Good morning and welcome to the Second Quarter Investor Relations Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, please limit your questions to one question and one follow-up question. Thank you. Mr. Guillermo Gutierrez, you may begin.

Thank you, Sarah. Good morning and thank you for joining International Paper's second quarter 2018 conference call. Our key speakers this morning are Mark Sutton, Chairman and Chief Executive Officer; and Tim Nicholls, Senior Vice President and Chief Financial Officer. There is important information at the beginning of our presentation on slide 2, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information. A reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains copies of the second quarter 2018 earnings press release and today's presentation slides. Relative to the Ilim joint venture and Graphic Packaging investments, slide 2 also provides context around the financial information and statistical measures presented on those entities. I will now turn the call over to Mark Sutton.

Thank you, Guillermo, and good morning, everyone. We'll begin our discussion on slide 3. International Paper delivered a very strong second quarter performance and year-over-year earnings growth. We had outstanding commercial performance with volume growth and accelerating price realization across our three businesses. Operationally, we performed well in another heavy maintenance outage quarter, and we have now completed 75% of our planned maintenance outages in 2018. Input costs and transportation remain a headwind, which we view largely as a reflection of the healthy underlying global demand environment. The only notable exception is recovered fiber costs, which decreased sequentially and continues to be affected by China policy changes. Overall, we continue to see healthy demand and good fundamentals across our global businesses. Turning to the financial results on slide 4. Revenue increased by more than 8% year-over-year, which again reflects healthy underlying demand, strong commercial performance and a focus on profitable growth. Our North America Industrial Packaging business outperformed industry shipments through the first two quarters of 2018. It's a reflection of really great customers in growing segments. In our Global Cellulose Fibers business, we delivered record fluff pulp shipments during the quarter. EBITDA improved by 23% year-over-year, driven by margin expansion across all of our businesses, as well as a continued focus on commercial and operational excellence. Many of those initiatives are internal initiatives unique to International Paper. Our equity earnings were $70 million in the quarter, which includes $57 million from our Ilim joint venture and $15 million from our ownership interest in Graphic Packaging. We also received a $6 million cash dividend from Graphic Packaging during the second quarter. Our cash from operations in the second quarter improved by about $160 million year-over-year, reflecting the strength of our earnings. Free cash flow for the quarter is essentially flat, and that's just due to the timing of CapEx spending in 2018. Also during the quarter, we purchased $300 million of IP shares. Tim will provide additional details on those purchases as well as our broader capital allocation framework later on the call. I'm excited to be working with Tim in his role as CFO. Many of you know him from his previous roles most recently leading our North American Industrial Packaging business. I'm now going to turn the call over to Tim to cover the performance across our businesses as well as our third quarter outlook. Tim?

Great. Thanks, Mark, and good morning, everyone. I'm very happy to be back in the role and able to share our second quarter performance with you. So let me begin on slide 5 of the presentation, which is our quarter-over-quarter operating earnings per share bridge. Operating earnings improved $0.25 sequentially, driven by strong commercial performance and price realization across all businesses. Our operations performed well in what was another heavy outage quarter and, as Mark mentioned, we've now completed 75% of our planned maintenance outages in 2018. Input costs were favorable, mostly due to lower recovered fiber prices in the second quarter. Distribution costs continue to trend higher on a very tight truck and rail availability as well as higher diesel fuel costs. We expect the distribution environment to be an ongoing challenge and continue to work aggressively to mitigate its impact. Our corporate expenses and taxes came in largely as expected with a 25% effective tax rate in the quarter. And lastly, equity earnings were lower sequentially due to the non-FX charge on Ilim's U.S.-dollar-denominated net debt, which works out to be about $0.09 deduction to our EPS. All in, a very strong performance across the company. So, on page 6, I'll turn to Industrial Packaging. Industrial Packaging, the team turned in very strong performance in the quarter and delivered quarter EBIT of $569 million with an EBITDA margin of 23% in North America. We continue to see good demand across all channels and realized about 50% of our recent box price increase as we exited the second quarter. We've also completed approximately 75% of planned maintenance outages in the first half of the year. Operations and costs in the second quarter includes higher LIFO inventory revaluation charges related to the recent price increases. And on input costs, we…

