LOS ANGELES
,
August 4, 2022
(Industry Intelligence Inc.)
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International Paper Co. touted progress on its cost-saving program, Building a Better IP, during the company’s Q2 earnings call on July 28, 2022. IP made good progress on program initiatives, achieving US$65 million of earnings in the second quarter for a total of US$105 million through the first half of the year, CEO Mark Sutton said. “Given our strong momentum, we expect to achieve the high end of our full year target of $200 million to $225 million,” Sutton said. “We are excited by the opportunities we have identified to significantly lower our cost structure and accelerate profitable growth.” Input costs of about US$100 million “were a significant headwind in the second quarter and higher than our expectations” due to higher costs for energy, chemicals and distribution, largely because of higher diesel fuel prices, CFO Timothy Nicholls said. Natural gas was also a significant cost headwind in the quarter. “We expect these elevated costs to persist in the third quarter,” Nicholls said. Those cost headwinds are even more significant for IP’s packaging business in Europe, he added, where input costs in Q2 were US$45 million higher than the same period last year. About 70% of that headwind was from higher energy costs because natural gas prices have averaged about five times more than normal levels. About half of the program’s benefits to date are from IP’s lean effectiveness initiative. By streamlining corporate and staff functions to realign with the company’s more simplified portfolio, IP has already offset 100% of the dis-synergies from the printing paper spend, Sutton said. IP expects additional savings from initiatives targeting lower overhead spending and further optimization. Nicholls said the organization is being designed to support a packaging-focused company with a more focused footprint. “We believe our process optimization initiatives have the potential to significantly reduce cost across our operations by leveraging advanced technology and data analytics,” he added. Over the past year, dedicated teams have been working with outside experts to identify opportunities and develop new tools and capabilities to increase efficiency and reduce costs in areas such as maintenance and reliability, distribution and logistics and sourcing. IP is beginning to scale these capabilities across its system, “which we believe will yield significant savings as we go through 2023,” Nicholls said.
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