International Paper Q3 2026: $1.1B loss on a $1.38B Europe write-down; North America profit doubled to $427M

International Paper, the largest US maker of corrugated boxes and the containerboard they are made from, reported a third-quarter 2026 loss from continuing operations of $1,097 million ($2.07 per diluted share), against a $426 million loss ($0.81) a year earlier. Net sales were almost unchanged at $6,197 million (-0.4%). The loss is almost entirely one non-cash charge: a $1.38 billion write-down of the goodwill on IP's European packaging business, the former DS Smith, which IP bought in January 2025 and now plans to spin off. Underneath it, the two regions again went in opposite directions: North America's segment profit more than doubled from the second quarter to $427 million, while Europe lost $73 million.

This analysis is written from the earnings release (8-K Exhibit 99.1, filed October 28, 2026). The full 10-Q, which IP says it will file on or about November 4, 2026, is not out yet, so year-on-year driver detail by segment is thinner than usual: the release explains each segment's change against Q2 2026, not against Q3 2025.

Key metrics

IP does not report a single consolidated operating-profit line. As in our Q2 report, the operating margin above is the two segments' combined operating profit ($354 million this quarter, $(224) million a year ago) divided by net sales. "Segment operating profit" is IP's own measure of what each business earned from running its operations, before interest, corporate costs, pension accounting and the one-off "special items". "Adjusted EBITDA" also adds back depreciation and amortization, the non-cash charges for wearing out mills and machines over time.

Takeaway: Strip out the one-offs in both years and IP earned less than a year ago, not more. Pre-tax earnings before special items and before the accelerated depreciation on closed sites were about $269 million, down from about $354 million in Q3 2025, on flat sales. The adjusted-EPS "turnaround" from $(0.43) to $0.37 comes mainly from lapping last year's $675 million mill-closure depreciation. The real progress is sequential and in North America ($204 million to $427 million of profit in one quarter); Europe is still losing money, and IP has now written down $1.38 billion of what it paid for it.

The $1.38 billion write-down of the European business

IP tested the goodwill on Packaging Solutions EMEA by comparing the segment's current fair value with its carrying value (what it is worth on IP's books) and found it short, so it recorded a $1,377 million non-cash charge as of September 30, 2026. The charge gets no tax benefit (it is the same before and after tax), which is why it reduces EPS by the full $2.60 per share. Goodwill on the balance sheet fell from $5,326 million at the end of 2025 to $3,910 million, and shareholders' equity fell from $14,827 million to $13,146 million.

The timing matters. IP is preparing to separate this business into an independent company to be called DS Smith plc. In Q2 the plan was a spinoff listed in London and New York, with IP keeping a stake of about 20%. The release says that because of the separation and the UK regulatory requirements that come with it, IP will no longer give financial guidance for EMEA at all, and the EMEA management team will present its own plan and financial outlook at a Capital Markets Day in London on November 3, 2026. Separation costs, which IP excludes from adjusted figures, were $65 million pre-tax this quarter and $119 million so far this year.

North America: the trough in Q2 was the low point

PS NA sales were $3,880 million, 0.5% below a year ago and 5.2% above Q2. Segment profit was $427 million, an 11.0% margin, against $204 million in Q2. The release attributes the sequential improvement to:

• Price over volume. Net sales rose on "higher sales prices partially offset by lower sales volumes driven by a softer demand environment", so the price increases announced earlier are still coming through even as demand softens.
• Much lower maintenance spending. Q2 was the year's peak for planned mill shutdowns; their cost dropped out, along with the cost of converting the Riverdale paper machine in Selma, Alabama to containerboard, which did not repeat.
• A full quarter of the NORPAC mill in Longview, Washington, bought on June 4, versus one month in Q2.
• Against that: higher prices for recovered fiber (used cardboard), energy and fuel; higher freight costs; extra depreciation on NORPAC and new box plants; and the continuing cost of the suspended operations at the Pine Hill, Alabama mill, which was idled at the end of June after weather damaged its roof.

The year-on-year swing from a $166 million loss is much bigger than the sequential one, but it mostly reflects last year's charges. Consolidated depreciation was $1,099 million in Q3 2025 because it included $675 million of accelerated depreciation on mills IP was closing under its "80/20" program (focusing on the most profitable 20% of products and customers). IP's 2025 mill closures were in North America, and that charge sat inside segment profit rather than in the excluded special items, so most of the $593 million year-on-year improvement in PS NA profit is the absence of that charge. The release does not split last year's accelerated depreciation by segment, so the exact operating improvement will have to wait for the 10-Q.

Europe (PS EMEA): still squeezed between paper and box prices

PS EMEA sales were $2,280 million, down 1.3% from a year ago and barely changed from Q2. The segment lost $73 million, a little better than Q2's $80 million loss but worse than the $58 million loss a year earlier. The release gives the same reason as last quarter: "Packaging margins were impacted by higher paper prices not yet realized in previously published box pricing." In plain terms, the European business buys or makes containerboard and turns it into boxes; paper prices went up, but box prices are set in advance and have not caught up. Volumes were lower "in a continued soft market", energy costs were higher, and depreciation rose because of accelerated depreciation tied to cost-cutting site closures. Lower overhead and incentive pay partly offset that.