Thanks, Tim. We're very pleased with our strong performance in the quarter. It's our best second quarter in more than a decade. But more importantly, we're pleased with the momentum we carry going into the second half of the year. We continue to see profitable growth across our three businesses with a healthy demand backdrop and high mill operating rates. We're monitoring the tariff situation carefully and, although we do not see any near-term impact to our business, it's certainly difficult to predict the timing and potential impact of evolving trade policies, but we're watching it very closely and are involved in the public policy debate. Our team is focused on delivering on our earnings commitments, and that starts with commercial and operational excellence. We believe taking care of our customers and running safe, efficient operations creates sustainable value. We also have internal catalysts to further accelerate our performance, such as the Madrid mill, which fundamentally changes our business model in Europe, as we move from practically 0% integration to about 60% integration on recycled containerboard. And in Global Cellulose Fibers, the team continues to optimize the business and is bringing innovative solutions to our customers as we grow together in the absorbent pulp market. Looking ahead, we are confident in our commitment to deliver a second consecutive year of more than 15% EBITDA growth. With that, we'll open up the call for questions.

Sarah, we're ready for questions.

Your first question is from the line of Brian Maguire with Goldman Sachs. Brian Maguire - Goldman Sachs & Co. LLC: Hi. Good morning, guys. Thanks for all the color on the capital reallocation strategy. Just wanted to ask Tim if you marked for the pension to kind of current rates. How close to that targeted 2.5 to 2.8 times range you think we are today? And sort of related to that, for the right acquisition, how high do you think you'd be willing to go with that leverage level?

Yeah. So, currently, we are roughly a little bit below 3 times. So I don't think we're far off. But I don't want to talk about what we might do and when. But the target is to be consistently in a 2 5 to 2.8 times leverage multiple, and it'll be a combination of debt that we pay down and earnings performance.

And, Brian, I could just add on the question about how high. I mean, fundamentally, we will remain an investment-grade company. And so there's a lot of that goes into that statement, but one of the things is managing even in an event of any acquisition; number one, how high; and number two, how fast you get it back to the level that we're targeting. And that's just in our mind not negotiable. We think it's important, as Tim said, the word foundational is what it is for International Paper. Brian Maguire - Goldman Sachs & Co. LLC: Okay. And on the share repo in the quarter, obviously $300 million is the most it's been in a while. Just wondering, philosophically, was that just more of an opportunistic thing in the quarter or, obviously, you want to offset dilution from equity issuance through the year. This seems like it'll pretty much do it. But is the messaging and the communication here that this is going to be more of a consistent ongoing thing, or should we take it as this was kind of it for the year and more of an opportunistic thing too?

Well, I wouldn't forecast what we might or might not do in the year. The commitment is that we're going to be systematic about share repurchases and, at a minimum, we will repurchase shares on an annual basis to offset the dilution from our compensation plans. So we thought we had an opportunity in the second quarter, we bought some shares. As I laid out, all of these things are related and there's a number of actions that we could take around capital allocation whether it's balance sheet, share repurchases, dividend, is something that we look at annually. So I see them as all related, and we'll be reporting back as we do them after the fact. Brian Maguire - Goldman Sachs & Co. LLC: Okay. One last one for me, just switching to the base business. With the elevation in U.S. freight rates, it's been pretty well publicized. Just wondering, do exports look more attractive to you these days? Has your kind of thoughts on where you want to be putting your tons between the domestic and the export market changed much because of that? And maybe you can kind of just update us on where that mix stands today.

Yeah. It really varies by business. So, if you look at Global Cellulose Fiber, it's mostly an export business. Our markets are in other regions of the world as well as North America. For the containerboard business, we look at it as a strategic part of our mix. We obviously value our integrated box channel. And so we make sure that we are managing the customer demand here in North America and as well as balancing that out with exports. But your question around just margin structure of one region versus another, we still see good margin structure here in North America even on a marginal basis with the transportation costs as they are. Brian Maguire - Goldman Sachs & Co. LLC: Okay. Thanks very much.

