Good morning and thank you for standing by. Welcome to today's International Paper's Fourth Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn today's conference over to Mark Nellessen, Vice President, Investor Relations.

Thank you, Paul. Good morning and thank you for joining International Paper's Fourth Quarter 2022 Earnings Call. Our 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. And a reconciliation of those figures to U.S. GAAP financial measures is available on our website. Our website also contains copies of the fourth quarter earnings press release and today's presentation slides. I will now turn the call over to Mark Sutton.

Thank you, Mark and good morning, everyone. We'll begin our discussion on Slide 3, where I will touch on our full year 2022 results. First of all, as I think about 2022, I'm very proud and appreciative of all the hard work our employees have done during the year. And for our strong customer relationships as we've managed through a very dynamic and uncertain market environment. Looking at our performance. International Paper grew revenue and earnings driven by solid commercial and operational execution, while facing significant inflation and lower demand in the second half of the year. We also made solid progress in building a better IP. We delivered $250 million of earnings benefits from our initiatives, focused on lowering our cost structure and accelerating profitable growth. And as a result, we exceeded our full-year target and have strong momentum going forward. We're also confident in the profitable growth opportunities across our Industrial Packaging business and have made strategic investments to support this growth. We will continue to invest to grow earnings and cash generation by building additional capabilities and capacity in our U.S. box system during the next few years. I'm also pleased with the significant progress we made towards achieving value creating returns in our Global Cellulose Fibers business. We delivered $100 million of earnings growth in 2022 and we expect significant earnings improvement this year. This past year, we also returned $1.9 billion of cash to shareowners and our balance sheet is very strong. This allows International Paper to navigate the uncertain macroeconomic environment from a position of strength. And we believe it will give us opportunity to continue to invest through the cycle to grow earnings and cash generation while also returning cash to our shareowners by maintaining our dividend and through opportunistic share repurchases. Turning…

Great. Thank you, Mark and good morning, everyone. I'm on Slide 7 which shows our year-over-year earnings bridge. Price and mix improved significantly with strong price realization across all channels and benefits from our commercial initiatives. Volume was lower in 2022 as consumers shifted priorities towards nondiscretionary goods and services while dealing with high inflation following a period of demand pull forward during the pandemic. Operating costs were negatively impacted by high inflation on materials and services and significantly higher supply chain cost across all of our businesses as well as lower volumes in our Industrial Packaging business. This was partially offset by improved mill performance and reliability. Maintenance outages increased as planned, impacted by high inflation on equipment, parts and contracted services. Input costs rose sharply across just about every category with more than half of the increase directly related to higher energy and fuel costs. Total corporate expenses and other items decreased by $0.33 per share as follows. Corporate expenses declined by $0.19 per share and benefited from our building a better IP initiatives as well as some FX. Interest expense was lower by $0.14 per share, benefiting from significant debt reduction in the prior year. Tax expense was $0.20 higher per share with a normalized effective tax rate of 24% as compared to 19% in 2021. Lastly, share repurchases impact earnings by $0.20 per share year-over-year. Moving to the fourth quarter sequential earnings bridge on Slide 8. Fourth quarter operating earnings per share were $0.87 as compared to $0.83 in the third quarter. Price and mix improved by $0.06 per share from better mix in our Industrial Packaging business and additional price realization in our Global Cellulose Fibers business. Volume was lower in Industrial Packaging as a result of softer demand across all channels. And Global Cellulose…

