Okay, good morning, everybody. Thanks for joining us on day three. My name is Ghansham Panjabi. I'm the Packaging and Coatings Equity Research Analyst at Baird. It's a real pleasure to introduce International Paper, and from International Paper, we have Andy Silvernail. Andy joined the company as CEO officially in May. Yes. And KKR in a very strong and successful career at IDEX. We also have Mark Nelson from Investor Relations out in the back. So thank you for joining us. This is an uncovered company, so please feel free to send some questions in at, I think it's session two at rwbaird.com. So with that, Andy, maybe we can open it up to you just to give us an introduction and some high-level comments on International Paper. Yeah. So first of all, it's great to be here. I was talking this morning. I realized, I think the first time I came here was 1995. I was an analyst at Fidelity Investments right out of college, and so it's kind of fun to be back. So I joined IP in May 1st. I had had about a 10-year run running IDEX and then spent some time in the private equity world, and about a year ago, I just realized how much I missed running a scaled company and how much I enjoy what's out there. And so I looked at a lot of different things, and I saw IP. And what I saw in IP, my belief, was something that was very misunderstood, and I believed that there was a core business within the business that was actually pretty special. And that's the sustainable packaging business. And so in my diligence, which I really treated like an acquisition, I looked at it with that kind of data and really kind of ripped the company apart from all aspects of quality of the core business, the quality of the team, where it was valued, et cetera, et cetera, and what the potential upside was. I got very excited because it felt like it wasn't understood. And what we've been doing here over the last six months is really to get at that core, to really get at that fundamental core of that business. And through the 80/20 methodology that I was fortunate enough to be exposed to, and really kind of the combination of the 80/20 philosophy and the Danaher Business System is kind of how I think about things. That's really the approach that I take at the world. What we have found is really a very exciting core packaging business. In North America, the North American packaging business is about an 80% integrated business that has really good structural economics, better than I think people understand. It certainly has the potential to be that. There is a bunch of noise around it in terms of other things that we do. There was a matrixed organization that was very hard to work through and work in, which we have obviously addressed and got at pretty quickly. Now the European packaging business. As we announced, we're looking at strategic alternatives for our Global Cellulose Fibers business. So between that and the acquisition of DS Smith, we'll be exclusively a sustainable packaging business with leading positions in the U.S. at about 30% market share and kind of a tied for number one or a very close number two in Europe in the low 20s%. And so exciting place to be. Those are the places that money gets made in this business around the world. And so we're going hard. Great. Well, thank you, Andy. So it's rare that there's excitement in the packaging industry. You found a way to create that. When you tell my kids that and tell them I'm actually really cool, I'm the box guy. That's what I try to tell them. So you found a way to do that. As you diligence the industry, right? So most people look at it and say, you know what? You guys are 80% integrated, but others aren't. Yeah. And so there's a lot of upstream capacity. There's foreign players that come into the U.S. occasionally. Sure. When margins get high, capacity finds its way and so on and so forth. Yeah. So as you did your diligence, how do you see International Paper as sort of a leader making a change to reduce some of the volatility that the industry has experienced over time? So let me break that. I'll break that into I'll break that into two pieces, meaning I want to say piece one is what you should and shouldn't do. And piece two, which is then what you should do, why that's attractive. So I think the what you should and shouldn't do, I think what really is the places where my point of view that are very difficult are the things that drive a lot of volatility. So when you look at things that cause volatility in this industry, they tend to be things that are attached to, I need to dump volume somewhere. That's kind of how it ends up playing. Somebody has, I have fixed overhead costs and I have a philosophy that this is a commodity and therefore I have to dot, dot, dot. And so what that leads to is it leads to too much capacity in the industry, right? It leads to a fixed cost mentality that says, "I have to cover my fixed costs," which leads to, when things are not going well, I chase things. And so you create, and I don't know, has anybody here ever done the Lean Beer Game? I mean, raise your hand. No one's ever done that? You got to be kidding me. We got to do that. Well, it's this whole process of looking how things flow through a system. So they teach it in business school. They teach it in lean manufacturing. So what you end up doing is you end up having a push mentality that when things are struggling, it causes these massive sine waves. So the question is, how do you get rid of the stuff that's truly a commodity? And how do you focus on the stuff that is not? The integrated packaging business is not. It's not for really three big reasons. Then I'll get to strategically kind of what you do. Number one, there is a portion of the customer base that is absolutely 100% price sensitive and they will always be that. They are transactional buyers. You know what? You do business with them