Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter and Full Year 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the conference over to Mr. Guillermo Gutierrez. Please go ahead, sir.

Thank you, Crystal. Good morning. And thank you for joining International Paper's fourth quarter and full year 2017 earnings conference call. Our speakers this morning are Mark Sutton, Chairman and Chief Executive Officer; and Glenn Landau, Senior Vice President and Chief Financial Officer. During this call, we will make forward-looking statements that are subject to risks and uncertainties, which are outlined on slide two of our presentation. We will also present certain non-US GAAP financial information. A reconciliation of those figures to US GAAP financial measures is available on our website. Our website also contains copies of the fourth quarter and full year 2017 earnings press release and today's presentation slides. Lastly, relative to the Ilim joint venture, slide four provides context around the joint venture's financial information and statistical measures. With that, I now turn the call over to Mark Sutton.

Thanks, Guillermo, and good morning, everyone. Thank you for joining International Paper's fourth quarter and 2017 full year earnings call. I'm going to start on slide five. International Paper delivered a strong year of performance in 2017. When we entered 2017, we said it would be a year of two halves. And we made a commitment to a strong second half performance in order to deliver more than 10% EBITDA growth for the year. I'm very pleased to share with you today that we delivered 16% EBITDA growth in 2017, excluding the Consumer Packaging business, which we are recording as discontinued operation. The 16% EBITDA growth includes 10% of organic earnings growth and 6% from earnings growth related to the pulp acquisition. Including Consumer Packaging, we delivered $3.9 billion in EBITDA in 2017 or a 13% year-over-year growth. Our performance was driven by excellent commercial execution across our businesses and solid synergy realization in our Global Cellulose Fibers business. We continue to grow value for our shareholders with an ROIC of 10%, solidly exceeding our cost of capital. We also made substantial progress on many fronts, including the outstanding integration of our Global Cellulose Fibers business, as well as accelerating strategic investments for growth in Industrial Packaging. We also made an important strategic move in Consumer Packaging that further enables us to focus on growing value in our core businesses. We generated strong free cash flow of $2 billion in 2017, which enabled us to strengthen our balance sheet and increase our dividend for the sixth consecutive year. I would also like to take this opportunity to highlight the continued strong performance at our Ilim JV, which delivered solid operational and financial results and provided more than $130 million in cash dividends in International Paper in 2017. So overall, I…

Thank you, Mark, and good morning, everyone. Let me begin on slide nine in the presentation, which shows our full-year operating earnings per share bridge from 2016 to 2017. Notably, as you can see, price and mix improvements played an important role in our earnings growth in 2017 and was largely driven by realization-associated increases announced in our North American Industrial Packaging and Global Fibers businesses earlier in the year. Operations, on the other hand, were negatively impacted by two significant hurricane events and the interruption of production at Pensacola. Our maintenance outages in legacy operations were a partial offset. Our reported higher outages in our acquired pulp business are captured in the pulp acquisition column. Input costs were clear and sustained headwind through most of 2017, driven by significantly higher recovered fiber cost, OCC on year-over-year basis, along with higher energy and transportation costs, especially during the latter part of the year. Moving across the bridge, I'll point out the negative swing at Ilim. It was due primarily to FX. And lastly, we have the baseline carryover benefit of the pulp acquisition whose positive contribution accelerated as the year progressed. Now, let's turn to slide 10 and focus on our results for the fourth quarter that show a strong finish to a solid year. International Paper delivered record operating EPS in the fourth quarter of $1.27 and continued to see healthy demand in US and globally. Our North American Industrial Packaging business and Global Cellulose Fibers business both had record volumes in the quarter. And we benefited from the full realization of first half price increases and continued price gains in export markets across our portfolio. Global Cellulose again outpaced our plan, delivering more synergies and faster. And our Ilim JV delivered strong performance, with $64 million in equity…

Thanks, Glenn. We are very pleased with the progress we made in 2017 and, as I mentioned earlier, with the momentum we're carrying into 2018. We're confident in another year of 10% plus EBITDA growth, driven by continued strong outlook in our core businesses and the full year price flow-through of 2017 increases. We continue to see healthy demand and solid fundamentals across our portfolio. We're making great progress on our optimization initiatives, as we improve our world-class manufacturing system. We have great customers in all of the important segments in the businesses that are core to International Paper. In addition to our EBITDA growth, we're also confident about our equity investment outlook. The Ilim JV is well positioned for another strong year performance. And we will start to see the benefits of our investments in Graphic Packaging. All in, we expect another year of strong cash generation. And we'll continue to allocate capital to grow value for our shareholders. And with that we'll open up the call for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Lars Kjellberg with Credit Suisse.

