutfour,fivemonthsinadvance,targetingwherewethinkweneedbasedonourdemandsignal,andthenwemakeadjustmentsaswerunthesystem.

Sothedowntimethatwetookinthefourthquarterandfirstquarter,averylargecomponentofthatgoesbacktosupplychainefficienciesandjustnotneedingasmuchinventorythroughourchain.Thatcouldchangeovertime.Andmaybewe'retakingalittlebitofriskonthedownsideintermsofhowitmightchangeandwhatwemightdotobeabletodotorespondit.Butwejustliketorunaverytightsupplychain,andwe'llcontinuetodoso.


SoifIreadintothatalittle,itsoundslikeyourinventorylevelsoverthelastcouplequartershavecomedownagoodchunkthenandthey'renotflat.


No,they'renotflat.Andalotofthingsgointotargetinginventorylevels.Werunhundredsandhundreds,ifnotthousandsofgrades,200locations.Andsowe'relookingproductbyproduct,basisweights,grades,locationsandstockinglevelsacrossallofthose,andthenwe'readjustingthesystemquarterly.Andifitjusttakeslesstimetogetproductfrommillstoboxplantbecausethevelocityhasincreased,thenweobviouslydon'tneedasmuchinventoryinthesystem.


Okay.Thankyou.AndwithrespecttoIlim,I'vereadseveralplacesitlookslikeyou'regoingtodoaprettysizableexpansionthere.Couldyoumaybegiveusalittlecolorastowhat'shappeningintimingandthingsofthatnature,andaswellaswhilethat'sgoingon,whatwewouldprobablyexpectoutof--woulddividendsstopforawhileorhowmightthatwork?


SoChris,ontheIlim,Ithink,releasethatyou'rereferencing,theyputoutafive-yearplananditwasacapitalplantoimprovethebusiness.AbigportionofthatisinclusiveoftheirnormalmaintenanceandregulatoryCapEx.That'sabout$325millionannually.Sotheincrementalthatwasinthatannouncementoverthatfive-yearperiodwasabout$700million.

Andit'splannedonlyastheprojectsaredevelopedandastheyhavetherightreturnstoimprovethe




currentbusinessthattheyhaveandtoimprovethequalityoftheproductand,ifnecessary,tomakemoreproductatasecondfacility.AndtheplanforthatwouldbetoorganizethefundingthesamewaythepriordevelopmentofIlimwasdone,whichisontheIlimbalancesheet,andwedon'tseeanyeffectonthedividendchangingorgoingdownoranythinglikethat.

Sowethinkthere'ssomegoodopportunitiesforimprovingIlim.AnditgoestothatcommentImadeonmyclosingstatementaroundmakingproductsthatareneededinthemarket,mainlyintoconsumer-orientedenduses,andmakingthemintherightplaceintheworldforyouradvantage,fiber,coststructure,andworkforce.Andthisisaperfectexampleofthat.

CarolRoberts (CFO):

AndChris,I'lljustaddon.Weactuallyaregoingtogetadividendpayment,I'mlookingatmycolleagueswhoareontheBoard,istheIlimjointventurelastweekapprovedthedividendpaymentfor2016.Sowe'llreceivebetween$50million,$55millionthisyearandanotherrecommitmenttothedividendflowoutofthebusiness,giventhatit'sgeneratingsignificantcash.Andalsoifyoulookattheirdebtbalance,theirdebthasactuallycomedown,aswell.Sothefinancialconditionofthatbusinessisgreatandwe'recountingondividendsoutofthatbusinessaspartofthevaluecreationequationforInternationalPaper.


Okay.Thankyouverymuch.Goodluck.


Thankyou,Chris.

Operator :

ChipDillonofVerticalResearch.

ChipDillon (Analyst-VerticalResearchPartners):

Yesandgoodmorning.


Goodmorning,Chip.


IjustwantedtomakesureIunderstood.Yougavealotofmovingpartsearlierinthecall.AndIknowyousaidthatthepriceimpactofmainlypulpwouldbeabout,ontheNorthAmericanPaperbusiness,wouldbesomewherearound$20million.ButthenIthinkyousaidthatthere'sabenefitinBrazilofabout$10million.SoIguessforthatsegment,lookingatjustpricing,thedifferencewouldbejust$10million,isthatright,negative?

CarolRoberts (CFO):

Yes,thosearetwodiscreteitemsthatwecalledout.Sothatwouldbetherightwaytolookatit,Chip.


Okay.AndjustsoIunderstand,ontheslides,itlookslikethetotalbenefitfromlessmaintenanceinthesecondquarter,Ithinkaddsupto$42million,butthenyoucalledoutsomeother$30millionswingfromoperations.Couldyoujustclarifythat,please?




CarolRoberts (CFO):

Yes,Chip,IthinkwhatIcalledoutwas$22millionontotaloutageexpensefromfirsttosecond.


Okay.

CarolRoberts (CFO):

SoI'mnotsurewherethenumberthatyousaid.WhatwedidcalloutisRiegelwoodwasabigdriver,butifyouadditallup,ifyougoallthewayacrossthelinethereandadditallup,it'sa$22millionimprovementfirsttosecond.


Gotyou.