What the headline numbers hide

• The GAAP loss is mostly the write-down. Special items were $1,430 million pre-tax this quarter ($1,305 million after tax, $2.46 per share): the $1,377 million goodwill charge, $65 million of EMEA separation costs, $9 million of severance and $2 million of NORPAC deal costs, less a $30 million gain on selling the closed Compton, California box plant (net $23 million after $7 million of other charges). Add them back and pre-tax earnings from continuing operations were $236 million. The after-tax special-items figure is smaller than the pre-tax one partly because of a $78 million tax benefit from settling tax audits, which IP also excludes from adjusted earnings.
• Adjusted EPS flatters the year-on-year trend. Adjusted operating EPS excludes special items but keeps ordinary depreciation, and last year's $675 million of accelerated mill depreciation was not a special item. Take it out of Q3 2025 (and the $33 million of accelerated depreciation for site closures out of Q3 2026), and pre-tax earnings before special items fell about 24%, from roughly $354 million to roughly $269 million. Adjusted EBITDA tells the same story: down 1.9% to $843 million. Higher interest expense ($96 million vs $85 million) and higher distribution costs ($559 million vs $524 million, +6.7%) also weighed.
• Cash conversion was weak. Operating cash flow was $339 million against $197 million of adjusted operating earnings and $526 million of depreciation; it fell 44% from a year ago. Capital spending rose to $606 million from $455 million, leaving free cash flow (operating cash minus capital spending) at $(267) million. For nine months, free cash flow was $(180) million while dividends were $735 million. The gap was covered mainly by the $1,045 million of divestiture proceeds, chiefly the January sale of the Global Cellulose Fibers pulp business. Cash fell to $815 million from $1,145 million at year-end.
• Receivables are growing faster than sales. Accounts and notes receivable were $4,324 million at September 30, up 14% from $3,791 million at year-end, and receivables used $337 million of cash in nine months against $166 million a year earlier, while nine-month sales rose 3.1%. Some of that is seasonal and some is the NORPAC acquisition, but it is one reason operating cash lagged.
• More debt is coming due soon. Short-term debt and current maturities rose to $1,963 million from $992 million, while long-term debt fell to $7,728 million from $8,839 million. Total debt was about flat at $9,691 million.
• No buyback effect. Diluted shares were 529.6 million, 0.3% more than a year ago, and repurchases plus restricted-stock tax withholding were $31 million for nine months. Dividends were $735 million for nine months; subtracting the $490 million paid in the first half (from the Q2 10-Q) gives $245 million for the quarter.
• Discontinued operations cost a further $29 million after tax this quarter, from the Global Cellulose Fibers business sold on January 23, 2026, which is why net loss ($1,126 million) is slightly larger than the loss from continuing operations.

On balance the reported figures are understated: GAAP EPS of $(2.07) includes $2.60 per share of non-cash goodwill write-down. But the adjusted figures overstate the year-on-year improvement, because they benefit from not repeating last year's $675 million of mill-closure depreciation; on a like-for-like basis pre-tax profit fell about 24%.

Did last time's read hold up?

Mostly yes for North America, no for Europe. Our Q2 report called North America's quarter "a trough by design", with the maintenance peak and the Riverdale conversion behind it, and segment profit duly doubled to $427 million on lower maintenance and pricing. Management's Q3 adjusted EBITDA target of $780–830 million was beaten at $843 million, and pre-tax earnings before special items of $236 million landed inside the $215–260 million target. We said the full-year plan depended on EMEA box prices catching up with paper prices; they did not, EMEA still lost $73 million, and the company-wide full-year target of $3.20–3.40 billion of adjusted EBITDA has been dropped from the guidance along with all EMEA figures. With $2,107 million of adjusted EBITDA through nine months, reaching it would have needed $1.09–1.29 billion in Q4, against $843 million in Q3.

Outlook

IP now guides only for North America:

The Q4 range implies another step up from Q3's $427 million of segment profit, roughly 8–17% higher. CEO Andy Silvernail described the quarter as "meaningful progress on our strategy despite persistent macro headwinds", pointing to better mill performance, a lower cost base and earlier price increases in North America.

Our read: North America's recovery is real but it is being earned against softening demand: sales volumes fell and input and freight costs rose, so the gains are coming from price and from IP's own cost and maintenance changes. That makes the Q4 target plausible but dependent on prices holding. Europe is the swing factor and IP has stopped forecasting it; the November 3 Capital Markets Day is the first place to see what the business IP is separating expects to earn on its own. Three things to watch in the 10-Q and in Q4: whether European box prices finally catch up with paper prices; whether receivables and capital spending ease so free cash flow turns positive and covers the roughly $245 million quarterly dividend; and how much of last year's North American loss the 10-Q attributes to accelerated depreciation, which will show how large the true operating improvement was.