Yes. Good morning. And thanks for all the details. I just wanted to have a couple of clarifications on the input cost. You talked about $0.60 for the full year 2017. Do you have any sense where you're going to get through 2018? And also, if you can comment a bit on fluff prices. There's, obviously, some degree of time lag. So should we not have expected a bigger positive from pricing and fluff in the first quarter?

Why don't we start with that first? And I'll turn that over to Jean-Michel.

Good morning. Fluff prices, as you know, as always, I've mentioned, some time difference. And we actually [indiscernible] reason and also price increase for February. So we mostly expect to see the benefit of these price increases in Q2. We did announce this month a price increase in Q4. But it was only captured and officially reported this month. So again, I think some of the announcements we had in Q4 were not clearly taken. And because now they are officially, I think, we will see the benefits in Q2, but not in Q1 - or very small in Q1.

Okay.

So, Lars, can you repeat the question on input -

Yeah, you talked about a $0.60 hit, I guess, in one of the references you made in the presentation. Could you kind of - yeah. So how do you think input cost - what sort of impact do you see for the full year in 2018?

Well, in the full year in 2018, what we spoke to is $35 million across our businesses, driven by higher wood, energy, and transportation costs.

No, I appreciate that. But if you kind of look at a full-year basis, I suppose just the first quarter. Do you have any view on -

On a full-year basis, we're looking - go ahead, please. Glenn, would you want to refine that?

No, Lars. What we've outlined is the 35, we've outlined the first quarter. And we are continuing to refine as we look forward for the balance of the year.

All right. Thank you.

Our next question comes from the line of Brian Maguire with Goldman Sachs.

Hi, good morning. And thanks for taking my questions. Just one clarification on the guidance. The 10% EBITDA growth and then a couple of price increase announcements in the last week or two and a number of new different product rates. Just wondering if that's contemplated in the guidance, or if you think you can get to that sort of an EBITDA growth level even before the impact of those price increase announcements, recognizing that even if they did happen, they will be impacting you more later in the year?

Yeah. I think our outlook is based on our exit rate performance and our initiatives. And we don't include any outlook of initiated increases in that number.

Okay. Thanks for that. And just a question on the balance sheet. You're getting a little closer to your leverage targets. The pension looks like it's in pretty good shape. I think you've outlined before, not a lot of cash needs there. And you're obviously getting a fair amount of money - a benefit from the tax law change. Just wondering if you have any updated thoughts on uses of cash, going forward, so we see the dividend maybe move up in line with some of the - giving some of the cash tax benefits back to the shareholders. Any kind of priorities you've got for use of cash at this point?

Brian, this is Mark. That's a great question. And if you think about our capital allocation framework, we don't plan on changing that framework. It's a balanced framework with shareholder return through dividend and occasional share buyback, with balance sheet maintenance to maintain a strong and flexible balance sheet, investment-grade, as Glenn mentioned in his remarks. And a certain amount of that cash we generate for strategic projects, small acquisitions, things that are creating value across the Company. So a tax saving flows more into free cash flow. That free cash flow goes through that balanced framework, just as it did before.

Okay. Just one last one for Glenn. Just on the cash tax rate. I think you mentioned you get some accelerated depreciation benefits. Any guidance on how that would compare to the book tax rate of 25% to 27%?

All in. So we factored all of the points I related to earlier into that new effective tax rate.

Okay. Thanks so much.

Our next question comes from the line of Mark Wilde with BMO Capital Markets.

Good morning, Glenn.

Good morning.