on your terms, right? And then there's a portion of the business that is super hands-on. You got to hold their hands. That is a good business, but it's a very distinctive model. And so you have to separate yourself. If you're going to play there, you have to come at a different model. And then you've got 60% or 70% of the middle that actually really values a solution. They really value it. And the reason they do is the product that they're buying from you is pennies. And everything else that they're doing is dollars or tens of dollars or hundreds of dollars or thousands of dollars. And so your ability to actually serve them when they need it, how they need it, where they need it at a fair price is a differentiated position. And structurally, where we have an advantage, we have two structural advantages. One is our box plant network, which is where we're located around the geographies. It is very different. Our ability to serve a broad reach. And second, our virgin mill system is super differentiated, right? Because you can't recreate it. You fundamentally can't. And so when you put those two things together and then you drive the three elements of strategy that I'll talk about now, I think you have something pretty special. And because this whole business is done within 150 miles of a major geography. And so competition, unlike people's philosophy of a commodity, competition is not global. It just fundamentally isn't. Competition is fundamentally local. It is structurally local. So there are three things that really stand out. The first one is you do need to be the low-cost producer. But that doesn't mean you're the low-price player. And to be the low-cost producer, it doesn't mean cost per ton. Cost per ton is irrelevant. It's a totally irrelevant thing. What is relevant is cost per square unit of solution, cost per square foot, cost per square meter. That's what they're buying. And now if you drive cost per ton, yeah, that helps you. But you have the rest of the cost through the system is two-thirds of the other costs. And so I need to think about the entire delivered system. So I got to drive that. So as we presented our strategy a month ago to our board, how you actually think of that over a three-year period of time to radically change your cost per square unit of measurement is a big deal. And because of the structural advantages we have, we can get there. We can actually get to a position that is pretty differentiated. The second is the customer will pay for service. And we've seen that very specifically. It's about a 3%-5% premium that they'll pay for premium service. That's a lot of money. That's a huge amount of money. And the third one is actually having strength locally. So where you're going to compete, the regions that you're going to compete, those 150 mi, play where you can win, right? Don't mess around. Don't mess around in places that you basically just flush the assets like we talked about before. And so our focus, and by the way, it's the same in the U.S., Europe and the U.S., it's the same. It's a little bit different because of the country boundaries, but it's fundamentally the same. And so our focus on what I think is a good, let's be honest, it's not a great structural business. It's not the structural business I had at IDEX, but I knew that coming in. I wasn't kidding myself. And you apply it with a, I'm going to be a packaging company, not a commodity paper company. And then you drive those three elements of strategy. That gets fun. Sounds good. So again, I don't cover this. I'm relying on consensus estimates. But earnings for the company in 2018 were roughly $5 in EPS. Yep. Street's at about $24 for this year. That stinks. That stinks. Yeah. You know, a few things happened. If you just look at the, let's look at symptoms and then we'll talk diagnosis. So symptoms. If you look at the core business, the things that we still own today, we have lost market share. So we've lost market share. So our customers have gone for a solution elsewhere. And when you dig into it, it really comes down to service. So if you look at this, you have all these structural advantages. Well, what it comes down to is we lost the service edge. And because we are competitive in the market, if anything, we're a negative market leader in price, if anything. And so we need to be smart about that. But we lost our service edge. We stopped investing in the right things. And that's problematic. And so if you look at that market share, kind of that slow dribble, dribble, dribble of market share, it's fundamentally an under-investment story and a focus story. Up until a month ago, we had a huge matrix structure in Illinois. We had a massive organizational matrix structure. It was a structure that was set up for a global commoditized business with multiple business lines. That's what it was set up for. The problem with the matrix organization is decision-making, right? So we're in a matrix organization. If you and I both run a business and we have a third person who's a supply chain person, we're negotiating for that person's time. And we're negotiating together. We're negotiating between that person. We're negotiating with that person's boss. And that when you have a matrix organization, it eats up massive amounts of capacity. In and of itself, you go, well, it's not really that much cost. It's not really, you know, the scope of a $20 billion business. It's not that much cost. It's a killer in decision-making. It's a killer in how people apply their time. It's a killer in how capital gets reallocated. And so as you see problems around service and investment, the organization is unable to adapt and to change. So that's one big one. And there was lots of cost creep in there. And then we have just been incredibly undisciplined around cost. I mean, just fundamentally. So as you're losing market share, you can't make