Second Quarter 2017 Earnings | July 27,...
Transcript of Second Quarter 2017 Earnings | July 27,...
Second Quarter 2017 Earnings | July 27, 2017
Earnings Presentation | Second Quarter 2017
Forward-Looking Statements
Certain statements in these slides and made during this presentation may be considered forward-looking
statements. These statements reflect management's current views and are subject to risks and
uncertainties that could cause actual results to differ materially from those expressed or implied in these
statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of
our indebtedness and changes in interest rates; (ii) industry conditions, including but not limited to
changes in the cost or availability of raw materials, energy and transportation costs, competition we face,
cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global
economic conditions and political changes, including but not limited to the impairment of financial
institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating
organizations, the amount of our future pension funding obligation, changes in tax laws and pension and
health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new
environmental and other governmental regulations and to actual or potential litigation; (v) whether we
experience a material disruption at one of our other manufacturing facilities; (vi) risks inherent in
conducting business through joint ventures; (vii) the failure to realize the expected synergies and cost-
savings from our purchase of the cellulose fibers business of Weyerhaeuser Company; and (viii) our ability
to achieve the benefits we expect from all other strategic acquisitions, divestitures and restructurings.
These and other factors that could cause or contribute to actual results differing materially from such
forward-looking statements are discussed in greater detail in our Securities and Exchange Commission
filings. We undertake no obligation to publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise.
2
Earnings Presentation | Second Quarter 2017
Statements Relating to Non-GAAP Financial Measures
During the course of this presentation, certain non U.S. GAAP financial measures
will be presented, such as Adjusted Operating EPS, Adjusted EBIT, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Adjusted ROIC.
A reconciliation of all presented non-GAAP measures (and their components) to
U.S. GAAP financial measures is available on the company’s website at
internationalpaper.com under Performance/Investors.
3
Earnings Presentation | Second Quarter 2017
Ilim JV Information
All financial information and statistical measures regarding our 50/50 Ilim joint
venture in Russia (“Ilim”), other than historical International Paper Equity Earnings
and dividends received by International Paper, have been prepared by the
management of Ilim. Any projected financial information and statistical measures
reflect the current views of Ilim management and are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by such projections. See “Forward-Looking Statements.”
4
Earnings Presentation | Second Quarter 2017
Second Quarter 2017 Results
1 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and
non-operating pension expense)
5
Healthy box and containerboard demand driving
N.A. Industrial Packaging performance
Positive momentum in Global Cellulose Fibers
Record fluff pulp sales
Synergies being realized faster
Recent price increases being implemented and
realized across key businesses
OCC cost averaged $20/ton higher than 1Q17
Executed seasonally heavy maintenance outage
schedule; ~75% of outages completed in 1H17
Strong Ilim operational results; equity earnings
negatively impacted by non-cash FX
$0.92
$0.60 $0.65
2Q16 1Q17 2Q17
Adj. Operating EPS1
Earnings Presentation | Second Quarter 2017
2Q17 Financial Results
2Q16 1Q17 2Q17
Sales ($B) $5.3 $5.5 $5.8
Adj. EBIT1 ($MM) $635 $431 $499
Adj. Operating EPS2 $0.92 $0.60 $0.65
Operating EPS impact of Ilim F/X3 – IP Share
$0.01 $0.06 ($0.04)
Adj. EBITDA1 ($MM) $936 $776 $856
Adj. EBITDA Margin1 17.6% 14.1% 14.8%
Free Cash Flow4 ($MM) $527 $259 $355
1 From continuing operations before special items and non-operating pension expense2 Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating
pension expense)3 Represents F/X impact including that related to Ilim JV USD-denominated net debt (balance of ~$0.8B at end of 2Q17)4 See slide #20 for a reconciliation of cash provided by operations to free cash flow
6
936
776856
2Q16 1Q17 2Q17
Adj. EBITDA1
($MM)
Earnings Presentation | Second Quarter 2017
.60.65
(.13)
(.01)(.07).13
.06.04
.03
1Q17 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs Corporate/Other
Ilim JV 2Q17
2Q17 vs. 1Q17 Adj. Operating EPS
7
Ops .03
FX (.10)
Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating
pension expense)
Earnings Presentation | Second Quarter 2017
360
407
(29)
(6)44
2612
1Q17 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
Industrial Packaging | 2Q17 vs. 1Q17 Adj. EBIT1
8
$ M
illio
n
1 Segment adjusted operating profit before special items
Earnings Presentation | Second Quarter 2017
0.3 0.4 0.5
0.8
1.3 1.31.6
2.0
2.52.7 2.7
2.4
9%
13%15% 15%
19%18%
20%19%
22%24% 24%
22%
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2H17RunRate
Th
ou
san
ds
N.A. Industrial Packaging | Margin Expansion
9
Bu
sin
ess
Ad
j. EB
ITD
A ($
B)
Adj.