First, just coming back on that question Brian just asked. So what would the cash tax rate be, Glenn, in '18 and '19? Do you have any guidance on that?

Mark, we don't give guidance on the cash tax rate. But I underlined that we are a full taxpayer. The incremental savings due to the tax reform is around $200 million a year. And roughly, you can think about that as a third of our tax obligation.

Okay. I want to just step over to kind of capital spending in light of the - some of the tax law changes and also in light of a weaker dollar. And I'm just wondering whether these changes are going to affect your kind of capital spending cadence over the next few years, given the fact that you can accelerate the depreciation on new capital programs and also whether it's going to pivot IP back more towards a domestic focus?

Well, Mark, we have a balanced approach, as we speak too often, in terms of our capital allocation. Clearly, we've unbundled our strategic capital projects. And we've already oriented them to our core businesses of Industrial Packaging and Global Cellulose Fibers, where most of those assets are in North America. So we were moving in that direction earlier. And it's accelerated depreciation and just helps us along those lines.

Yeah. And I would add that the cadence of capital is really driven by the opportunity to get returns and the demand signal we have for the businesses we are in. Where we spend it? Obviously, our regions compete on returns. So there could be an opportunity to do more cost reductions sooner, for example, in a US asset than somewhere else. But we're not going to spend more capital because of the depreciation change. It's going to change the economics of some of the capital we spend. But it will all be based on solid strong returns and a demand signal that says, our customers need better products or more products. And on the internal side, we've got lots of opportunity across the entirety of International Paper to get better on the cost and productivity side.

I guess, kind of following on that, Mark, then. In your biggest business, in the Industrial Packaging business, the box volumes have picked up pretty markedly over the last 18 months from what we had seen over the last several years. Is that a change in the demand signal in your view? Or is that just a cyclical element?

I think it's a change in the demand signal, if you look at the absolute growth of the box market. But you have to remember, converting capacity is very flexible. So with the system, the size, and the geographic scope of IP, we have had the capacity to address that in our box-making operations. Where you've seen us add some capacity starting with way back with the valiant restart is adding containerboard capacity to match more of the box demand we're seeing through all three of our channels. Most importantly, our own box channel, where most of our containerboard goes. So that is true demand. And our box plants in certain regions are a lot busier. We've hired people. We've added shifts. We're creating jobs in areas where we have entire shifts of business that we didn't have before. So again, matching what our customers want with our core capabilities and doing it all in a profitable way is what drives all of these investment decisions.

Okay. And then, lastly, just on - one of the capital elements is this Selma conversion, which I think you've talked about is $300 million. But according to some stuff in the trade press, you've talked about a $500 million investment in some local meetings down in Alabama. And I just wondered whether that's like money that you're spending in kind of preparation for the second machine conversion down there, or the trade press just has it wrong?

Ultimately, Mark, you just need to focus on the $300 million. That's what's associated with this project.

Yeah, I think, Mark - this is Tim. The other is normal maintenance and regulatory spending, which will be done in - over a long period of time. So we're going to try $300 million in specific for the project.

Okay. Fair enough. I'll turn it over. Thanks, guys.

Our next question comes from Chris Manuel with Wells Fargo.

Good morning, gentlemen. A couple of questions for you. And, I guess, to kind of come back to the cash tax component. I appreciate you're not necessarily given that guidance that way. But we're trying to, I guess, get a sense of the differential. So when we think of the $1.5 billion you're spending this year in '18 - and I think it's going to be a pretty chunky number next year - what portion would be US-based that we'd be able to accelerate the depreciation on? Or how would we think about that?

It's going to be the lion's share. You could count on $1.2 billion of the $1.5 billion on a run rate basis.

Okay. So in short, then we would expect, at least for the next year or two, that the cash tax rate probably is a little below book then? Would that make sense?

We're not going to forecast that. But the $1.2 billion will be the write-off on that capital.