decisions and you're fundamentally undisciplined around cost. That's how you get there. Okay. That's a good segue into 80/20. Yep. You know, this is an operating philosophy I've seen with other companies, ITW and so on and so forth. First off, you know, before we get into the construct of what it is and how you're going to apply it and how you're going to get 39,000 plus employees to buy into it. Yeah. You know, has it actually worked in a commoditized industry? That's something I was thinking about. Yeah. Well, so first we're just going to disagree on a commoditized industry, right, so we'll start there. I just don't. I think that is a fundamental. I'm not kidding myself. Obviously, we have commoditized inputs. There's no doubt about that, but we have in the sustainable packaging business; it is not a global paper business. That's a really important thing. If you think it is, this is probably not a great investment for you, just to be honest, because that's not how we're going to treat it, and so the answer is, I've seen this now. We had 40 businesses at IDEX. I have touched over 100 businesses with the methodology. I have yet to see where it doesn't work, and the reason it doesn't, I say that, is not because it's some magic elixir. There's no magic here. 80/20 is fundamentally about an incredibly rigorous database approach to find out what matters most and to moving people and resources towards it. And I was having coffee with a young executive this morning and we were talking about this. And by my estimate, about 10% of companies are good at this practice. Whether you call it 80/20 or not, by my estimate, super good at saying, this is what matters most and I'm going to ruthlessly move people, energy, time, and money towards it. And I mean, I think some of you have heard this story before. When I was at IDEX in 2014 or so, we actually looked at the 40 businesses and we asked ourselves, we went back to three years of budgeting. And we asked ourselves, how had budgets changed in those 40 businesses over three years? And the answer was almost none. If you actually looked at where dollars were spent to where dollars were moved, the answer was almost none. And we were considered a pretty good business at the time. And so if you think of it in a strange way, if you think of it as alpha and beta, right? You can't get alpha if you don't have beta. It's impossible, right? It's mathematically impossible. And so you have to find ways of creating beta, right? Change. You got to create rates of change. And you want to have positive change, obviously. And what 80/20 does is it says, I'm going to move resources to create rates of change. That's what I'm going to do. And very few companies have the courage to do it. And it has nothing to do with actually the type of company because it's the same in a nonprofit. It's the same in your family. It's the same. Okay. And in terms of, you mentioned sine waves earlier. Yeah. Which I haven't heard in a long time in this industry. How long does it take the organization to buy into this? Just based on your experience. Is it exponential? So I'm learning that myself a little bit. So I was talking with some of the private equity folks I've done some work with, and they asked me, actually the other day, they asked me, "What's the big difference? Or what did you learn in your time of doing that?" And what I learned there was how fast you can go if you're not emotionally attached to the things that you have to change. And it's the thing that they do incredibly well. So my time at KKR, what I learned from them is their ability to understand what the levers of change and therefore value are, to focus exclusively on those and to pull really hard. And if you don't let the most important things break, nothing else really kind of matters. And so you can move a lot faster than you think you can, right? And so, as an example, right? So, at our last earnings call, between two weeks before the earnings call and the earnings call, we announced the change in the matrix structure, the consolidation of a number of plants and a mill, the strategic options of a business. And we were able to pull that off in a relatively short period of time because you're not really breaking anything regrettable. And I don't want to; please don't take that lightly. People's lives are at stake and you're impacting people. And I take that unbelievably seriously. But a structure that doesn't allow you to win is not treating people well, right? And so when you look at that and you say, that structure makes no sense. People can't win. It doesn't; yeah, you're going to have some bumps and it won't be perfect, but you can move really fast. And if you're moving the resources towards your most valuable customers, if you're moving your capital towards those things that drive the best returns, then the things that are going to invariably fall through the cracks are not that big a deal. So you can move a lot faster than you think you can. Now, that being said, will the person in shipping at our Rome facility in Georgia know what the heck 80/20 is? Not today. I get that. However, if you change the system and the system says you have to ship all your 80s products before you can ship your 20s products, then they're living it. They just don't know it's there. And so it's a combination of influence, but systems are even more important. That's the propagator. That is the propagator. Great. All sounds good. What's been done so far? Let's see. We bought a $10 billion company. We're selling a $2.5 billion company. We've announced almost $250 million of structural cost change, and we have laid out a path of a couple billion dollars of improvement, which I think is, it's going to be, it's hard work. It's a lot of hard work. It's absolutely not a layup, but you can see how you can do it. Okay. All right. So on the last call, you called