And your next question comes from the line of Gail Glazerman with Roe Equity Research.

Gail?

(22:05) year-on-year on adjusted basis. And then it's a bit slower than we've seen. I'm just wondering is there anything you're seeing in the business. Are there any end markets that you stand out?

Hey, Gail. Hi, this is Mark. We didn't hear the first part of your question, if you could repeat it.

Just industry box shipments in 2Q were (22:27) which is somewhat slower than what we've seen. And I'm just wondering, are you seeing any end-markets that are slowing down or changing, or just is there any shift on the demand front?

Cut out just a little bit again, Gail, but I think I got the essence of the question. We felt really good about our box demand in the second quarter and it was against I think the toughest comp of the year year-over-year. So, protein produce, e-commerce, those segments continue to perform very well for us and we were really happy with growth both on a large customer level and our local business across the entire quarter.

Okay. And during the quarter, Ilim announced that they were looking at a large kraftliner expansion in Russia. You guys are working on a large expansion here. There are other producers that are looking at kraftliner on a level that we haven't seen in probably at least three decades. And I'm just wondering how you see that playing out globally. Do you think the fiber balance is there that we need that much more kraftliner these days?

A great question, Gail. Specific to International Paper's efforts, on the Ilim side, the way projects work in that part of the world, you've obviously got to announce that you're going to study and look at something so you can get the different government agencies involved. Forestry is managed differently there. Infrastructure in this particular case is in Siberia, and we believe that's an opportunity much like our pulp business to serve an underserved market from a fiber standpoint, that'd be in Asia. But it's just that. It's undertaking a project and a lot of things have to happen for that project to come to fruition. I think that's probably true from some of the other ones I also saw that are not International Paper. And then you take that all the way to something that's certain and sure like our Riverdale conversion. Our view is kraftliner is growing globally because the box market is growing globally. It is the feedstock for all of the fiber uses downstream. And so it's hard to predict what the markets will look like three, four, five, six years from now. But International Paper has first and second quartile high-quality kraftliner. We have the position in the markets that need it and want it and value it. So, for us, it makes sense to continue to be looking at investing in that market over time.

Okay. Thank you.

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

Good morning, Mark. Good morning, Tim. Morning, Guillermo.

Morning.

Morning.

Mark, I wondered if we could just step back and talk a little bit about the kind of the pricing model in Industrial Packaging. In the past, John Faraci, your predecessor, talked about a willingness to maybe rethink that model at a particular point in time. And I just wondered right now, with the market in pretty healthy condition, whether this is a time you might engage customers to kind of rethink this basis on kind of trade paper pricing.

Yeah. Mark, I'm going to let Tim comment, given his closeness to that particular market in Industrial Packaging. But pricing, as you know, is at the box level very unique to the type of customer and the type of packaging. There's a catalyst in this industry in North America for the input material changing and contracts are designed around that. There's lots of different ways to do it. Customers buy a lot of other inputs that are priced different ways. But, for right now and for the foreseeable future, this mechanism while imperfect, works for the parties in the value chain. And so, that's kind of how we look at it. But the pricing discussion is really a conversation between International Paper and individual customers, to some extent precipitated by some input cost changes. And, Tim, do you want to add to that?

Well, no, I think you said it well. The only thing that I would add to it is the way – it's inappropriate to first talk about what model we might move to. But in the various contracts, it doesn't establish price. It establishes the basis for us to have a conversation about how the contract will perform and how price may move or not move over time. So I don't know that I can add much more than what Mark said. It works at the moment. Our customers find value in it and it's been around for a long time. And so what we negotiate on actual price is our conversation to our customers and agreeing on the basis of supply.

Okay. Fair enough. But as a follow-on, I just wondered, Tim, can you or Mark talk about the options for fixing that Brazilian packaging business and maybe whether you're interested in expanding packaging kind of across Latin America more broadly? You're in the two biggest markets right now, Mexico and Brazil.

