International Paper Earnings: Macro Uncertainty Weighs on Packaging Demand

No-moat-rated International Paper reported first quarter results that were slightly below our expectations. The threat of tariffs and economic uncertainty weighed on packaging demand in the quarter, leading to a softer demand environment than was previously anticipated. Higher selling prices, mainly in North America, were able to offset some of this, but softer demand remains a headwind. International Paper’s direct exposure to tariffs is limited as almost all of its packaging is produced and sold in the same region, and inputs are sourced locally as well. That said, the firm is exposed to indirect effects though as a slowdown in consumer spending or global gross domestic product growth could have a significant impact on volumes. Nevertheless, International Paper continues to execute on its 80/20 strategy as the company takes out costs in its legacy network and has now begun doing the same with DS Smith, which should provide margin relief amid a slowdown in volumes. As such, we have maintained our $47 per share fair value estimate.