EBITDA %
IP Adjusted EBITDA margins based on North American Industrial Packaging operating profit before special items
Excludes the Recycling Business and revenue from trade volumes
Margin expansion in 2H 2017 driven by price realization in
domestic and export channels and lower maintenance outages
Earnings Presentation | Second Quarter 2017
N.A. Industrial Packaging | Containerboard Exports
10
IP Kraft Linerboard
EMEA
Asia
Latin America
~15%
$40/ton1
~50%
+$125/ton1
~35%
+$110/ton1
IP’s export channels provide choices for maximizing value
of kraft linerboard
Price momentum continues
1 RISI Published Pricing; change in pricing from December 2016 to June 2017
Healthy global growth at ~3-4%
Earnings Presentation | Second Quarter 2017
Industrial Packaging | Tangier Box Plant Acquisition
11
Tangier
Casablanca
Adagir
Acquired Europac’s Tangier plant in Morocco
Began operations in 2016; attractive asset base
Supports Morocco's growing export economy
Madrid
IP Box PlantIP Mill
Kenitra
Continuing to optimize our EMEA Packaging business
Earnings Presentation | Second Quarter 2017
Global Cellulose Fibers | 2Q17 vs. 1Q17 Adj. EBIT1
12
1 Segment adjusted operating profit before special items
(51)
12
331
20
63
1Q17 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
$ M
illio
n
Earnings Presentation | Second Quarter 2017
Global Cellulose Fibers | Integration Synergies Update
13
Synergy Category
Description
2Q17
Actual
($MM)
YTD
Actual
($MM)
Current
Run Rate
Annualized
($MM)
Full
Synergy
Target
($MM)
SG&A / Other Eliminate duplication $12 $19 $38 $45
Commercial Mix
Opportunities
Customer and segment
optimization
High value product growth
Leverage innovation
$8 $12 $32 $40
Manufacturing, Supply Chain,
& Sourcing
Grade / machine mix
optimization
Logistics optimization
Efficiency improvements
(Waste, Freight)
Purchasing opportunities
$14 $17 $56 $90
Total $34 $48 $126 $175
Earnings Presentation | Second Quarter 2017
100
88
(3)
(22)9
3
1
1Q17 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
Printing Papers | 2Q17 vs. 1Q17 Adj. EBIT1
14
$ M
illio
n
1 Segment adjusted operating profit before special items
Earnings Presentation | Second Quarter 2017
33
(5)(2)
(5)
(35)
4
1Q17 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
Consumer Packaging | 2Q17 vs. 1Q17 Adj. EBIT1
15
$ M
illio
n
1 Segment adjusted operating profit before special items
0
Earnings Presentation | Second Quarter 2017
Ilim Joint Venture | 2Q17 vs. 1Q17
$ Million$ 2Q16 1Q17 2Q17
Sales Volume (thousand tons)
866 748 900
Sales $473 $449 $546
EBITDA $169 $191 $121
F/X (Impact of USD Net Debt)1 $15 $58 ($46)
Adj. Operational EBITDA2 $154 $133 $167
IP Equity Earnings (Loss)3 $46 $50 $21
Seasonally stronger demand and higher pulp pricing drove operational
EBITDA improvement
F/X loss (non-cash) on USD denominated net debt driven by ruble weakening
Seasonally weaker volume expected in 3Q17; equity earnings projected to be $35MM4
16
Ilim JV results are on U.S. GAAP basis 1 Represents F/X impact including amounts related to Ilim JV USD-denominated net debt (balance of ~$0.8B at end of 2Q17); Ilim Group’s functional currency is the