Thanks, Tim. Now I'll turn to Slide 16. I want to reinforce my confidence in the resiliency of International Paper and our ability to navigate through this dynamic environment from a position of strength. As Tim mentioned earlier, we're well positioned due to our diverse portfolio of products and services and our strategic relationships with a large number of national and local customers across a broad range of attractive end-use segments. Also, our teams at IP know what it takes to successfully manage through a business cycle by leveraging options and capabilities across our large system of mills, plants and supply chain to optimize cost while continuing to take care of our customers. In addition, our building a better IP initiative initiatives are focused on continuing to invest in projects to drive structural cost reduction through efficiency improvements and accelerating profitable growth. We exceeded our target in 2022 and we have solid momentum as we enter 2023. And finally, as I mentioned earlier, we have significantly enhanced our financial strength and flexibility. This strong foundation makes IP well positioned for success across a spectrum of economic environment and to deliver profitable growth over the long term. And turning to Slide 17. As we look to 2023 and all of the dynamic conditions at hand, I draw confidence from an incredible milestone that reflects the resiliency of our company. To be precise, today marks our company's 125-year anniversary. On this date, in 1898, 17 pulp and paper mills in the northeastern part of the United States joined to form International Paper Company. I think our founders would be amazed at how our enterprise has evolved through the years, including the incredible products we make and the expansive list of customers we serve. I would also appreciate our long-standing commitment to the pursuit of excellence in safety and environmental stewardship. While the world has changed, our commitment to providing essential products, people depend on every day and the talent and dedication of our team has not changed as we embark on our next 125 years. Our principles and resilience will continue to serve us well. I'm excited about how we are reengaging our company. We haven't performed to our full potential but that's behind us. We are committed to take our performance to a higher level. We recently made talent and leadership adjustments to match the right skills to the right opportunities we have in front of us. It's the right team to execute our strategy. We continue to make a lot of traction on our build to better IP focus areas. The things we're going after will set us apart and will drive our results. In essence, we are proud and well positioned to build on our 125-year legacy in the days, months and years ahead. I'm confident you'll like what you see. With that, operator, we're ready to take questions.

[Operator Instructions] And our first question will come from Wells Fargo Securities in the line of Gabe Hajde.

I had one specific one on, I guess, energy use. And when I look at kind of the sequential math and what you guys kind of beat by in the quarter, I'd say at least in the corrugated or Industrial Packaging segment, half was from these one-timers and maybe half was from lower natural gas. Has anything changed kind of with your -- so I guess, first question is, can you confirm that? And second, has anything changed with IP's perspective on mediating risk kind of across the organization given geopolitical tensions and potential impact on commodity inputs?

I think you sound like you got it about right on the split between the one times which usually get corrected in the last quarter. But through a lot of efforts, especially on things like the medical cost and all of that. On the question about energy and geopolitical, I mean, part of the reason we have lower energy cost is our energy usage can be optimized actually when we're running less than full capacity because a higher percentage of our energy is our own make energy. And so we can actually just stop consuming purchased -- as much purchased energy whether that's raw natural gas to power the auxiliary boilers or whether it's the electricity we buy that we don't make ourselves. Our view on geopolitical is no better or worse than anyone else's. As we look out ahead, part of it is what's happening with weather and what's happening in Europe in terms of demand for some of the fuel, natural gas being the main one. We feel like it's a more stable environment going forward. But what we've been able to do is really manage and optimize our consumption. And as you know, Gabe, in the integrated mills, at the right output level, we are generating from wood biomass fuel most of our own steam to generate most of our own electricity. Not that we don't want better demand but when it is lower, we can optimize our energy profile which is what we're doing.

Okay. And then, I mean, if I take Tim's commentary, I think, directionally, maybe implied EBITDA for the first quarter is somewhere in that $540 range which obviously suggests a pretty significant ramp to get to your full year outlook. I wanted to know if you'd be willing to parse out, I think the term used was significant improvement in Global Cellulose Fibers, if you maybe put a finer point on what's implied there. And then I appreciate, again, some of the maintenance costs are somewhat front-end loaded but -- so we've got visibility there. But then it sounds like a lot of this improvement in the back half maybe or as the year progresses is based on your ability to run more efficiently and take these costs out that seemingly kind of crept into the system and to use your words, Mark and you guys were kind of not pleased with the performance necessarily. So just maybe the building blocks of how you think about maybe magnitude of getting to that full year number?

