International Paper Company — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; filed February 16, 2024. The filing includes fourth-quarter results and full-year comparisons with 2022. International Paper produces renewable fiber-based packaging and pulp products through two reportable segments: Industrial Packaging and Global Cellulose Fibers.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $18.916 billion | $21.161 billion | Down 11% |
| Net earnings attributable to shareholders | $288 million | $1.504 billion | Down 81% |
| Diluted EPS | $0.82 | $4.10 | Down $3.28 |
| Continuing-operations earnings attributable to shareholders | $302 million | $1.741 billion | Down 83% |
| Adjusted operating earnings | $755 million | $1.168 billion | Down 35% |
| Cash provided by operations | $1.833 billion | $2.174 billion | Down 16% |
| Free cash flow | $692 million | $1.243 billion | Down 44% |
| Capital spending | $1.141 billion | $931 million | Up 23% |
| Year-end cash and temporary investments | $1.113 billion | $804 million | Up $309 million |
Net earnings margin was approximately 1.5% in 2023 versus 7.1% in 2022. Continuing-operations earnings margin was approximately 1.6% versus 8.2%. Adjusted operating earnings margin was approximately 4.0% versus 5.5%.
- Industrial Packaging: Sales were $15.596 billion, down from $17.451 billion; operating profit was $1.266 billion, down from $1.742 billion.
- Global Cellulose Fibers: Sales were $2.890 billion, down from $3.227 billion; operating loss was $17 million versus operating profit of $106 million.
- Debt and liquidity: Total debt was approximately $5.6 billion, including $5.455 billion of long-term debt. The Company had approximately $1.9 billion of credit facilities, with no borrowings outstanding under the $1.4 billion bank facility or $500 million receivables securitization program at year-end. Commercial paper borrowings were zero.
- Shareholder returns: The Company paid approximately $642 million of dividends and repurchased approximately $197 million of common stock under its repurchase program. Approximately $2.96 billion remained authorized for repurchases at year-end.
Material Changes Versus the Prior Comparable Period
- Lower demand, customer inventory destocking, lower selling prices, unfavorable product mix and inflationary operating costs reduced sales and profitability.
- Lower energy, wood, recovered fiber and distribution costs provided approximately $982 million of segment operating-profit benefit, but this was more than offset by lower pricing and mix, lower volume and approximately $926 million of higher operating costs.
- Fourth-quarter net loss attributable to shareholders was $284 million, or $(0.82) per diluted share, compared with a $318 million loss, or $(0.90) per diluted share, in fourth-quarter 2022. Fourth-quarter adjusted operating earnings were $142 million versus $309 million.
- The Company permanently closed its Orange, Texas containerboard mill and shut down two pulp machines at Riegelwood, North Carolina and Pensacola, Florida. These actions generated approximately $422 million of non-cash asset write-off and accelerated-depreciation charges and approximately $118 million of cash severance and shutdown charges.
- International Paper completed the sale of its 50% interest in Ilim and its remaining Ilim Group shares for aggregate proceeds of approximately $508 million. Ilim results are presented as discontinued operations, and the Company no longer has investments in Russia.
- Discontinued operations included after-tax losses of $14 million in 2023 and $237 million in 2022, principally reflecting Ilim impairment and transaction-related items.
- Net special-item expense from continuing operations increased to approximately $572 million after tax in 2023, primarily due to the mill and machine closures and related restructuring actions.
Guidance, Outlook, Risks and Unusual Items
- Management expects the first quarter of 2024 to be an earnings trough because of seasonally lower volumes, higher costs, the January winter freeze and the flow-through of prior pricing-index movements.
- Management characterizes 2024 as a transitional year and expects approximately 3% industry growth in packaging and fluff pulp, along with more than $400 million of net benefits from commercial and operational initiatives. The filing does not provide formal full-year earnings guidance.
- 2024 capital spending is expected to be approximately $800 million to $1.0 billion. Benefits from the Orange mill closure and pulp-machine shutdowns are expected to reach a full run rate by the fourth quarter of 2024.
- Key risks include cyclical demand and pricing, inflation in labor and raw materials, energy and transportation costs, elevated interest rates, approximately $908 million of variable-rate debt exposure, facility disruptions, labor negotiations, cybersecurity incidents, climate and environmental regulation, foreign operations and currency movements.
- The Company recorded environmental remediation liabilities of approximately $251 million and asbestos-related liabilities of $97 million at year-end.
- International Paper may be responsible for substantial Brazilian tax liabilities under its agreement with Sylvamo. Current assessments total approximately $393 million, including tax, interest, penalties and fees; the Company disputes the assessments.
- The Company received an IRS proposed adjustment relating to investment tax credits for 2017–2019. Management estimates a potential incremental tax liability of approximately $50 million and plans to appeal.
- A $485 million deferred tax liability related to the Temple-Inland timber monetization is expected to be settled when related notes mature in 2027. Bank-credit downgrades could also require replacement letters of credit or accelerate up to $485 million of deferred taxes.
- Management expects no required pension contributions in 2024, although future voluntary contributions remain possible. The U.S. qualified pension plan was overfunded by $118 million, while aggregate U.S. GAAP pension obligations exceeded assets by $146 million when nonqualified obligations were included.
- Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned valuation of alternative investments in the qualified pension plan.
Important Facts for Investors to Verify
- Reconcile GAAP earnings and cash flow with management’s non-GAAP adjusted operating earnings and free cash flow measures.
- Assess whether the projected $400 million-plus of 2024 commercial and operational benefits offsets inflation, recovered-fiber, transportation and energy costs.
- Review the sustainability of dividends and future share repurchases relative to free cash flow, capital spending and approximately $5.6 billion of debt.
- Monitor demand, pricing, inventory normalization and volume trends in Industrial Packaging and Global Cellulose Fibers.
- Evaluate the timing and cash costs of the mill closures, machine shutdowns and related workforce reductions.
- Track the Brazilian tax litigation, IRS investment-tax-credit dispute, environmental remediation matters and Temple-Inland deferred-tax obligation.
- Verify the effect of variable-rate debt and refinancing costs under continued elevated interest rates.