Ruble (RUB); Non-functional-denominated currency balances are measured monthly using the month-end exchange rate2 Before F/X impact including USD-denominated net debt3 IP Equity Earnings (Loss) for 2Q16, 1Q17 and 2Q17 include after-tax F/X gains (losses) (primarily on USD-denominated net debt) of $6MM, $23MM and ($18MM),
respectively4 At June 30, 2017 RUB/USD exchange rate
Earnings Presentation | Second Quarter 2017
North America EMEA & Russia Brazil
Price / Mix
Packaging Realization Stable Stable
Cellulose Fibers Realization
Paper Mix Pressure Stable Stable
Volume
Packaging 1 Less Day Stable Stable
Cellulose Fibers Stable
Paper Stable Stable Stable
Operations & Other
Packaging Non-repeats Stable Stable
Cellulose Fibers Stable
Paper Stable Stable Stable
Mill Maintenance Outages
Packaging Decrease $86MM Decrease $2MM Stable
Cellulose Fibers Decrease $36MM
Papers Decrease $33MM Decrease $6MM Decrease $3MM
Inputs & FreightPackaging OCC & Energy Stable Stable
Cellulose Fibers Stable
Printing Papers Stable Stable Stable
Other Items
Corporate expense, ~$15MM in 3Q17
Interest expense, in line with full-year outlook of ~$575MM-$600MM
Tax rate, ~33% in 3Q17
Ilim JV, forecasting Equity Earnings of ~$35MM1
Third Quarter Outlook | Changes from 2Q17
17
1 At June 30, 2017 RUB/USD exchange rate
Earnings Presentation | Second Quarter 2017
Key drivers of margin expansion
Healthy demand outlook in Industrial Packaging and Global Cellulose Fibers
Realization of recent price increases
Solid operational performance and cost reduction initiatives
Significantly lower maintenance outage expense
Global Cellulose Fibers synergies and momentum
Allocate capital to create value with a near-term focus on debt reduction
Remain confident in upside to full year view of 10%+ YoY EBITDA growth
Full Year Outlook | Positioned for Strong Second Half Performance
18
Earnings Presentation | Second Quarter 2017
AppendixInvestor Relations Contacts
Jay Royalty / Guillermo Gutierrez 901-419-1731
Michele Vargas 901-419-7287
Media Contact
Tom Ryan 901-419-4333
19
Earnings Presentation | Second Quarter 2017
$ Million 2Q16 1Q17 2Q17
Cash Provided by Operations $605 $633 $645
Cash Invested in Capital Projects ($328) ($374) ($290)
Cash Contribution to Pension Plan $250 - -
Free Cash Flow $527 $259 $355
Free Cash Flow
20
Earnings Presentation | Second Quarter 2017
Maintenance Outages Expenses | 2017 Forecast
21
$ Million 1Q17A 2Q17A 3Q17F 4Q17F 2017F
Industrial Packaging $71 $100 $47 $32 $250
North America 69 100 47 32 248
Brazil 2 0 0 0 2
Global Cellulose Fibers $50 $44 $8 $11 $113
Printing Papers $23 $43 $2 $13 $81
North America 23 34 1 11 69
Europe 0 6 0 0 6
Brazil 0 3 0 2 5
India 0 0 1 0 1
Consumer Packaging $0 $35 $0 $4 $39
North America 0 33 0 4 37
Europe 0 2 0 0 2
Total Impact $144 $222 $57 $60 $483
Earnings Presentation | Second Quarter 2017
IP North American Downtime
22
146
72 92141 125
86117 93
157
55230
212
85107 41
35
Maintenance Economic
12 15 210 10 0
35
4 29
31
0
29
0
30
1125
0 10
24 253
15 12 429
18 0
55
13190
Containerboard
Uncoated Papers
Cellulose Fibers
Th
ou
sa
nd
To
ns
Thousand T
ons
Th
ou
sa
nd
To
ns
150
Coated Paperboard
201
16
322
46
353
210193
158
13
78
128
Th
ou
sa
nd
To
ns
Earnings Presentation | Second Quarter 2017