Gabe, it's Tim. And I think you actually summarized it quite well. We are front-end loaded in the first quarter on maintenance outages, so we get a step down. If you look at it on average across the quarters 2 through 4. But really, the benefits to GCF come through, the contract negotiations that were closed in the fourth quarter. And so we're going to see a step-up in profitability based on those. And then given build a better IP and what we expect to achieve this year and just flowing back some of these marginal costs. I mean the past 2 years have been -- the costs have been going up almost relentlessly across every category. Supply chain cost has proven to be a little bit stickier. But we think both from a rate and fuel standpoint, there could be an opportunity. But the real opportunity for us is just on the operations side, just getting back to more of a normalized mode mix type of scheduling of transportation and taking out the premium freight and higher marginal supply chain and logistics costs to move product to customers.

Next we go to Bank of America in the line of George Staphos.

Congratulations on the quarter. Much better than we were looking for. One thing first point of clarification for Cellulose Fibers, did you say price and mix in the quarter would be a plus 5-0 or plus 1-5? I couldn't quite tell.

Sorry about that, plus 1-5.

Okay. So I wanted to piggyback on Gabe's questioning on GCF. Again, to the extent that you can provide a bit more color, what else do you have embedded in the discussion on a significant improvement? I take from your comments that you're assuming current levels of pricing, you're not really making a forecast, at least internally on the direction of pricing? Or are you? Anything that you could provide us there? Anything that you could provide us with the current snapshot, right, in terms of cost and operations, what you might see in terms of a profit delta, '23 versus '22?

I'm sorry, I missed the last part of that, George. I mean I think it's no different than what I was just talking about with Gabe. We got big structural changes in the contract negotiations in GCF in the fourth quarter. So that hits now. That starts as we go through first and second quarter. And then just in terms of most of the initiatives their internal self-help, whether they're structural through a build a-better IP or they're just getting back to more normalized levels of operation across a number of categories including supply chain, usage in the mills on inputs and the like. So we're not immune from the macro environment but there's a lot that we think we have in front of us that we can work on, especially as it relates to the marginal cost that were incurred in a more run full type of environment.

Would it be fair to say, Tim, if I just very simplistically annualize what you're seeing in industrial packaging on price mix as kind of a headwind you need to manage against that GCF to basically close the gap as maybe a couple of hundred million dollars or better profit-wise in '23 versus '22? Ex any changes in pricing in the market?

Order of magnitude, yes, it's close...

George, this is Mark. I think that's a good way to think about it, although they're not the same market be the numbers work out. There one way to just verbalize what you should be thinking about with Cellulose Fibers, a lot of commercial changes on all types of accounts and customers and regions of the world occurred through 2022. And those benefits now are largely locked in, in our commercial agreements for the full year 2023, coupled with improving our cost position. So that's where the expansion comes from, commercial is the driver, layered on top of a much more sane higher-velocity supply chain and lower cost structure. And that gets you the significant earnings improvement.

Make sense. Two last ones and I'll turn it over. One related to the GCF and then one to the industrial packaging business. So for GCF, Tim and Mark, you mentioned that inventories are low. You believe at your customers' levels, I thought you said but also that there is a potential for destocking in the first quarter. So can you help us reconcile those 2 points? And then in industrial, as you're bringing on the Pennsylvania box plant and as you have been targeting potential other converting investments. What are the implications? And how are you managing against the -- what the implication for the rest of your box business? And how do you keep retention at high levels as you perhaps adjust your converting footprint in any given region, including in Pennsylvania and New Jersey.

George. Yes, on the inventory side, it's a combination of 2 things. So we believe inventories are historically low. They've been that way for the past couple of years. But you've got a little bit of a phenomena going on with the accelerated velocity in supply chain through the third quarter that people were able to recover a little bit but still not get back to what would be historical levels of inventory. So they've got a little bit more to work with but they're low on a historical basis and then we believe once you get through Chinese New Year, buying picks up again. So on GCF, the labor issue, yes, that's been a battle through '22 but the business is deploying a lot of strategies there.

