International Paper reported stronger operating performance in North America in the third quarter of 2026, but higher costs and weaker packaging demand prompted the company to lower its full-year outlook for the region.
The results highlight the challenge of translating price increases and productivity gains into sustained margin improvement.
The company reported third-quarter net sales of $6.20 billion, compared with $6.22 billion a year earlier. Adjusted EBITDA from continuing operations reached $843 million, down from $859 million a year earlier but up from $587 million in the second quarter.
International Paper also recorded a $1.10 billion loss from continuing operations, largely reflecting a $1.38 billion non-cash goodwill impairment charge associated with its European packaging business.
North American operations show improvement
Packaging Solutions North America generated operating profit of $427 million, compared with $204 million in the second quarter. Adjusted EBITDA increased 56% sequentially to $663 million.
Higher selling prices contributed $141 million to the quarterly improvement, while the company's operations and costs category added another $85 million.
During the October 28 earnings call, Chief Financial Officer Lance Loeffler attributed the operational gains primarily to better mill efficiency, along with benefits from the ongoing ramp-up at Riverdale, the absence of previously incurred machine-conversion expenses and a full quarter of earnings from NORPAC, acquired in June.
The distinction is important: the improvement reflects both stronger operating performance and changes in the company's business portfolio, rather than productivity gains alone.
These benefits were partly offset by a $46 million negative volume impact and $55 million in higher input costs, particularly diesel fuel, recovered fibre and energy.
The temporary shutdown of the Pine Hill containerboard mill in Alabama also had a $20 million adverse impact during the quarter, net of insurance recoveries, including roof repairs and business interruption.
Higher costs outweigh additional pricing benefits
Despite the stronger quarter, International Paper reduced the midpoint of its 2026 adjusted EBITDA outlook for Packaging Solutions North America by approximately $110 million.
Management identified about $145 million in additional pressures since its second-quarter outlook, including higher diesel and distribution costs, weaker expected volumes, increased employee medical expenses, the Pine Hill disruption and the rescheduling of a planned maintenance outage.
These pressures were partly offset by approximately $35 million in additional pricing benefits.
The company now expects North American packaging adjusted EBITDA of $2.27 billion to $2.31 billion for 2026, with fourth-quarter adjusted EBITDA projected at $700 million to $740 million.
The revision underscores the difficulty of recovering rising costs through selling-price increases when demand remains subdued.
Price increases take time to reach box customers
One of the more significant points from the earnings call concerned the delay between announced containerboard price increases and their realization in corrugated box pricing.
Loeffler indicated that the June price increase was being implemented faster than initially expected, while the September increase was beginning to contribute to results.
However, the company expects only limited benefits from the September increase in fourth-quarter box pricing, as adjustments work their way through customer contracts and pricing arrangements.
The additional $35 million in anticipated pricing benefits reflects both faster realization of the June increase and partial realization of the September increase.
This timing remains important for margins, as higher transportation, energy and recovered fibre costs are already affecting operations.
Network consolidation supports productivity efforts
International Paper also highlighted the impact of its ongoing restructuring of its U.S. manufacturing network.
Chief Executive Officer Andy Silvernail said the company has closed 20 U.S. facilities, including box plants and paper mills, while retaining nearly all the associated business.
The company is now emphasizing productivity improvements across its remaining operations, following a period of consolidation intended to improve the efficiency of its manufacturing footprint.
North American box shipments declined approximately 2% year over year in the third quarter, compared with an estimated industry decline of about 3%, according to management.
Although International Paper reported better relative performance than the broader market, the decline in shipments illustrates the continuing pressure from softer packaging demand.
Cash flow and European operations remain under pressure
International Paper reported negative free cash flow of $267 million for the quarter.
Management attributed the result partly to payments associated with earlier maintenance work, annual interest on legacy DS Smith debt and inventory rebuilding following planned mill outages.
The company expects full-year free cash flow of approximately $100 million to $200 million.
In Europe, the Middle East and Africa, Packaging Solutions EMEA recorded an operating loss of $73 million, compared with a loss of $80 million in the previous quarter and $58 million a year earlier.
The business continued to face weak demand and higher energy costs. Although paper price increases supported revenue, higher paper costs also pressured corrugated box margins where corresponding selling-price adjustments had not yet been fully implemented.
International Paper is pursuing preparations for a potential separation of its EMEA packaging business while also evaluating a possible sale.
Under the spin-off scenario, the independent company would operate under the DS Smith name, with International Paper retaining an approximately 20% ownership stake.
The company is scheduled to provide further details about the European business at a capital markets event on November 3.
For International Paper, the immediate challenge is to sustain North American operating improvements while managing cost inflation and subdued demand. The pace of price realization and further productivity gains will be important to its performance heading into 2027.