Okay. Thank you. And then, my second question was, when we look at box - to Mark's question earlier - box has picked up a bit the last few years. But when we look at, particularly just even this last quarter, I think your volumes were modestly higher or still continuing to lag a bit. I get that at times, things happen to flow. But how would you have us think about on a go-forward basis that - I think most of us are kind of looking for box shipments with the economy getting better and with eCommerce and different components being 2% to 4%. How would we think about IP participating in that? Should be anticipate that you'll kind of be at industry rate? Should we anticipate maybe there's some leakage there? Or how would you have us think about it?

So, over - hi, this is Tim. Over time, we expect to be at market rate. And they do have been slow. And I think you saw in the second half of the year, we started picking up just through normal churn of business and customer wins. But we saw really strong demand right through the end of the year. And it's continuing in January.

Okay. And just a sense of what January is out for you?

Right - through January and their preliminary numbers, but we were up a little bit over 4% in January.

Okay. Thank you, guys. Good luck.

Our next question comes from line of Chip Dillon with Vertical Research.

Yes, good morning. Just a couple questions. First, you mentioned that the fluff business or cellulose business would get a bigger part of the corporate allocation. Can you let me know how much per quarter roughly that will be in 2018 versus 2017?

Okay. Yeah, think about 30 million of new allocated for the full year.

Okay. And then on the pension. Just to be clear, you show that you got the ratio down to 3.3. Is it really a little below the 3 times around there, because I believe you didn't get the proceeds from the consumer sale till after the first of this year. So if you adjust for that, it's even lower or was it already adjusted?

it's already adjusted.

Okay. Got you. And then last thing Glenn, you mentioned that the unlimited tax payments that you have to make would total about $200 million over the next 8 years net of credits. Now, I guess it's fair to say you probably could use those credits at some other point and if that's true, sort of, what was the gross amount, was it closer to say $300 million or $400 million?

We haven't disclosed that - it's a meaningful number. But this is the net.

Okay. And then I guess the last thing is on the - in the fluff business, I think you - if you could just repeat what you said would be some of the changes going from the 4th to the first. I know was the inventory write-up, could you explain how that works. Is that a function of what pricing was doing. And is that something that could repeat in future years.

Repeat the question.

You remember the fluff you had inventory benefit in cellulose, I should say a $15 million from an inventory. I guess a positive or credit. And could you just let us know how that worked and if that would likely repeat?

Sure. Chip. Certainly that's something we measure over time and it's somewhat hard to forecast, but that's a one-time that's LIFO. It's a one-time event true up we do on annual basis in the 4th quarter.

Okay Got you. Thanks for taking my questions.

Our next question comes from line of George Staphos with Bank of America.

Hi, and good morning. Thanks for all the details. And congratulations on the progress in '17. I wanted to come back to the question on box volume. And I know you've made progress in this regard. But the 0.3% volume growth really is more, when we think about it, emblematic of the growth rates we were seeing prior to eCommerce hitting stride, whatever would have been, at least gaining critical mass, a year and a half ago. So is there something underlying in the business, Tim, that's caused the greater growth to be flatter, perhaps, than we would have expected, considering especially your strong weighting with some of the larger etailers that are out there? Or was it very much as you had expected? And if it was as expected - part two of this question - IP, given its scale, given its size, given its position as number one, we probably would expect not initially lead the market every quarter. But it has generally trailed most of the publicly reported companies in terms of box growth over a number of periods. So when should we expect - should we expect that gap to ever close? Thanks. I had a couple of follow-ons.

Sure. Hey, George. Yeah. I mean, we did trail in '17. We performed in line '16. We had some customer turnover. We made some choices, started picking up business in the second half of the year. So it was in line with our expectation in what we thought we would do with our customer base. And I think it will continue ramping as we go through the first part of '18.

Okay. Fair enough. And you expect to be able to maintain more of an industry growth rate, recognizing - there are no guarantees in life. You need to monitor month-by-month and quarter-by-quarter. But from what you'd see right now, there is no reason why you shouldn't be at least trending with the industry over 2017. Would that be a fair assessment?

Yeah, I would put it this way. Our expectation is we will do it over time. I mean, we'll pick our spots in terms of how we look at margin. And we will make choices from time-to-time where we think we are making the right decision for maximizing sustainable margins.