George, the way to think about the example of the Pennsylvania box plant coming on and then with obviously a softer demand environment. I'll take you back to the last maybe 3 quarterly calls where I commented on our running to meet demand required structural over time in a lot of our plants. And so in that particular part of the country, we are -- we don't have enough capacity even with our employees working a fair amount of overtime. So this plant is going to help us not only gain business, we've had to turn away in some places but stabilize the entire region of plants around it by getting onto a more sustainable operating schedule for our employees. So customer retention because we're stretched on our capacity. And it's not an average statement. It's in different parts of the country. This is one of them. This will actually have benefits from the incremental volume of the plant and secondary benefits by stabilizing the nearby operations into a more sustainable schedule. So I think we feel really good. It's a total net add and an improvement in our operating cost and our operating efficiency and our employee resiliency. So we've got several other examples in different parts of the markets where we're going to be doing the same thing.

The next from Seaport Research Partners, the line of Mark Weintraub.

So 2 quick questions. One was on the cellulose fibers, with the changes that you're making, do you think that pricing beyond 2023 is going to be less impacted by shifts we see in PPW, for instance, is it kind of -- are these more fixed? Or are we still going to be moving quite a bit with where the open market transactions are going?

Yes. I mean it's -- so Mark, it's Tim. I don't want to start making forecasts or predictions but we do believe, as we've said, that the business is structurally taking efforts to get paid for the value that they're delivering. And you do have a mix across the different channels and segments that we serve. This last piece that we referenced in terms of the contract negotiations in the fourth quarter were structurally something that needed to be corrected by the business and it took a little bit of time to do it. So not making a prediction but we believe that the actions that we're taking consistent with how we get paid for value. And so you can read into what you think that means as we go through '23 and '24.

Okay. So I guess I'd read that hopefully, it leads to reduced volatility. Is that a fair -- that's the intent of the contracts?

Well, I think it's the intent of the approach that we've taken with each of our customers and just recognizing that the value equation doesn't change dramatically over time.

Mark, I think it's fair to say our commercial objective is to improve profitability, as Tim just described and there's multiple ways to do that depending on the segment and the type of customer. And then secondly, obviously, to reduce volatility in the way that we make When we throw words like strategic customer relationships, that's partly what we mean by the word strategic versus transactional that there is a longer-term view which usually comes with less volatility versus playing a very transactional market by the month or by the quarter. you need probably a mix of all of it but our objective is to improve profitability which we are doing and reduce volatility.

Understood. And then just quickly on the Industrial Packaging, when you talked about volume, you talked about the 4 more seasonal days. You talked about the seasonality typically being a negative, of course. Now are you not seeing any signs that maybe the destock which negatively impacted the third quarter and then again in the fourth quarter by your customers. Any signs that we may be getting towards an end? And might that become a positive? Or any indications from customers as to when that might start working less against you?

Yes. I think that's right, Mark. A large portion was taken care of in the fourth quarter. It feels like maybe there's some remnants but that it's getting close to the end. And if you look at where we are just in January, year-over-year, it looks like we don't have numbers yet but just following cut out. It looks like we're down 5% year-over-year but stabilizing from fourth to first.

Then next, we go to Truist Securities in the line of Mike Roxland.

Tim and Mark, congrats on a very good quarter. Last quarter, you mentioned you had an internal algorithm you used to figure out how and where to take downtime. And then one of the items that you -- as part of the algorithm is natural gas. So with the domestic natural gas down as much as it has been with the decline in OCC? How have you shifted your downtime plans, if at all? And just trying to get a sense of whether you've been able to more efficiently take down time and whether that was a benefit in the quarter as well.

It's a great question, Mike. We shifted it to the algorithm for marginal cost. And so that's one of the important one, also logistics and transportation costs which haven't relaxed as quickly is an important one and then, of course, fiber, wood fiber costs as well as OCC. And I would say, yes, you saw more of our production shift to the lower-cost energy mills but not in a material way. We ran everything. We didn't make any dramatic shifts but you can see the efficiency and cost reduction showed up in our numbers. Because, again, as I said, at certain sweet spots in an integrated mill where you're making at full capacity, 80% of your energy at less than full capacity you can make almost all of your energy and you're not subject to the open market for purchase electricity or gas virtually at all. So that might even trump a lower gas price. When you have a mix of integrated mills and recycled mills like we do.