Special Items Pre-Tax ($ Million) 2Q16 1Q17 2Q17
Industrial Packaging
Kleen Products Settlement Agreement ($354)
Holmen Acquisition Bargain Purchase Gain $6
Impairment of Asia Box & Restructuring ($28)
Other ($1) ($3)
Global Cellulose Fibers
Pulp Business Inventory Step-up Amortization
($14)
Pulp Business Acquisition ($5) ($4) ($5)
Other ($1)
Printing Papers Other ($2)
Consumer Pkg. Asia Foodservice Sale ($9)
Corporate ArborGen Sale $14
Interest Income on Income Tax Refund Claims
$4
Other $2
Total Special Items Before Tax ($33) ($14) ($353)
Special Items Before Tax | Continuing Operations
23
Earnings Presentation | Second Quarter 2017
Special Items Net of Taxes
1Q17 2Q17
$ Million EPS $ Million EPS
Earnings Before Special Items $249 $0.60 $270 $0.65
Special Items Net of Taxes:
Kleen Products Settlement Agreement ($219)
Tax Expense – International Investment Restructuring ($15)
Pulp Business Inventory Step-up Amortization ($8)
Asia Foodservice Sale ($4)
Pulp Business Acquisition ($2) ($3)
Holmen Acquisition Bargain Purchase Gain $6
ArborGen Sale $9
Net Income Tax Refund Claims $47
Other ($2) $1
Total Special Items Net of Taxes ($21) ($0.05) ($169) ($0.41)
Non-Operating Pension Expense ($19) ($0.05) ($21) ($0.05)
Net Earnings $209 $0.50 $80 $0.19
24
Earnings Presentation | Second Quarter 2017
Adj. Operating Profits by Industry Segment | Continuing Operations
25
$ Million$ 2Q16 1Q17 2Q17
Earnings (Loss) From Continuing Operations Before Income Taxes and Equity Earnings ($14) $244 ($29)
Interest Expense, Net $129 $142 $1413
Noncontrolling Interest / Equity Earnings Adjustment - - ($1)
Corporate Items, Net $25 $11 $4
Special Items, Net $33 $14 $353
Non-Operating Pension Expense $487 $31 $34
Adj. Operating Profit Before Special Items $660 $442 $502
Industrial Packaging1 $486 $360 $407
Global Cellulose Fibers1,2 ($16) ($51) $12
Printing Papers1 $117 $100 $88
Consumer Packaging1 $73 $33 ($5)
Total Adj. Industry Segment Operating Profit1,2 $660 $442 $502
Equity Earnings (Loss), net of taxes – Ilim $46 $50 $21
1 Excludes special items (Non-GAAP)2 Earnings from newly acquired pulp business are reflected beginning December 1, 20163 Excludes a special item of $4MM in interest income
Earnings Presentation | Second Quarter 2017
Geographic Business Segment Operating Results | Quarterly
26
$ MillionSales D & A Adj. Operating Profit1
2Q16 1Q17 2Q17 2Q17 2Q16 1Q17 2Q17
Industrial Packaging
North America $3,138 $3,155 $3,336 $172 $496 $362 $408
Europe $295 $317 $341 $9 $6 $8 $5
Brazil $51 $59 $60 $5 ($12) ($10) ($6)
Global Cellulose Fibers2
Global Cellulose Fibers $259 $564 $612 $65 ($16) ($51) $12
Printing Papers
North America $466 $468 $446 $19 $51 $33 $21
Europe $288 $274 $299 $11 $34 $29 $26
Brazil $219 $214 $232 $27 $34 $39 $43
India $42 $48 $47 $5 ($2) ($1) ($2)
Consumer Packaging
North America $416 $388 $395 $23 $48 $14 ($19)
Europe $85 $78 $79 3 $25 $19 $14
Does not reflect total company sales1 Excludes special items (Non-GAAP)2 Sales and Earnings from newly acquired pulp business are reflected beginning December 1, 2016
Earnings Presentation | Second Quarter 2017
2017 Operating Earnings
27
Pre-Tax$MM
Tax$MM
Non-controlling
Interest$MM
EquityEarnings