out $230 million in EBITDA contribution from three different initiatives: Enterprise, North American Packaging Solutions, and Global Cellulose Fibers. Yes. Maybe just quickly expand on those? Yeah, so if you just kind of think generally on the enterprise side, you're looking at the matrix in Memphis, so making the fundamental changes there, which we have executed. I am incredibly proud of what the team did in a very difficult situation and in a very short period of time, so you have a big chunk there, really focusing on what I'm going to call lighthouses within the North American packaging business so you can prove that you can have some pretty remarkable results in a short period of time, so we've got two places, two what I'll call complexes, geographies around the country where we are experimenting with volume and mix allocation in box plants to really see what's possible, and we're finding some pretty awesome results on productivity and service levels, you know, are changing pretty radically. You know, one example I gave was in working with a customer, we figured out how to take 1,300 hours, sorry, 1,300 changeovers out of a plant by just working, by coordinating with the customer. Those are real. That's real productivity. That's real time and changes the service levels. We're also going to do lighthouses around a couple of different mills because you have a couple of different mill types. We're going to do that in 2025 and then really focused on what I'll call our 80/20 account management strategy. Okay. Let's take a couple of questions from the audience. The first one is on RISI. I'm just going to paraphrase a little bit in terms of RISI. Oh, yeah. A change associated with that being the index that your customers use. Look, it is what it is. People have a different opinion of it. If you look at RISI long term, it's not the enemy. It functions well. It's built into major contracts. And so I think it's appropriate. People have asked me about, do I think it should change? Do I think I should get involved in changing it? That's just not high on my priority list right now. We got a lot of other things to do that we can really control. And so it's fine. Okay. All right. Any questions in the audience? Go ahead. Please. Oh, who? Go ahead. So when you look at the U.S. box industry over the last 30 years or so, there's been a lot of ups and downs. But I think 96% of you today are growing in flat. Yeah. I just wanted to get a sense of how you think about the longer-term growth rate of the industry here. Yeah. When you think about the share that you've lost over the last year, how do you expect to regain that? Yeah. Maybe just repeat. Yeah. So the question was, if you kind of look at the long-term trends of growth of the box business, how do I think about that in North America in particular? And I'll include Europe in that too because I think that's an important part of that conversation. And then how do we recapture share? Did I capture that? So I think generally, I think that it's about a 1% growth industry over long periods of time in terms of the U.S. and Europe for a little bit different reasons, but in terms of volume. The good part is that long-term over time, you kind of keep up with inflation, which is a good thing on the top line. So it's a business that can have modest but reasonable growth. That's how I would say if I kind of structurally look at the business. In terms of market share, you know, market share is all about those regional density questions overlaid by a national account strategy or a global or a regional account strategy, if you call it in Europe. Don't call it national in Europe. So it's looking at that big middle that I talked about, that 60%-70%, which I think is our sweet spot, and really driving around how do I change that service equation, have a great service at a fair price, right? And you can get a small premium, as I mentioned in there, by driving that. But that's not done a nation at a time. It's done a region at a time. It's done a box plant at a time. So those lighthouses that we're talking about, if you look at the two geographic lighthouses we're doing on the box plant side right now, you're seeing 98% plus on-time delivery, phenomenal service. I'll knock on wood on that. And we're actually seeing, we're starting to see small wins. And so you got to do it like that. You combine that with driving that low-cost position. And I like that combo put together. Good. Just with your merger with DS Smith and some of the other mergers in the industry, how different does the industry function the next kind of five to 10 years? Yeah. U.S., European cross-ownership? So the question is, would the consolidations happen? How different does that make my opinion on what's different? So one of the things that excited me when I was doing my diligence on the industry is I asked kind of two questions. One is, structurally, do I like where the industry is today versus 10 years ago? And what do I think structurally it's going to look like 10 years from now? And it looked a lot better versus that 10 years ago. And it looks a lot better looking 10 years forward. And I think part of that, right, is you have really good competitors. And what I mean by good competitors is they know how to compete. They know how to drive the right things, service levels and innovation and things that we want to have driven in the industry at fair prices, right? And actually doing it right, the right way. And so I like that structural dynamic. I think we have look, Smurfit Westrock, they're going to be a good competitor. Smurfit did a great job in Europe. PCA is a great competitor. I like that. I like great competitors. It raises that game. The U.S. is a little more consolidated than Europe will be, and it always will be. I think that's the nature of it. But I would not think of it as much on a U.S. versus pan-European