Okay. That's fair. Thank you for going through that. I don't know if you can comment to this. But nonetheless, there's been some discussion in the trade press about International Paper being out with a containerboard price hike to customers. Can you comment as to whether you've been notifying customers in that regard, or where you stand in terms of any pricing action in containerboard in North America?

No, I really can't, George. We can't for our customers.

Okay. Fair enough. And, I guess, the last question I had to start - I mean, the bigger picture. Actually, two questions and then we'll turn it over. First, you mentioned - again I think within the box business that you've been pleased with your commercial performance over time. How do you measure your commercial performance? Is it just the timing of what you get the containerboard price into the market? Is it margin in boxes? I know you can't discuss too much live, Mike. But how do you evaluate your commercial performance and which is suggesting your view that you've been doing well in that regard? And the bigger picture question is, going back a number of years ago, there was a much larger EBITDA target that the Company had been hoping for. And obviously, the markets and the Company's portfolio have changed such that maybe that's not we should ever be thinking about anyway. But what other things can IP do that would step-change directionally the EBITDA closer to that 5 number than where it's currently been and, obviously, been making progress? What would you have us think about? Is there an Analyst Day, perhaps, coming up where you might be able to talk to that? Thank you, guys. And good luck in the quarter.

Thanks, George. There was a lot wrapped up there. And let me try to go back to the first part and unbundle some of it. I think, at a macro level, we look at margins. We look at - not just on box, but how we think about all the channels that we operate in. And growth is a piece of that margin. Price is a piece of that margin structure, cost is also. On a more granular level, it comes down to customer-by-customer and understanding our customers' needs, understanding where we can deliver value propositions that are meaningful to them. And we do that across our portfolio of customers. So we do it high level. And we do it right down to how do we execute with any specific customer.

George, I'll take the second part on the $5 billion that we shared back in 2012. You're right. The Company is a significantly different company than we were back then. And I think the way we get the EBITDA grow and it's put together years like we had in 2017 with double-digit EBITDA growth. And we think we'll do that again in '18. And positioning the Company to have high returns. So our returns today, return on invested capital, for every bit where we said they would be at the $5 billion. What we haven't done is delivered. That's not the number to think about. The number to think about is growing International Paper from where we are and maintaining a solid spread in actual returns above our cost of capital and that's, we think, the best way to create long-term value. So we position the Company to have our strongest business, get the most resources. And we position the company to have a growth profile. It's not a high-growth profile, but a growth profile with packaging and a growth profile with cellulose fibers. And I think if we put that together, we'll have more opportunity to create more value than even the Company that we just described in 2012.

Thanks for all the thoughts, guys. '

Our next question comes from the line of Steve Chercover with DA Davidson.

Thank you. Good morning.

Good morning, Steve.

First of all, freight is becoming a hot topic again. And a few years ago when it was tight, the industry raised their inventories. And I'm just wondering if you could - and I'm not sure that you can - would you do so again?

Hey, David, it's Tim. Let me just speak to Industrial Packaging. What we're trying to do is make sure that we have the capability to service our customers when they need to be serviced. So fourth quarter was a lot of commotion - rail lines not running as effectively as we would have liked them to, knock-on effect between rail lines, knock-on effect to trucking, complications from structural issues in trucking itself. But we did, given our capability, service all of our customers. And so, we were able to sort through that. But for me, thinking about - it's not a level of inventory, it's the capability. And we produce thousands of SKUs for 15,000 to 20,000 customers. And making sure we have the right thing in the right place at the right time is how we go about managing our system.

Yeah. I think, Steve, I'll add on to Tim and speak for the rest of the Company beyond Industry Packaging. When we think about inventories, it's one of the choices we had in our value chain. And so, when everything is working great in transportation area, the velocity of the inventory is moving, the levels tends to be lower. If there are bottlenecks somewhere in the value chain, then that's a use of cash to have more inventory and spend less on emergency transportation. The whole goal is to serve the customers' needs. And so, absolute inventory numbers are not certainly designed to velocity that inventory through the system and meeting customer expectations at profitable levels as what we designed to. And we have the supply chain systems in place, people. So we were organized what we've centralized, what we haven't, and the IT systems to underpin and to be able to do that.