Got it. And then just quickly on China. With the country easing its strict Zero-COVID policies, can you give us a sense of what you're seeing from a demand perspective in GCF? And I know it's early stage and I know that you're also contending with Chinese New Year, so you may not have your line of sight. But any early read on how demand may or may not be impacted from the elimination of those policies?

Yes. I think it's probably a bit too early, although we agree that there is an opportunity past Chinese New Year, China reopens, we see that as a positive.

Then next, we go to RBC Capital Markets in the line of Matthew McKellar.

First, I just wanted to ask around the sale of your stake in Ilim. Are you able to talk about the time line to close that transaction. It sounds based on your guidance that you're looking for it to close this year. But -- is there any additional color on that? And also any thoughts on key hurdles to clear in terms of receiving regulatory approval.

I mean I don't want to speculate such a fluid environment but I think we look to closing sometime this year at the regulatory approval process, will take what it takes. So as we know more, we'll report it.

Okay. And then just in Industrial Packaging with linerboard medium prices, we see benchmark prices coming down. Can you just remind us to what degree your typical kind of contract pricing lag on realization would be versus those benchmark prices?

Yes. It usually runs a couple of quarters. It's all over the map. But when you look at it in total, on average, usually see it coming through over a 2-quarter period.

The next, we go to Cleve Rueckert of UBS.

Just a couple of follow-ups for me. I guess, firstly, Tim, in your prepared remarks, you had a comment about taking out high marginal costs. And obviously, you've been pretty dynamic about that over the last couple of quarters. I'm just wondering if there's an opportunity for some more permanent restructuring in the containerboard system, if that's something you're considering or sort of remains dynamic right now?

If you mean -- this is Mark. Thanks for the question. If you mean permanent, like adjustments of capacity, we don't see that on the horizon. Given the types of products we make, the different grades, cost structure of our mills. We're quite capable of running at 105% of nameplate rating and 85% of nameplate rating. And we do believe long term, fiber-based packaging market is growing. So structural cost reduction, where we can now say it's worth making a capital investment to take out this permanently, this marginal cost that ends up only coming out when we are taking economic downtime. Yes, there's opportunities for that. But there's no consideration right now or any major adjustment in our asset base because it's very competitive; it makes the products we need. And I think we've got to figure out also industry in general and I think in particular what's the new normal in supply chain because location of facility near -- converting or near market matters a lot more now than it used to. So we've had a lot to figure out on that but lots of cost reduction opportunities through modest capital investment would be our focus on taking it out for good.

Yes, that makes a lot of sense. And I was just wondering if there is any -- if you've made any discoveries through the process of being more dynamic over the last couple of quarters but it sounds like that's a work in progress. Maybe just 2 more quick ones. You've laid out full year guidance. I'm just wondering if there's any economic downtime built into the plan that you've laid out or if it's mostly maintenance in Q1?

Yes. We don't comment on any plans we have or don't about economic downtime going forward. But we have a view of the market growth and how we'll need to run the system as we go through the year.

Okay, that's fair enough. And then just finally for me, thinking a little bit bigger picture. I'm just curious, I'm just sort of wondering conceptually here, how frequently you evaluate through cycle free cash flow. I think it looks like you need about another $200 million to $300 million of free cash flow to support the dividend within that 40% to 50% payout that we've talked about before. I'm just curious how you plan to get there from here just on a conceptual basis.

Yes. I mean we look at free cash flow through the cycle. We do trough testing around sustainability of the dividend. I mean, we feel very good about our ability to meet the dividend requirement. And the 40% to 50% is not a hard and fast rule that it will always be within that. Sometimes it could be a little bit above and sometimes it might be a little bit below. But over time through the cycle, we think averaging 40 to 50 across a number of years is an appropriate range to shoot for.

Would you say that CapEx is running like a little bit above average in '23? I mean is that something we should expect to come down.