CarolRoberts (CFO):

Thesecondpartofyourquestion--I'mnotsureI--thesecondpartofyourquestionthenstillhasapplication.


Theoperations,Ithinkyousaidthereweresome$30millionbenefitfromjustoperationsthatyoureferredto.

CarolRoberts (CFO):

Yes,andyouknow,thesecondquarter'salwaysabetteroperationsquarterthanthefirst.It'snotascold.Justhavealotbehindyou.It'sgenerallyagoodoperationalquarter,forlotsofreasons.Andweanticipatethattohappen.


Okay.Andthenjustasafollow-up,youmentioned,Ithinkthisisveryapropos,giventheopportunityinMadrid,andyousayyouhavealotofexposureinthefruit,vegetablearea.Myunderstandingisthatmostorallofthefruitsandvegetablesneedtobepackagedinvirgin-basedcraftlinerbecauseofthecondensationissue.Andhastechnologychangedtoallowcertaintypesofrecycledboardtobeintroducedthere?Isthereanykindofachangethathastakenplaceoristakingplace?Andthenisthat,inpart,behindyourmoveinMadrid?


No,themoveinMadridisreallytocomplementwhatwedowithcraftliner.Andyourassessmentisaccurate.There'sbeenlotsofattemptstomakeproductswithmixedsubstratesinthatfield.Itreally,reallyisdrivenbythesupplychain.Thereareprobablysomeshortsupplychainsthatcanbeardifferentproducts.Butthehumidityfromtheharvestallthewaythroughthesupplychaintothemarketiswhatdrivestheperformancecharacteristicsoffreshfoodpackagingforneedingcraftlinerorcraft-likeperformancecharacteristics.

Theindustrialbusiness,thehighendindustrialbusinessthatcomplementsyourmixandyourplant--becauseobviously,agricultureisseasonalandyouwanttorunyourplantandrunasuccessfulbusinessovertheyear--that'swherethehighperformance,lightweightrecycledcomesin.Anditallowsustoperformbetterinsomeofthebestindustrialsegmentsversususingboardthatisnotthathigh




performance,thatyou'vegottousemoreofitandthingsofthatnature.Youendupnotbeingcompetitiveintheindustrialsegmentsthatyoureallywanttobein.


Thatmakesalotofsense.Thanksverymuch.

Operator :

YourfinalquestioncomesfromthelineofDannyMoranofMacquarie.

DannyMoran (Analyst-MacquarieResearch):

Hello.Goodmorning.Thanksfortakingmyquestions.Ijustwanttoclarifysomethingonyourheatmapthatyouprovidedinyourearningspresentation.Doyouanticipatecontinuedhigheryear-over-yearexportshipmentsin2Qandfortheyear?Andthendoyoualsoexpectfurtherpriceerosiontotheexportmarkets?


Hello,Danny.I'massumingyou'retalkingaboutcontainerboard.Wefeelprettygoodaboutthedemandsignalthatwe'vegottenfromthemarkets.Marginstakeahit.Demandseemstobeholdingup,whichsaystousthere'saneedforthetypeofproductthatwe'resupplyingtotheexportmarkets.Andwe'vebeenastrategicsuppliertothosemarketsfordecades.Sowehavelong-termrelationshipsthatwestickwithquartertoquarter,yearin,yearout.

Wefeelprettygoodaboutourbacklogsforthesecondquarter.Themarket'sverycompetitive.Idon'twanttoforecastprice,butI'lljustleaveitthatit'scompetitiveandthetypesoferosionthatwe'veseenprobablycontinueintothequarter.Sowe'llmanageitaccordingly.Butwestillmakedecentmoneyonexportandwelikeitalot,onaverage,throughthecycle.


Okay.That'shelpful.Thanks.Andthenonelastonefromme.WithallthemovingpartsinyourNorthAmericanIndustrialPackagingbusiness,witheconomicdowntimeandsomecapacitycreep,onanetbasisdoyouexpecttoproducemoreorlessboxesthisyear?


Well,I'mnotgoingtoforecastwhatwe'llproduce.We'vesaidthatovertimeourgoalisthatwepositionourselveswiththerightsegmentsandwiththerightcustomersandwewouldexpecttoperforminlinewithmarket,asourchoicesaroundcustomermixgrowovertime.Andwe'veseenalittlebitofbothhereoverthepastyear.Lastyear,wewereunderperformingbecauseofsomeofthatexposure.Andinthefirstquarterofthisyear,wewererightontopofit.Sotous,it'saboutcustomerchoicesandhowwealignourselvesintherightspots.


Gotit.Okay.Thanksandgoodluckfortherestoftheyear.

Operator :

Thankyou.Iwillnowturnthe--





Thanks,everyone.

Operator :

Thankyou.IwillnowturnthecallbackovertoJayRoyaltyforanyclosingcomments.


Sorry,Operator.Ijumpedthegunalittle.That'sallthetimewehavetoday,folks.Thanksforjoining.Andasalways,MichelleandIareavailableafterthecall.Haveagreatday.

Operator :

Thankyou.Thatdoesconcludetoday'sconferencecall.

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INTERNATIONAL PAPER CO (IP) Earnings Report: Q1 2016 ... · also contains copies of the first quarter 2016 earnings press release and today's presentation slides. Lastly, relative