Yeah. I appreciate that. Because it seems to me that people look at inventories in isolation, and it's just one factor to service customers and maximize profits. Thanks. So then, one other question on - especially on cellulose. Pulp prices continue to go up. And the discount between list and mill net is starting to narrow. And was that part of the synergy capture that you mentioned?

Hi, it's Jean-Michel speaking. We are maximizing our customer. It's exactly like in packaging. We're going to the best segments where our customers look at the long term, where they value the products we do, especially the big portfolio of products we do. We don't have one fluff specialty. We have niche products of fluff. So this is even more important actually than the 1%, 2% discount change or whatever. We have a lot of customers. Now, we actually sell net prices, don't have discounts anymore. So the optimization is much more a capacity to answer our customer needs, both in terms of products and innovation. And when you look at our growth in sales - and let's thank our customer - because we have had record fourth quarter. We've had a very nice year in terms of growth. The market is continuing to have a very strong demand. And we are winning in this market. So I think this is clearly the main point. And just to be clear, in the synergy, you don't have pricing. Pricing is not in the synergy. So what you do have is mix improvement, for example. Let me give you an example. [indiscernible] got no more capacity at warehouses. We had Riegelwood 18. Between the knowledge of our innovation center and the knowledge of International Paper, we're able to qualify Riegelwood much faster than we ever thought about it. And Riegelwood 18 is a very big success in the market. And today, the machine is producing about 10% more than the initial investment. And the machine is fully qualified. And for this year, it's sold out. This is well ahead of what we had planned. And that's one of the synergy we've had of getting together. But not pricing. There is no pricing in synergy.

That's terrific. Okay. merci, Jean-Michel. And thank you, everyone.

Okay.

Our next question comes from the line of Mark Weintraub with Buckingham Research.

Thank you. Mark, just - first one question was, how are you, treating the Consumer Packaging and Graphic when you're giving off the EBITDA guidance of 10% plus 2018 versus 2017?

Basically, it's excluding Consumer. Consumer is a discontinued operation. And our 10% plus is from the new base.

Okay. So if I understood you correctly, you said that the - that EBITDA guidance included nothing for the containerboard anchor depreciate or pulp price initiatives that you also have underway. But that was just your exit. And so if I take 10% of your $3.7 billion, that's $370 million. And so, you just do the math of what that would be, and that's like $0.70 per share of accretion, all else equal. And then, additionally, we have that lower tax rate, which adds $0.25 from last year as well. And then, I guess, we'll have to factor in what we think will happen with Ilim and then whether Graphic/Consumer does better or not. Is that an appropriate framework to think about how you see 2018 playing out using the exit from 2017?

Yeah. I think, in general, that's directionally correct. Certainly, any initiatives that have happened subsequent to the end of the year and not in the run rate are what we call the plus piece of that 10%.

I think, Mark, the other thing to think about is, you get all top line changes that are all positive. The way it will work out, we just don't know exactly how. If all of that happens that you just described, that probably means a really strong economic environment when that happens. Lots of things are unpredicted like where inputs go, transportation we talked about earlier. So there is sometimes a margin squeeze on that strong economic background, comes with activity as it is value chain. So that's why -

There's puts and takes.

Yeah. No, I appreciate that. It's a very fair point. And, I guess, just the one thing that is - I don't want to say different than. But on the 1Q guidance, you're giving - you're certainly calling for a lower profitability than - at least where expectations, I believe, by my quick math on it - than where people might've been expecting. But again, your full year doesn't seem to be doing that at all. Maybe talk a little bit about - and it does certainly seem like you have a lot of maintenance in the first quarter. That certainly could be a part of this.

That's exactly it. I think we framed it as seasonally slow, heavy maintenance. And there are some non-repeats. The main message here is the full year that Mark underlined. And a new rate of 10% plus in this first quarter, as we've seen in the past, is timing. We feel good about the fundamentals in the first quarter.