Yeah. It's been a challenge, Mark. No question about it. And I think that we like our box plant assets there. We're challenged on the mill cost side, but we have a great customer base. We got pulled in the downdraft of the economy, and that hit us harder than we ever expected it would. And we're battling our way back from that. But, yeah, we're happy with the engagement of the team and the things that they're working on. But it is taking more time and it's harder than we thought given some of the economic realities on the ground.

I mean, does that mean you need like to have virgin fiber mill assets there or what does fix this, Tim?

I think we have the ability to continue ramping up our commercial execution. There's huge leverage there in terms of marginal volume that we put through our box plants. And that will go a long way to restoring margins. There are some cost opportunities, but I think we want to be very careful and very selective about how we think about incremental investments there.

Okay. I'll turn it over.

And your next question comes from the line of George Staphos with Bank of America Merrill Lynch.

Hi, everyone. Good morning. Thanks for all the details. I was going to ask a different question to start, but just given the way the stocks in the history have been acting recently. Tim, I know it's ultimately investors' and analysts' jobs to consider valuation, but has the fact that the market's been effectively applying a higher cost of capital on your results, with the stock having come down, change at all the way you think International Paper will think about capital allocation going forward and the returns that you'll require from new investments? Has there been any migration in those views over the last couple of quarters, and why or why not?

Hi, George. Yeah. I think it's what I was trying to outline earlier. We're going to be selective. We're going to be disciplined and we're going to invest in things that support improvement in our core businesses. So I would say, no, there has been no change in our thinking, other than to say we are trying to make better and better choices about investment decisions over time.

And I guess a related point and then I'll ask one more as my two-part and turn it over. With again the return that's being applied or discount rate applied to your equity value by the market these days and how it's changed apparently over the last few quarters, does that make buyback any more attractive? You're using a more systematic approach. You've talked about taking in the dilution. But does – equity has it moved up in terms of repurchases, in terms of capital allocation over the last six months and again given the way it's performed, why or why not? That's question one. And question two, just as we think about the heat map table or slide 11, are there any other points that we should consider in terms of sequential EBITDA trends, are we basically looking at or whatever the number works out, so I think about $130 million, $150 million sequential pickup in EBITDA 2Q to 3Q? Thank you, guys. Good luck in the quarter.

Yeah. I'd just say, and Mark maybe want to comment on it, but I think the businesses are performing very well and we're set up for a strong third quarter and second half. And related to the first question, I don't want to start forecasting what we're going to do at moments in time. I think we're going to take a broad view. We're going to look at our cash availability and then we'll make the best decisions across the whole capital allocation framework that I talked about.

Thank you for the thoughts.

And your next question comes from the line of Anthony Pettinari with Citigroup.

Good morning.

Good morning.

Tim, you discussed the leverage target at 2.5 to 2.8 times, and I think that's down, or at least a clarification from the kind of below 3 times level that you pointed to recently. And I'm just wondering, to follow up on George's question, kind of the thought process behind refining that target leverage change. Does it actually represent a shift and is it based on where you think we are in the economic cycle or discussions with investors? Any color you can give there?

Clarity. Mark said it. We're going to maintain an investment-grade credit rating and we think that at those leverage targets it is very supportive of our current rating. No more than that.

Okay. And then, just shifting to a kind of bigger picture question. Mark, the Chinese Government has discussed I think banning imports of pretty much all grades of recovered fiber, which seems like it could have pretty profound impacts to global supply chain. I'm just wondering how you think that could impact IP over the mid- to long-term in terms of OCC prices domestically, or opportunities to send pulp or kraftliner into China, or maybe unintended consequences. Whatever thoughts you could share on kind of what this shift could mean.

