Packaging and materials company International Paper (NYSE: IP) missed Wall Street’s revenue expectations in Q2 CY2026, with sales falling 11.3% year on year to $6.00 billion. Its non-GAAP profit of $0.04 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

International Paper’s second quarter was marked by an 11% year-over-year decline in sales, missing Wall Street’s revenue expectations. Despite this, non-GAAP earnings per share significantly exceeded analyst estimates, reflecting management’s emphasis on cost reductions and operational efficiency. CEO Andrew Silvernail pointed to tangible progress on execution, including improvements in mill performance and the completion of the Riverdale machine conversion. Silvernail acknowledged the complexities of the operating environment, noting, “We’ve been clear about our focus on improved execution,” and cited ongoing cost and complexity reduction efforts as central to the quarter’s results.

Looking ahead, International Paper’s outlook is shaped by continued investment in strategic projects and anticipated margin recovery, even as the company faces ongoing macroeconomic and geopolitical headwinds. Management expects recent price increases, especially in North America, to flow through to results in coming quarters, with further gains driven by operational improvements and new facility ramp-ups. CFO Lance Loeffler emphasized that while challenges like higher input costs and the Pine Hill mill outage remain, the company’s cost-out initiatives and targeted capital investments are expected to support profit growth, stating, “We continue to expect a significant step-up in the second half of this year.”

Key Insights from Management’s Remarks

Management credited operational advances, targeted capital deployment, and strategic cost actions for mitigating volume and margin pressures during the quarter, while progress on the EMEA business separation remained a key focus.

• Operational execution: International Paper completed a heavy outage schedule and advanced key mill investments, including finishing the Riverdale machine conversion on time. These efforts improved mill reliability and efficiency, with North American mill performance up 500 basis points year-over-year, supporting better asset utilization and reduced downtime.

• Ongoing 80/20 strategy: The company executed footprint rationalizations, closing or announcing closure of 31 EMEA facilities and reducing workforce by over 3,000 positions. This streamlined operations and allowed for redeployment of resources to higher-return projects, which management sees as critical for long-term profitability.

• Strategic capital investments: Major investments included the acquisition of the NORPAC mill to expand lightweight packaging capabilities, the addition of the Dover converting facility to strengthen regional presence, and preparation for the Waterloo facility start-up. These projects are expected to enhance product mix and cost position, with anticipated returns in the mid-teens to mid-20s percentage range.

• Customer-centric initiatives: Management cited ongoing efforts to differentiate through customer experience, including the Aurora, Illinois Commercial Performance and Innovation Center. This facility fosters direct collaboration with customers for packaging innovation, which management believes gives International Paper a competitive edge in winning new business.

• Progress on EMEA separation: The planned separation of the EMEA packaging business remains on track. Management highlighted the establishment of governance, legal, and operational infrastructure as part of the readiness process, with a dedicated team focused on ensuring a smooth transition. This separation is seen as a significant milestone for future strategic focus and capital allocation.

Drivers of Future Performance

International Paper’s forward outlook centers on price realization, margin improvement, and disciplined investment, set against persistent macro and industry uncertainties.

• Price realization and margin recovery: Management expects improvements in adjusted EBITDA during the second half of the year, driven by the flow-through of previously announced price increases in North America and EMEA. While recent pricing actions are intended to offset inflationary pressures—such as higher costs for old corrugated containers (OCC), energy, and freight—management noted that most gains to date have been offset by rising input costs. Margin recovery, especially in EMEA, is also expected as higher paper prices begin to reflect in packaging contracts and as new customer wins are onboarded.

• Strategic investment ramp-up: The company anticipates gaining operational leverage as projects like the Riverdale ramp-up and the NORPAC and Waterloo facility integrations progress. These investments are expected to support a more balanced product mix, lower costs, and increase capacity utilization. Management reiterated the commitment to maintaining an advantaged cost position, with further targeted investments planned over the next several years.

• Risks and external headwinds: Macro uncertainties remain a significant risk, including ongoing geopolitical volatility impacting demand in EMEA, higher transportation costs, and persistent inflation. Additionally, the Pine Hill mill outage is expected to weigh on short-term results, though insurance recoveries are anticipated to offset much of the financial impact. Management also highlighted muted demand growth in North America due to affordability challenges for certain consumer segments and specific agricultural market headwinds on the West Coast.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the successful ramp-up and productivity gains from recent mill and facility investments, particularly Riverdale and NORPAC; (2) the realization of price increases and their effect on margin recovery across both North America and EMEA; and (3) the progress and execution of the planned EMEA business separation. We will also watch for any material changes in macroeconomic conditions or input costs that could alter the company’s profit trajectory.

International Paper currently trades at $42.77, in line with $42.65 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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