Okay. Great. And then, very quickly, lastly. So the box shipment data came out this morning. And that showed average week up 0.4%, which - I was just curious what you had seen in December. It just seemed a little bit surprising, given there had been talk about how strong December in particular was, albeit against a relatively difficult comp. And - but for the full quarter, if you looked at the industry data, it wasn't actually that much ahead of yours. It's just like 1% on an average day basis. But again, a little bit antithetical to the notion that business is really good, which is what I'm hearing from everybody.

Yeah. Hey, Mark, it's Tim. Yeah, our fourth quarter felt very strong. We see the box market is strong in the fourth quarter. We see it continuing in the first. And you mentioned that it was a tough comp. And if memory serves, I think it was the toughest comp of any month in the year. I believe December of '16 was close to 6% daily. And so, it was a beat on that comp in December. So I see it as a very strong market.

And can you share with us what your December - or your December specifically, what your comparison was?

I don't have it on top of my head. You saw the quarterly number. But December was strong for us, led by eCommerce again, which was over 20% for us. So, yeah, we had a very strong December.

Okay. Thank you.

Our next question comes from the line of Anthony Pettinari with Citi.

Good morning. I've just got a couple of follow-up questions on cost. I think in the past you've talked about an manual labor inflation hurdle of $120 million to $230 million. Is that still a decent target for 2018? Or could you see something above that, given the tighter labor market in US? And then, on the 1Q outlook, you quantified the impact from energy, wood, and transportation. Is it possible to carve out how much of that was transportation or basically freight?

Okay. Two questions. First one relative to inflation. I still think that's a good point that you mentioned relative to year-over-year inflation. We have contracts with employees. That's not going to change a lot in the near-term. The variability that we would see in other inflation would be more along the PPV lines. Relative to the guidance of $35 million of input headwinds, that's certainly wood, energy. But transportation is meaningful. It's certainly kicked in as the businesses have spoken to it, about constrained availability in the fourth quarter. We think that will continue in the first quarter and throughout the year. So I won't give you a percentage, just meaningful.

Okay. Okay. And then, just switching to the 2018 outlook. One of the catalysts you identified was the Madrid startup. Can you remind us the timeline there? And then, more broadly, European Industrial Packaging, I think profit was negative in 4Q. As you look to 2018, what's kind of the timeline there for margin recovery and profitability in Europe?

Well, that's a good question, Anthony. And clearly, as we have laid out, the Madrid mill is a big piece of that margin recovery. That gives us the vertical integration we were looking for in the recycled segment. It's going be a low-cost first quartile mill. Candidly, as we have laid out the time-frame here, it has been delayed somewhat, mostly just due to engineering scoping. But we feel good about the ultimate outcome. And we should see those benefits in the second half of the year.

Okay. That's helpful. I'll turn it over.

Our final question comes from the line of Debbie Jones with Deutsche Bank.

Hi. Just two quick ones for me. I just wanted to confirm on the annual purchase for key inputs slide that the delta between last quarter and this quarter is primarily due to removal of the Consumer business. Just some of the numbers seemed like a pretty big shift like caustic, for example. And then, is this something that we would use then for assumptions for 2018, just give us a 2017 on it?

So on the input slide in the appendix you're talking about, yes, those have all been adjusted for the removal of our discontinued operation of Consumer. And they would be good estimates for you.

Okay. Thank you. And then, just - if you can just give us your updated comments on OCC. I didn't quite catch what rate you're assuming for your Q1 guidance. And just what you're seeing in the market right now in terms of what China is doing?

Hey, Debbie, it's Tim. Permits have been granted. It feels like it will be somewhat flattish in the early part of the quarter. And then the best view we have from on the ground in China is that things would start accelerating again after Chinese New Year. I think you also have to consider this is one of the lowest generation times of the year. So it's what China is doing, it's what's happening with generation. And then, transportation going to have an impact as well, just trying to move fiber from one place to another.

Okay. Thanks.

I'll now turn the conference back to Guillermo for closing remarks.

Thanks, everyone, for taking time to join us this morning. As always, Michele and I will be available after the call. Our numbers are on slide 24 of the presentation. Have a great day.

This concludes today's conference call. You may now disconnect.