International Paper Cuts 2026 North America EBITDA Outlook Despite Q3 Recovery

International Paper (NYSE: IP) lowered its full-year 2026 adjusted EBITDA guidance for Packaging Solutions North America, citing weaker volume, higher diesel and distribution costs, and operational items, even as the segment delivered a sharp sequential earnings recovery in the third quarter.

The company now expects full-year adjusted EBITDA for the North American packaging business of $2.27 billion to $2.31 billion, down from its previous range of $2.35 billion to $2.45 billion. International Paper attributed the net $110 million reduction primarily to $55 million of diesel and distribution costs, a $50 million volume headwind, a $20 million impact from repairs at Pine Hill, and $20 million related to employee medical costs and outage timing. An additional $35 million of price realization partly offset those pressures.

For the third quarter, companywide sales were $6.20 billion, compared with $6.22 billion a year earlier and $6.00 billion in the second quarter. Adjusted EBITDA was $843 million, versus $859 million in the prior-year period and $587 million in the preceding quarter. The adjusted EBITDA margin was 13.6%, compared with 13.8% a year earlier and 9.8% in the second quarter.

Adjusted operating earnings were $197 million, or $0.37 per share, improving from an adjusted operating loss of $0.43 per share a year earlier and adjusted operating earnings of $0.04 per share in the second quarter. On a GAAP basis, International Paper reported a $1.10 billion loss from continuing operations, or $2.07 per diluted share, reflecting $1.31 billion of after-tax net special items. The presentation also identified $675 million of accelerated depreciation associated with facility closures.

Free cash flow was negative $267 million, compared with positive $150 million a year earlier and negative $7 million in the second quarter.

North American packaging earnings recover sequentially

Packaging Solutions North America generated third-quarter sales of $3.88 billion, broadly unchanged from $3.90 billion a year earlier and up from $3.69 billion in the second quarter. Adjusted EBITDA, excluding the recycling business, rose to $663 million from $425 million sequentially and $655 million a year earlier. The segment’s adjusted EBITDA margin was 17.7%, compared with 17.5% in the prior-year quarter.

The sequential improvement included a $141 million benefit from price and mix, an $85 million contribution from operations and costs, and a $133 million benefit from the timing of planned maintenance outages. These gains were partly offset by a $46 million volume decline and $55 million of higher input costs, including diesel, recovered fiber and energy. Pine Hill reduced adjusted EBITDA by $20 million after operations were temporarily suspended for roof repairs; the company said repairs were completed ahead of plan and the financial impact was confined to the third quarter.

North American box volume declined about 2% year over year on a daily basis, affected by West Coast agriculture and customer facility closures. International Paper estimated that industry demand fell approximately 3% and expects its box volume to outperform estimated industry demand by about two percentage points for the full year. That expectation is based on known customer wins, an anticipated improvement in West Coast agriculture and a seasonal increase in demand.

For the fourth quarter, management expects North American adjusted EBITDA of $700 million to $740 million. Prior price increases are expected to contribute $45 million to $55 million, while volume is projected to add $25 million to $35 million despite two fewer shipping days. Higher recovered-fiber and diesel costs are expected to reduce earnings by $20 million to $30 million, with maintenance outage timing representing another $10 million headwind.

EMEA results remain constrained by soft demand and inflation

Packaging Solutions EMEA reported third-quarter sales of $2.28 billion, down from $2.31 billion a year earlier and nearly unchanged from $2.29 billion in the second quarter. Adjusted EBITDA increased to $210 million from $182 million sequentially and $209 million a year earlier, lifting the margin to 9.2% from 8.0% in the second quarter.

Sequentially, higher paper prices contributed $27 million and cost-reduction initiatives added $76 million. Those benefits were partially offset by a $32 million volume decline in a soft market and $39 million of higher input costs, primarily energy. The company said EMEA performance continued to be affected by inflation and weak consumer confidence.

International Paper is advancing preparations to separate the EMEA business while evaluating a potential sale in parallel. Under the contemplated spinoff, DS Smith plc would be listed on the London Stock Exchange with a Level II American depositary receipt program on the New York Stock Exchange, and International Paper intends to retain an approximately 20% stake. The company expects both businesses to have investment-grade ratings, although the transaction remains subject to board and regulatory approvals. Beginning in the third quarter, International Paper stopped including U.S. GAAP guidance for EMEA in its guidance framework and said it does not expect to provide such guidance in the future.

Cash flow and investment outlook

International Paper maintained a full-year company free cash flow outlook of $100 million to $200 million and expects corporate expense of approximately $100 million. It is targeting 2026 capital expenditures of $2.0 billion to $2.1 billion, maintenance outage expense of $432 million and an operational effective income tax rate of 19% to 21%.

The outlook remains exposed to weak demand, inflation in energy, diesel and recovered fiber, and uncertain macroeconomic conditions. The company also identified execution and timing risks related to the EMEA separation, including the possibility that the transaction could take a different form or fail to deliver anticipated benefits. Other disclosed uncertainties include tariffs and trade tensions, currency movements, elevated interest rates, facility closures, supply-chain disruptions and geopolitical conflict.