IP Q1 Deep Dive: Margin Headwinds Persist Amid Cost Actions and Volume Gains

Packaging and materials company International Paper (NYSE:IP) reported Q1 CY2026 results topping the market’s revenue expectations, with sales up 1.2% year on year to $5.97 billion. Its non-GAAP profit of $0.15 per share was in line with analysts’ consensus estimates.

Is now the time to buy IP? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

International Paper’s first quarter results for 2026 prompted a negative market reaction, as investors responded to a combination of margin pressures and operating challenges. Management attributed the quarter’s performance to continued inflationary impacts, weather-related disruptions, and transformation costs that outweighed volume gains in North America. CEO Andrew Silvernail acknowledged, “the gains have not been fast enough or consistent enough to offset the macro pressures,” and cited higher-than-expected unplanned costs, particularly from reliability issues and ongoing restructuring activities. The company’s progress in improving mill productivity and securing customer wins was not sufficient to overcome these headwinds in the eyes of the market.

Looking ahead, management expects the second half of 2026 to benefit from price increases, seasonal volume improvements, and ongoing cost reduction initiatives. CFO Lance Loeffler emphasized that North American earnings should improve as pricing actions and cost-outs take effect, while EMEA margins are projected to recover as higher input costs are passed through to customers. However, both executives maintained a cautious stance, citing uncertainty around energy prices, demand visibility, and the pace of reliability improvements, with Silvernail stating, “visibility beyond the near term is limited,” and underscoring the company’s focus on “controlling the controllables.”

Key Insights from Management’s Remarks

Management pointed to operational improvements and targeted investments in its production network as contributors to outperformance in North American volumes, but acknowledged that cost pressures and macro volatility weighed on overall profitability.

• North American volume gains: The company outpaced the overall market in box shipments, driven by new customer wins and productivity improvements at mills and box plants, supported by capital investments and operational discipline initiatives referred to as “lighthouse practices.”
• Margin pressure from transformation costs: Despite productivity gains, unplanned costs from transformation activities, higher distribution expenses, and reliability challenges remained elevated, limiting the ability to translate volume growth into higher profitability.
• Winter storm and input costs: Severe winter weather caused significant operational disruptions, resulting in higher natural gas and chemical costs, while volatile diesel prices increased freight and supply chain expenses. These impacts were called out as key drivers of unfavorable cost performance in the quarter.
• Targeted asset investments and acquisitions: Recent investments, including the acquisition of the NORPAC mill on the West Coast and the ongoing Riverdale machine conversion, are intended to strengthen the company’s competitive position and lower long-term costs, though they create temporary near-term headwinds.
• EMEA restructuring and cost-out actions: In Europe, management focused on footprint optimization, having completed or initiated 31 facility closures, which are expected to deliver over $200 million in annualized cost savings. The region remains challenged by soft demand and energy price volatility, but the company is executing a multi-phase plan to improve margins and competitiveness.

Drivers of Future Performance

International Paper’s outlook centers on price realization from recent increases, further cost reductions, and recovery in margins as operational challenges subside, though management highlighted macroeconomic uncertainty and energy costs as key variables.

• Price increases and contract flow-through: Management expects published price increases in North America and Europe to support a meaningful uplift in earnings beginning in the third quarter and continuing into 2027, as contract pricing lags catch up to higher input costs.
• Cost-out and footprint rationalization: The company is implementing further cost reductions through plant closures, supply chain optimization, and transformation initiatives. Executives cited a remaining $200-$300 million in latent cost savings in North America and additional actions underway in EMEA.
• Risks from input costs and reliability: Management cautioned that persistent volatility in energy and freight costs, as well as the need to improve reliability and reduce ancillary transformation expenses, could remain headwinds. CEO Silvernail noted that some transformation costs are expected to be nonrecurring, but achieving best-in-class reliability is still a work in progress.

Catalysts in Upcoming Quarters

In the coming quarters, StockStory analysts will focus on (1) the realization of price increases in both North America and EMEA as contract lags unwind, (2) tangible progress in cost reductions through facility closures and supply chain optimization, and (3) improvements in reliability and productivity at key mills and box plants. Additional attention will be paid to the integration of recent acquisitions and the execution of the planned separation of the EMEA business, as these developments are critical to International Paper’s ability to deliver on its updated financial targets.

International Paper currently trades at $30.66, down from $33.58 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

High Quality Stocks for All Market Conditions

WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.

But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week - FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.