International Paper Q2 2025: DS Smith Deal Lifts Sales, Sinks Profit

International Paper (NYSE: IP), a global leader in fiber-based packaging and pulp, recently released its financial results for the second quarter of 2025. This report provides the first detailed look at the company's performance following its massive acquisition of British packaging firm DS Smith, a deal that fundamentally reshaped its size and scope. Let's dive into the numbers from the company's latest 10-Q filing to see how this transformation is playing out.

The acquisition has dramatically expanded International Paper's footprint, particularly in Europe. A glance at the balance sheet shows total assets ballooning from $22.8 billion at the end of 2024 to $42.4 billion by June 30, 2025. This growth was fueled by the addition of DS Smith's assets, which also increased IP's goodwill to $7.5 billion and long-term debt to $9.7 billion. In short, IP is a much larger company, but one with greater debt and a major integration challenge ahead.

Revenue Soars While Profits Tumble

The income statement reveals a stark contrast between revenue and profit. For the second quarter ended June 30, 2025, Net Sales surged an impressive 43% to $6.77 billion, up from $4.73 billion in the same quarter last year. This growth was almost entirely driven by the new "Packaging Solutions EMEA" (Europe, Middle East, and Africa) segment created by the DS Smith acquisition.

To see how this revenue translates into costs and eventual profit, the following flow diagram visualizes the company's income statement for the quarter.

Despite the massive revenue jump, Net Earnings plummeted from $498 million in Q2 2024 to just $75 million in Q2 2025. The reasons for this decline are found in the rising costs associated with the larger, more complex company:

• Depreciation and Amortization: This non-cash expense, which accounts for the declining value of assets over time, soared 84% to $480 million. The increase is a direct result of adding DS Smith's factories and, importantly, its intangible assets like customer relationships, which are now being amortized on the books.
• Interest Expense: The debt taken on to facilitate the deal nearly doubled net interest expense to $107 million for the quarter.
• Special Items: The company incurred $35 million in "net special items," including $32 million in costs related to the DS Smith combination.
• Tax Differences: A year ago, IP's bottom line was significantly boosted by a $293 million tax benefit. This quarter, it faced a more typical $40 million tax provision, creating a difficult year-over-year comparison that accounts for a large portion of the profit drop.

A Look at the Segments

A review of the individual business segments reveals a mixed performance:

• Packaging Solutions North America: The company's traditional core business saw its operating profit remain relatively stable, coming in at $277 million compared to $281 million in the prior-year quarter. Looking ahead, management noted that for this segment, "Input costs are expected to be higher driven by energy costs."
• Packaging Solutions EMEA: This new, massive segment generated $2.29 billion in sales but posted a small operating loss of $1 million. This highlights the immediate challenge of integrating DS Smith and navigating the European market.
• Global Cellulose Fibers: This segment, which makes pulp for products like diapers, continues to face headwinds. It recorded an operating loss of $4 million on declining sales. The company has acknowledged this weakness and, as noted in the filing's risk factors, is conducting a "review of strategic options" for the business, which could lead to a sale or other changes.

Cash Flow and Concluding Thoughts

The costs of the acquisition are also visible in the company's cash flow. For the first six months of 2025, IP's "Free Cash Flow"—a measure of cash generated after capital expenditures—was a negative $564 million. This is a significant reversal from the positive $311 million generated in the first half of 2024 and underscores the heavy investment and integration costs the company is currently shouldering.

The acquisition of DS Smith has successfully transformed International Paper into a true global packaging giant. However, this quarter's results show that the financial benefits of that scale have not yet materialized. The path forward will depend on management's ability to smoothly integrate the new European operations, manage its higher debt load, and make a decision on the future of its underperforming Cellulose Fibers business. The coming quarters will be critical in determining whether this bold strategic move can ultimately deliver for shareholders.