That's a great question, Anthony. And obviously, we're spending a lot of time trying to figure out strategically different options if you play these statements out to reality. Bottom line, though, is China's got a dynamic economy. It's going to need fiber in the long-term. And from an International Paper standpoint, given we have a large position in the new fiber, virgin fiber, which then becomes, as you know, recovered fiber around the world, we feel very well positioned to be a major player in that value-added fiber, whether it's in the form of a finished product or semi-finished product like containerboard, or whether it's in a less finished like, for example, our softwood pulp from Ilim. It's hard to see and I don't pretend to know what the Chinese Government is thinking around the puts and takes. If a position like that hurts one industry in China, but it helps another and helps trade balances. There's a lot of that at play. We're going to monitor it very well. But I think the big picture is that the world is going to need more fiber for all of these sustainable fiber-based products over time. There'd be dislocations from time-to-time and where it's generated and where it's used. But I think, from an International Paper business model, we are very well positioned with the world's best fiber to be a major player in providing that fiber need in different stages of the value chain, different levels of product sophistication. We feel good about that and we'll continue to try to monitor it and be ready to take full advantage of the position we can play.

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

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

Thank you. One question that's really striking me here is you just had a great quarter. You're laying out terrific momentum coming into the third quarter. The stock though is trading off and it's trading near the low of recent ranges. And certainly one of the catalysts this morning probably is the Cascade announcement that they're looking to go forward with that purchase and a potential conversion of a mill in Virginia. I mean, how concerned are you at this juncture about the capacity that has been announced? And as you overlay what you see happening demand-wise and expect to continue to happen demand-wise, how concerned are you? And are there things that you think are in your capabilities that will help you manage the various scenarios that could play out that you could talk to?

Mark, that's a loaded question with a lot of potential directions it can go in. But let me just say the way we look at this. We just had a recent period where a couple of million tons of containerboard, various types of containerboard were going to be added to the U.S. market. And the underlying box demand, the products that worked versus the products that didn't, I think we navigated through that pretty well. This is another potential global sense in the future. We believe fiber-based packaging is growing. We don't know how many of these projects are going to actually come to fruition and what type of end-product quality. We think it starts with our customers that buy the packaging. And so, that's why we spend so much time saying things like commercial excellence. There's a lot behind those two words. And by having the customer relationships and having the best value chain from tree to box and the recycled fiber in between, we believe we'll be well-positioned, better positioned than anyone really to really benefit from that. So I think it's a robust market. It's a resilient market. And I think we have some very recent history that we can look at and draw some parallels to. And we're going to always make the containerboard in our system that we need for the box orders we have. And right now, you've got containerboard systems in the case of International Paper basically running wide open and full, which is actually not sustainable with respect to customer service and the flexibility you need beyond just when you take mills down for maintenance. So, hard to predict the future. Some of this is way out to 2021 and 2022. But we are very confident in our position. We're confident in the role that we're playing and some of the capacity that will come on. And we're very, very confident in our ability to serve customers on the box end, because that's what really matters in all of this is are you a preferred supplier for the actual package.

Yeah. Thank you for all the color. And just kind of as a follow-on, for instance, with the Riverdale project, if the uncoated freesheet market continues to perform quite well as it is now, is that type of where maybe you have flexibility and you do that a little bit slower and you wait for that corrugated box demand growth to absorb the capacity, or are those things that are sort of set and it gets done in the timing that's been laid out?

I'll ask Tim to comment on that, given it's a near-term project and there's some unique product given it's got the white top component.

Yeah. So the paper margins are important, but we're really looking at what our Industrial Packaging customers are requiring and we're investing in better capability to supply a better product to them through our integrated channel. So this gives us options for a better white top product, more brown containerboard in the geographies where we need it and in the grades and basis weights that we need. So we would see that project continuing on a timeline that we laid out when we announced it targeting mid-2019.

Okay. Thank you.

Your next question comes from the line of Mark Connelly with Stephens, Inc.

Morning. You mentioned that you're seeing improved demand in white paper. Obviously, the quarter was off. So can you give us a little bit of a sense of what you're seeing shifting there? And also was there a negative mixed shift in paper? The results were obviously excellent. The costs were fantastic. But I was surprised that the price realization wasn't even a little better.