as I would kind of market by market. That's how I would think about it. And I think that's what really matters when you get to it. And so I think the structural dynamics are favorable over the next decade. Usually some of the themes that you're talking about, the incredibly undisciplined around cost and a few other things, often can be a manifestation of things that are happening outside of the company with the clients. Yeah. Our relationships have evolved with them into highly transactional relationships. Every meeting where our pitches for our plans are smoking and we march back into the business saying, "We need all these things in order to survive. Yeah. We're running in a thousand directions. Right. Are you doing any—is that a cause of anything going on? And are you doing anything about that? So are our customers the problem? Is that the question? Or the relationship with yourself? Yeah. I think to say no would be inaccurate, right? But I think we're the cause, right? I don't think they're the cause. I think, you know, customers express their needs and you choose whether or not to fulfill them. And when it flips the other way around, you have a problem. And I don't think if you look at DS Smith as an example, DS Smith is incredibly good with the customer. They're phenomenally good with the customer. And because they go and live in the customer's shoes, they don't live with the procurement officer, right? They're actually trying to solve the customer's problem. And I think that's incredibly powerful. It's simple, but very powerful. And we've lost some of that in North America. And so I think that the ability of bringing some of that insight, bringing some level of process discipline to DS Smith is going to be good. And I say some level because you can have process for process sake, and we have a bunch of that at IP. We do have too much process for process sake. It's like, what's the process for? And so I'm actually pretty encouraged by, look, we're a really important supplier. And we are in North America and in Europe, we are a really important supplier. Us not being a good supplier is not good for anyone, right? And so bringing that quality of service, a quality and service delivery to bear, doing that in a way where we actually bring strength to a market, I think is a good thing for everybody. And so I'm encouraged by our ability to do that in a very focused way. And that happens a customer at a time, right? So we have 8,000 customers in the U.S. Less than 100 make up 50% of sales and 300 make up 80% of sales, right? You can know them by name. This is not some big, I don't need AI to help me here. And so from that perspective, you got to get in and you got to work intimately with them. Andy, the last couple of minutes that we have, you know, DS Smith, you already have a business in Europe, but you're making a bigger bet in Europe, right? Yeah. Yep. Just given our coverage, you know, Europe is disadvantaged on energy. It's lower growth. Yep. And so on. And there's some serious challenges in terms of legacy issues and so on. Sure. Yeah. What gives you comfort on increasing your exposure? Yes. So look, there are two places in the world where you can make money in this business. It's the U.S. and Europe, right? So those are two places you can make money. And when I look at the growth trends, the question earlier, for different reasons, right? One of them is you're driving materials conversion in Europe faster than you're driving materials conversion. So as an example, non-plastic solutions. That's further ahead and more aggressive in Europe. The economic equation from the customer backwards is a little bit different in Europe. And the reason being is they're much more fast-moving consumer goods oriented because people are often buying things off-shelf in package, right? And that's being done really around labor issues. If you look at kind of labor issues and cost issues, therefore cost and productivity issues, that's going to happen in the U.S. It is happening. If you go into a Costco, that's often how you buy in Costco today, as an example, and so you have a little bit different dynamics, but the structural economics are similar. Absolutely, you have more input issues in Europe. No doubt about it, and if anyone says differently, the math doesn't support that, right? And so you are going to have a little bit more around that, and I think, look, I think 25 is kind of soft. You know, that's the reality of Europe, but I like the long-term trend. Okay. In the last minute, maybe using your 80/20 skill set. Yeah. How do we go from $2 billion to $4 billion? Yeah. So I think it's 60% cost and 40% commercial, basically. So you got a net about $1 billion too. And the $800 million commercially, there's a little bit of volume in there. Getting the mix right is going to be very, very important. But we don't need RISI to upstep $80, right? We think we're $20-$40 away from mid-cycle, somewhere in there. And then on the cost side specifically, it's a mix of you have to look hard at footprint, right? You have to look hard at footprint. You have to look hard at inputs. And you have to look hard at structural cost. Just to close out, you made some comments about Europe in 2025. What does the U.S. look like? I think pretty decent. I think it takes a little bit of time, right? If you look at where industrial production has been, I think as I talk to the people that I'm close to still in, well, I'll call that short-cycle business, it looks a little better. And if you look at kind of the book to bill in short-cycle businesses, it starts to look a little bit better in there. So I think the second half of next year is decent. Andy, thank you so much. Thank you. For spending our time together. The next presenter will be Mobileye Global, so I want to thank you again. Great. Thank you very much. Appreciate it. Thank you.