Net Income$MM
Average Shares
MMDiluted EPS1
Net Earnings from Continuing Operations
1Q17 $244 ($83) - $48 $209 416 $0.50
2Q17 ($29) $89 - $20 $80 416 $0.19
Net Special Items
1Q17 $14 $7 - - $21 416 $0.05
2Q17 $353 ($184) - - $169 416 $0.41
Non-Operating Pension Expense
1Q17 $31 ($12) - - $19 416 $0.05
2Q17 $34 ($13) - - $21 416 $0.05
Adj. Operating Earnings
1Q17 $289 ($88) - $48 $249 416 $0.60
2Q17 $358 ($108) - $20 $270 416 $0.65
1 A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Performance tab, Investors section
Earnings Presentation | Second Quarter 2017
Adj. Operating EPS
28
2006 as originally reported
2007-2011 adjusted for elimination of the Ilim JV reporting lag
2006-2010 Net Earnings from continuing operations and before special items; 2010 onward reflects Operating Earnings
xpedx is reflected as a Discontinued Operation from 2010 onward
.12
.35
.40
.47.45
.52
.57
.73
.45.49
.41
.15
.07
.27
.38
.22
.05
.44
.85
.72.76.77 .78
.67
.58
.49
.77
.66.64
.61
1.01
.81
.60
.93.95
.53
.84
.97.97
.87
.80
.92.91
.73
.60.65
.42
.08
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
17
2Q
17
2006 2007 20102008
Impact of Mineral
Rights Gain
2009
.83
2011
.93Final Land Sale
2012 2013 2014 2015 2016
Earnings Presentation | Second Quarter 2017
.92
.65
(.15)
(.14)
(.17)
(.06)
.14 .01
.03 .07
2Q16 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs Corporate& Other Items
Ilim JV PulpAcquisition
2Q17
2Q17 vs. 2Q16 Adj. Operating EPS
29
Adjusted operating EPS based on Adjusted Operating Earnings (defined as Net Earnings (GAAP) from continuing operations before special items and non-operating
pension expense)
Earnings Presentation | Second Quarter 2017
486
407
(64)
(20)(102)
107
2Q16 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
Industrial Packaging | 2Q17 vs. 2Q16 Adj. EBIT1
30
$ M
illio
n
1 Segment adjusted operating profit before special items
0
Earnings Presentation | Second Quarter 2017
2Q17 vs. 1Q17 2Q17 vs. 2Q16
Business VolumePrice / Mix
per TonVolume
Price / Mixper Ton
N.A. Container1 5.9% $13 1.6% $34
European Container Flat €19 2% €10
Average IP volume and price realization (includes the impact of mix across all segments)1 On a per day FBA basis
Industrial Packaging | Volume and Pricing Trends
31
Earnings Presentation | Second Quarter 2017
N.A. Industrial Packaging Relative Adj. EBITDA Margins
32
22.8% 22.6%
18.3%18.7%
20.6%
15.9%
19.3%
22.0%
IP PCA WestRock
2Q16 1Q17 2Q17
1Trailing Twelve Months
IP Adjusted EBITDA margins based on North American Industrial Packaging operating profit before special items
Excludes the Recycling Business and revenue from trade volumes
Competitor Adjusted EBITDA margin estimates obtained from public filings and IP analysis
TTM1
19.5%
21.0%
TTM1
WRK
Reports
8/3
Earnings Presentation | Second Quarter 2017
Global Cellulose Fibers | 2Q17 vs. 2Q16 Adj. EBIT1
33
1 Segment adjusted operating profit before special items
(16)
12
(16)
(18)
42
(1)192
2Q16 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs Outages All Other 2Q17
0$ M
illio
n
Pulp Acquisition
Earnings Presentation | Second Quarter 2017
Global Cellulose Fibers | Volume and Pricing Trends
34
2Q17 vs. 1Q17 2Q17 vs. 2Q161
Business VolumePrice / Mixper Tonne