Yeah. So, no, on the demand side, we were hit by two things. We had the operational issues in Europe around Kwidzyn, the fire and then reliability issue that's since been corrected. And then, we had the truckers' strike in Brazil, which obviously impacted supply chains for a period of time. In North America, it's really been the performance of our customers, stronger year-over-year sequential demand of our product from us. So those are the main reasons, Mark.

Okay. And then just one other question. Can you give us a sense of where your pulp mix can go from here and what the timeline you're expecting? And also what kind of an operating rate you've got in pulp right now?

Well, we're running the system flat out. In fact, one of the challenges in the quarter was just product availability, given how much demand we have. And so we don't see that really changing as we're in the third quarter and going into the fourth quarter. We're 75% today, and the goal is to keep as much as we can adding to our fluff and specialty pulp mix, which could approach 85% at a point in time.

Okay.

Yeah. Mark, there is just one thing on the pulp. We do have a part of our capacity is the NBSK asset in Canada. So there's kind of a base load of non-fluff. It's a very good product. It's high quality and very profitable. The plan would not to be to convert that obviously to fluff.

Sure.

But I think Tim's comment about probably 85% in the absorbent markets and then some of the specialty markets that are not exactly absorbent end uses would be where we think we can get to.

Fantastic. Thank you.

Thanks.

And your next question comes from the line of Steve Chercover with D.A. Davidson. Steven Pierre Chercover - D.A. Davidson & Co.: Thank you and good morning, everyone. So, just to start, I mean obviously great quarter on Industrial Packaging. But, clearly, Brazil and Europe are still challenged. Will Madrid be enough to get you to where you want to be? I mean, the integration level, I think you said would be 60%. But will it get you to cost capital returns or do you need something virgin over there as well?

Yeah. Hi. This is Tim, Steven. We are already integrated on a virgin basis with our operations here in North America. So we think we have that piece covered for our European converting business. Will Madrid take us all the way to cost of capital? It'll get us darn close. So it's a big factor in terms of product availability for the basis weights and grades that are growing the fastest. And so, as Mark referenced earlier, it gets us to 60% integration on recycled. And we think in the range for the integrated business converting and mill gets us mid-teens on EBITDA margins but with a lower capital base. So, should get us pretty close to cost of capital over time.

Yeah. I think Tim said it right. It's a little bit of a unique business model because, as we've described the channels to market, we make the kraftliner in North America. We ship it, in this case, over the ocean and we convert it in Europe. So you can draw sort of a box around that part of the channel. And then we were buying on the open market all of our recovered fiber, except for a small mill in the Moroccan business. Now, we're going to be 60% integrated. There's still 40% of the recycled paper that we don't make or won't make. But we're a pretty good buyer. And where our geographies are, we should be able to buy that economically. And then there is virgin medium in the European context, the semi chemical medium, which we do not make. But we're a very good customer of the premium suppliers. So, when you put all that together, that channel to market from board to box is going to be cost of capital. It's just not measured the same way as a single geography would be because, as I said, the containerboard that's virgin is actually captured in the North American Industrial Packaging results. Steven Pierre Chercover - D.A. Davidson & Co.: Got it. And then one other question. If in fact China is permanently out of the OCC market and, by extension, re-emerges as a virgin board buyer, which mills in your system are well-suited to serve that market? And I guess that would exclude Ilim, which is obviously close.

Would exclude Ilim? I don't get that point. Steven Pierre Chercover - D.A. Davidson & Co.: Well, I mean, I'm sure you'll say, well, Ilim is adjacent to China, so that's our conduit into China. But if they need board from North America, are any of your mills...

Yeah. Actually... Steven Pierre Chercover - D.A. Davidson & Co.: strategically (46:18) situated or would you wish you had something on the West Coast?

We do.

No, we do. We have a mill on the West Cost and it does ship our product to China and other parts of Asia. But we also have Southern mills that are positioned very close to ports and have product capability and they ship as well. And Ilim today has a small amount of capacity around kraftliner board that they do ship into Northern Central China and supply that part of the market. So I think we're well-equipped across a number of geographies for supply to China if we need it. Steven Pierre Chercover - D.A. Davidson & Co.: Great. Well, thank you both.

