International Paper (NYSE: IP) thrives by shedding paper

What’s old is new, the saying goes. 

And that applies well to International Paper (NYSE: IP), which began in 1898 as a paper company, as you might guess by the name. By 2021, the company had dumped all its paper operations and shifted its focus to corrugated carboard packaging, particularly boxes. 

Those boxes offer a light, strong and cheap packaging method. International Paper is the largest producer of containerboard in North America.

The company has thrived under current CEO Andy Silvernail, as he cemented the new focus with plans to shutter unprofitable mills, revamp its network of box plants and add salespeople. International Paper began building a $260 million plant in Iowa earlier this month to make patented, leak-resistant boxes for the area’s slaughterhouses.

The 80/20 rule

Silvernail believes in the 80/20 rule (the Pareto Principle), focusing 80% of resources on the top 20% of customers. International Paper controls 30% of the North American corrugated packaging market, where it posts more than 75% of its sales, according to Morningstar. The proliferation of e-commerce has helped boost demand for International Paper’s boxes.

Since the company announced Silvernail’s appointment in March 2024, International Paper shares have jumped 39%, compared to a 16% increase for the S&P 500. They had dropped 16% over the previous five years. He took office May 1, 2024.

Because so many goods are stored and/or shipped in cardboard boxes, carboard sales and prices are closely linked to economic growth. Former Federal Reserve Chair Alan Greenspan, who served from 1987 to 2006, was famous for checking cardboard prices to help gauge the economy’s strength.

First-quarter sales increase

In the first quarter, International Paper registered a 28% gain in sales from a year earlier, to 5.9 billion. That lagged the FactSet analyst consensus of $6.3 billion. The rise came primarily from the company’s purchase of DS Smith, a European corrugated packaging company, for $7.2 billion in January.

As for tariffs, they don’t affect the company much directly, as most of its sales don’t cross borders. But the US tariffs have put a dent on economic growth. And that does affect International Paper, lessening customer demand for its products. To be sure, the company’s higher selling prices helped soften the blow in the first quarter.

In any case, International Paper has forecast that its North American sales will double by 2027. That would likely be a major coup for the stock. However, there’s obviously no guarantee it will happen.

“There’s a lot of balls in the air,” Jay Cushing, an analyst with bond-research firm Gimme Credit told The Wall Street Journal. “Is it possible they can deliver on all those things at the same time? Yeah, but it just feels like a big lift.”