VolumePrice / Mixper Tonne
Pulp (metric ton) 3% $45 7% $20
Average volume and price realization (includes the impact of mix across all grades and destinations)1Proforma basis- Combined Global Cellulose Fibers
Earnings Presentation | Second Quarter 2017
117
88
(30)
(2)(4)7
2Q16 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
Printing Papers | 2Q17 vs. 2Q16 Adj. EBIT1
35
$ M
illio
n
1 Segment adjusted operating profit before special items
0
Earnings Presentation | Second Quarter 2017
2Q17 vs. 1Q17 2Q17 vs. 2Q16
Business VolumePrice / Mix
per TonVolume
Price / Mixper Ton
N.A. Printing Papers (4%) ($12) 2% ($59)
European Papers1 (5%) €14 (1%) (€18)
Average IP volume and price realization (includes the impact of mix across all grades)1 Excludes Russia
Printing Papers | Volume and Pricing Trends
36
Earnings Presentation | Second Quarter 2017
N.A. Printing Papers Relative Adj. EBITDA Margins
37
15.0%
13.4%14.0%
11.1%
15.6%
12.7%
9.0%
15.5%
IP PCA Domtar
2Q16 1Q17 2Q17
UFS
Reports
7/28
1Trailing Twelve Months
IP Adjusted EBITDA margins based on operating profit from continuing operations before special items
Competitor Adjusted EBITDA margin estimates obtained from public filings and IP analysis
TTM1
13.9%
17.2%
TTM1
Earnings Presentation | Second Quarter 2017
Printing Papers | IP Brazil
38
$ Million 2Q16 1Q17 2Q17
Sales $219 $214 $232
Adj. Earnings $34 $39 $43
Adj. EBITDA Margin 25% 30% 30%
2Q17 vs. 1Q17 2Q17 vs. 2Q16
Uncoated Freesheet VolumePrice / Mix
per TonVolume
Price / Mixper Ton
Domestic (BRL) (8%) R$68 (12%) R$131
Export (USD) 22% $13 20% ($24)
Segment adjusted operating profit before special items
IP Brazil results are reported in the Printing Papers segment
Average IP Brazil price realization (includes the impact of mix across all grades)
Earnings Presentation | Second Quarter 2017
73
(5)(3)
(9)
(3)
(30)
(33)
2Q16 Price / Mix Volume Operations& Costs
MaintenanceOutages
Input Costs 2Q17
Consumer Packaging | 2Q17 vs. 2Q16 Adj. EBIT1
39
$ M
illio
n
1 Segment adjusted operating profit before special items
Earnings Presentation | Second Quarter 2017
Average IP price realization (includes the impact of mix across all grades)1 All periods exclude Carolina brand coated bristols sales
2Q17 vs. 1Q17 2Q17 vs. 2Q16
VolumePrice / Mix
per TonVolume
Price / Mixper Ton
N.A. Coated Paperboard1 Flat $13 (5%) ($18)
Revenue Revenue
Foodservice 5% Flat
Consumer Packaging | Volume and Pricing Trends
40
Earnings Presentation | Second Quarter 2017
Ilim Joint Venture | Full Year Financials
41
2013 2014 2015 2016
Sales Volume (Million tons) 2.7 3.2 3.3 3.5
Sales ($B) 1.9 2.1 1.9 1.9
Debt ($B) 1.5 1.4 1.2 1.5
Adj. Operating EBITDA ($MM) 203 459 694 680
F/X Gain (Loss)1 ($MM) (80) (674) (188) 63
EBITDA ($MM) 123 (215) 506 743
Depreciation ($MM) 176 188 128 121
EBIT ($MM) (53) (403) 378 622
Interest Expense ($MM) 39 69 52 81
Net Income / (Loss) ($MM) (72) (359) 237 385
IP Equity Earnings / (Loss) ($MM) (46) (194) 131 199
Dividends (to IP) ($MM) 0 56 35 60
Ilim JV results are US GAAP basis 1 Represents F/X impact including that related to Ilim JV USD-denominated net debt (balance of ~$0.6B at year end 2016)
Earnings Presentation | Second Quarter 2017