Thank you.

Thanks, Steve.

And your next question comes from the line of Adam Josephson with KeyBanc.

Good morning, everyone. Thanks for taking my questions. Mark, just a follow-up on, I think it was Mark Weintraub's question earlier. How do you think about the relationship between the level of North American containerboard industry margins and how much competition they attract? It seems as if margins have reached a level that have clearly attracted a number of companies. And given that, how sustainable do you think the current margins are?

I think the – it's a good business. So there's always going to be interest in a good business. But the absolute containerboard margins aren't really the final equation. The final equation is the box and having the ability to address all of the various needs of the box customers. And so I think there's going to be a pretty resilient value chain for a company like International Paper that makes both steps of the value chain, the containerboard from very competitive softwood fiber, all the way through to the box. And I think that's going to continue to be the hallmark of that business. It's a lot more. And I think, again, I'd just refer us back to just a couple of years ago, there's a lot more than just adding containerboard capacity and having that really work out in a sustainable way as an investment. You've got to see it all the way through to the box customer.

Thanks, Mark. And just one on the China situation again. I think RISI reported that of the 10 lowest cost mills in the country now, 7 were 100% percent recycled in the second quarter. Obviously, China is not changing its policy or doesn't appear to be doing so, which is why all these Chinese companies are building mills that touch outside of China. I mean, do you have any reason to expect the current state of affairs in terms of virgin versus recycled mills, and which one is cost advantaged versus the other to change anytime soon in the U.S.?

Anytime soon, I think that would depend obviously on primarily the recovered fiber price, and it is a wildcard to figure out exactly where China's end game is on this because that's the big lever. And then the rest of the inputs, energy and primarily natural gas, that would be the other input that you would have to track. And then, at some point, you just look at the fiber balance and I think it's dislocated right now because of China. But if any growth in recovered fiber comes at the expense of virgin fiber, you can quickly do the math. And then you're now creating less generation of recovered fiber for every ton that you theoretically would displace a virgin. So it ends pretty quickly.

Thank you, Mark.

And your next question comes from the line of Chip Dillon with Vertical Research.

Hi. Good morning, Mark. Hi, Tim. Welcome back to the CFO role. My first question has to do with CapEx. I noticed that it was a bit higher than it was year-to-date last year, of course without the consumer business – well, that's taken out. But the point being, are you still looking for around $1.5 billion CapEx or have you re-thought that, especially given some of the tax deductibility, and maybe you found some projects that you didn't have otherwise?

No. The plan hasn't changed. It's just the function of timing, Chip. Given outage schedules and project schedules, it just disproportionally fell into the first half of this year. So we're 60%, 60-plus-percent complete on the capital plan for the year.

Got you. Got you. And then, following up on the whole discussion about China, we know last week that their Environmental Ministry is possibly looking to cease all waste paper imports, which would suggest to me they would basically have to re-footprint about 18 million tons, which is like half our industry. That would also seem to suggest that OCC does stay down while board prices, because of the shortage there, stay up. I didn't know if that was any of your thinking when you were thinking of getting much bigger in Europe in a hurry, because it looks like that they're going to benefit for years, while we see how China re-footprints itself. And even leaving that aside, are there other thoughts you might have about how your strategy could change if we do see a scenario where China basically needs to re-footprint a very major amount of containerboard on a global scale?

So I think, Chip, the first part of your question, was that a factor in our interest in building a bigger business in Europe. No, not really. The interest in Europe was we believe it's a good market and we can build a competitive operation by what we were trying to do. And, obviously, the things that affect the price of the raw material like recovered fiber matter. But you have to believe they're going to change structurally over time. And if you just do the mass balance of fiber, it's hard to find scenarios that really structurally change that for a long period of time that you would justify an investment on. As far as what China is trying to do, I think it's very difficult to predict. I mean, it's extremely popular right now for trade positions by countries to take a very extreme position, see what kind of effect you have, and we seem to be doing it in our trade discussions. I think others are taking positions that, to all of us, look illogical on the surface. But there may be an actual end game in mind or a position that's somewhere south of that extreme position that ends up being where they really want to go. And I think we just have to game it out, think it through and be ready for different scenarios, and that's what we're doing.