Ilim Joint Venture | Volume and Pricing Trends
42
2Q17 vs. 1Q17 2Q17 vs. 2Q16
Business VolumePrice / Mixper Tonne
VolumePrice / Mixper Tonne
Pulp (metric ton) 19% $44 3% $61
Average Ilim JV (100%) volume and price realization (includes the impact of mix across all grades and destinations)
Earnings Presentation | Second Quarter 2017
Total Cash Cost Components | 2Q17 YTD
43
Fiber34%
Materials17%
Freight12%
Labor12%
Energy8%
Overhead10%
Chemicals7%
North American mills only (excludes newly acquired pulp business)
Earnings Presentation | Second Quarter 2017
($16)
$15
($2) ($1)
Fiber Energy Chemicals Freight
North America Outside North America
($6)
$3 $1
($2)
IndustrialPackaging
GlobalCellulose
Fibers
PrintingPapers
ConsumerPackaging
Energy Wood Chemicals Freight OCC
By Business By Input Type
Input costs ($MM) for continuing businesses
Global Input Costs vs. 1Q17 | $4MM Unfavorable, or $0.01/Share
44
OCC
Wood
Earnings Presentation | Second Quarter 2017
($72)
($28)
$0
($9)
Fiber Energy Chemicals Freight
North America Outside North America
($102)
$0
($4) ($3)
IndustrialPackaging
GlobalCellulose
Fibers
PrintingPapers
ConsumerPackaging
Energy Wood Chemicals Freight OCC
By Business By Input Type
Global Input Costs vs. 2Q16 | $109MM Unfavorable, or $0.17/Share
45
OCC
Wood
Input costs ($MM) for continuing businesses
Earnings Presentation | Second Quarter 2017
90
95
100
105
110
115
120
125
130
U.S. Mill Wood Delivered Cost Trend | 2Q17 Average Cost Down 2% vs. 1Q17
46
IP data, cost Indexed to January 2007 values
2008 2009 2010 2011 2012 2013 2014 2015 2016
Earnings Presentation | Second Quarter 2017
40
60
80
100
120
140
160
180
200
220
IP data, cost Indexed to January 2007 values
U.S. OCC Delivered Cost Trend | 2Q17 Average Cost Up 10% vs. 1Q17
47
2008 2009 2010 2011 2012 2013 2014 2015 2016
Earnings Presentation | Second Quarter 2017
U.S. Natural Gas Cost Trend | 2Q17 Average Cost Down 6% vs. 1Q17
48
0
50
100
150
200
250
IP data, cost Indexed to January 2007 values
NYMEX Natural Gas closing prices
2008 2009 2010 2011 2012 2013 2014 2015 2016
Earnings Presentation | Second Quarter 2017
0
50
100
150
200
250
300
U.S. Fuel Oil Cost Trend | 2Q17 Average Cost Down 13% vs. 1Q17
49
IP data, cost Indexed to January 2007 values
WTI Crude prices
2008 2009 2010 2011 2012 2013 2014 2015 2016
Earnings Presentation | Second Quarter 2017
75
100
125
150
175
200
U.S. Chemical Composite Cost Trend | 2Q17 Average Cost up 1% vs. 1Q17
50
IP data, cost Indexed to January 2007 values
Delivered cost to U.S. facilities: includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2007 - 2008 excludes WY PKG
2008 2009 2010 2011 2012 2013 2014 2015 2016
Earnings Presentation | Second Quarter 2017
2017 Global Consumption | Annual Purchase Estimates for Key Inputs
51
CommodityNorth
AmericaNon – North
America
Energy
Natural Gas (MMBTUs) 85,000,000 11,000,000
Fuel Oil (Barrels) 450,000 400,000
Coal (Tons) 95,000 600,000
FiberWood (Tons) 60,000,000 8,000,000
Old Corrugated Containers / DLK (Tons) 4,800,000 300,000
Chemicals
Caustic Soda (Tons) 470,000 70,000
Starch (Tons) 390,000 120,000
Sodium Chlorate (Tons) 200,000 60,000
LD Polyethylene (Tons) 40,000 -
Latex (Tons) 10,000 6,000