Okay. Got you. And real quickly on fluff pulp. You mentioned the growth rates and how you're up I think you said to about 75% of your mix. Do you see a situation as the market grows where you might need to make a capacity change in the next three years to five years there? Or do you think you can just instead not add any capacity and just transition more of your paper grade into fluff?

Yeah. What we're doing, Chip, and what we will do is look at the customers we have, the demand they have, and we're going to work hard whether it's through capacity additions or optimization to make sure that we can supply them product they need.

Okay. Thank you.

And your next question comes from the line of Scott Gaffner with Barclays Capital.

Hi. This is actually John Dunigan on for Scott. How are you doing, Mark, Tim, Guillermo?

Hi, John.

Good morning.

Good morning.

So, realizing we're a bit late in the call, I'll just keep my questions to one for right now. You held on to the 15%-plus EBITDA growth rate for the year again obviously. But do you believe free cash flow can grow at that same clip or is there anything either positive or negative that couldn't cause free cash flow to dislocate from the EBITDA growth?

I think, over time, we should expect to see free cash flow grow as we generate more cash from operations. The comment I made about the quarter was simply, as Tim just reiterated, CapEx timing. But, no, our expectation is to grow free cash flow because we're growing cash from operations. That's not automatically going to result in incremental CapEx. But as part of our capital allocation, we should be able to show the returns for that incremental CapEx that's in cost reduction and in the strategic category of capability and, in some cases, some capacity debottlenecking. But we want to lift the entire cash flow equation from cash from ops as well as free cash.

Understood. Thank you.

And your last question comes from the line of Debbie Jones with Deutsche Bank.

Hi. Thanks for getting me on. Two quick questions, one on paper in Brazil and the other clarifying on guidance. There were just some trade articles about producers in Brazil sending offset to Mexico and avoiding duties. I was just wondering if that has a financial impact on IP or any thoughts on an impact to trade flows going forward. And then I'll move on to guidance aspect.

Hi, Debbie. It's Tim. No, we don't see any impact on anything that we have done up to this point. It's hard to speculate on what might happen going forward. But any change that did happen would not be retroactive in any way.

Okay. And then, on guidance, you did note an uptick in paper volumes in Brazil. I think last year they actually went down sequentially. Am I missing something there? And then I don't think I caught your inflation guidance for Industrial Packaging. Not sure if you gave an exact number on that.

Inflation guidance for?

Just in the sequential bridge that you gave. It's kind of an uptick in freight logistics cost.

Yeah. We didn't break it out, but you can follow up with Guillermo. But, in general, in Industrial Packaging in North America, we have usually between $110 million and $130 million on an annual basis of inflation in the business. And then what – I'm sorry, I forget the other question that you have.

You just mentioned you put in the guidance that you would expect Brazil that volumes to be higher sequentially I believe and when I look last year, that pattern doesn't hold. So I just wanted to know if there was something there that...

Okay. No, we do expect them to be up. I don't remember if there was some unique circumstance last year. But from second to third quarter, we expect them to be up slightly.

Okay. Great. Thank you.

Thank you.

And this does conclude our question-and-answer session. I would now like to turn it back over to Guillermo.

Thanks, Sarah. And thank you again for joining our second quarter earnings call. As always, Michelle and I will be available for your follow-up questions. Let me now turn it back over to Mark for some closing remarks.

Thanks, Guillermo. Just to wrap up. As you've heard from our remarks, we're very pleased with our second quarter, a very strong performance. International Paper employees executed very well in a very strong economic environment, running our operations close to full. We're very excited about the great outlook that we see for the rest of the year across all of our businesses. I think we're hitting on all cylinders right now and we have a balance of really good commercial performance with our customers and our product offerings, as well as we're running very well. So we appreciate your interest in our company and we look forward to speaking with you again next quarter. Thank you.

And this does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your line.