I think it's within $100 million or $200 million, it's probably in the zone. I mean we were trying to spend more on last year but just given supply chain difficulties and long lead times, it was impossible. And so we were just short of $1 billion last year. We're targeting between $1 billion and $1.2 billion this year. But again, it depends on suppliers and vendors' ability to deliver within a time frame. But D&A runs about a little over $1.1 billion. We've looked at average that over time in terms of capital spending.

Then next from Jefferies, we go to the line of Philip Ng.

This is John Dunigan on for Phil. Congratulations guys on a great quarter. I wanted to first ask about the containerboard inventories for IP. Where are they now? I mean, one is your base maintenance outage but do you see them in a decent spot with kind of this continuing weak demand environment? Or do you actually see the need to build up a little bit just because of 1Q being your largest maintenance outage?

Yes. I mean without getting into the numbers, they came down a little bit in the fourth quarter. We're going into heavy maintenance outage season, first quarter for sure but in the second quarter. So we'll look at inventories and make sure that we are at an appropriate level to support our outages. So -- but I don't expect a lot of movement.

Okay. And then just with the new capacity for the industry that's coming online, have you seen any impact from that? Any businesses coming up for bid more frequently or anything along those lines? And just in terms of how IP is maybe responding to all the capacity that's heavily coming on here in the latter half of the quarter. Have you been able to lock in any customers for a longer period of time or kind of shore up some of your contracts to avoid some of the potential instability in the supply demand?

John, I think the way we think about it is our containerboard and box system obviously, is an integrated system for the board that we use to make our boxes. And the balance is what we would call our open market position. There's 2 pieces to that: domestic market and export market. And for the domestic market, all of our customers that buy board from us are long-term strategic agreement type customers. We do very little in just kind of what would be considered a spot market. And so we really don't have some of that churn issue that you're talking about. And then we look at demand for virgin kraft linerboard which is all that we export and we oscillate our output on that to match the demand signal. So we've seen capacity come on in the past and it comes on in varying degrees of velocity and varying degrees of success. And we'll just navigate this one like we've done in the past. But we really do run -- for all practical purposes, we run a pretty integrated operation from fiber to box, whether we're making the box or whether a long-term strategic open market box makers making it.

Okay, understood. And just one point of clarification. In the deck, it says there's no dividend expected from Ilim in 2023. I mean given the closing, it was just expected sometime this year, is there no cash dividend that could come from just holding on to the Ilim for longer portion of this year depending on the closing? Or that's kind of off the table included in the sale price?

Yes, that wouldn't be base case. We don't expect it.

The next from Deutsche Bank -- I'm sorry, from KeyBanc, Adam Josephson.

Just couple of questions about your -- the assumptions embedded in your full year guidance. One on demand, I think, Tim, you mentioned you're thinking underlying box demand will be flattish sequentially 4Q to 1Q. Could you talk about what your expectations are thereafter? Just given the destocking that you talked about affecting the fourth quarter, one would think that demand would be getting better sequentially at some point over the course of 2023. So just wondering what exactly your expectations are beyond 1Q and for full year shipments '23 versus '22, if you're able to talk about that.

I mean we do see a modest recovery. I think we're looking at something in the neighborhood of maybe 1% absolute over the course of the year. So as we get out of the first quarter going into the latter part of the year, a pickup is anticipated but modest.

Got it. And on price, Tim, just given the lags you mentioned with respect to when the previously published price changes hit your P&L, is it reasonable to assume that your realized prices in Industrial Packaging will fall sequentially not only from 4Q to 1Q but also from 1Q to 2Q? I would assume so but I just want to confirm that.

Yes, I think that's reasonable.

Okay. And my last question is just if I think about the implied 1Q guidance, I think, around $530 million, maintenance will be higher by about $120 million compared to the latter 3 quarters. So if I take the $530 million, I'd go up to $650 all else equal, if you assume the last 3 quarters of that, you get to about $2.5 billion for the year. So obviously, there's additional improvement embedded in your guidance, I assume from higher realized pulp prices or otherwise. So you're assuming that even though prices in Industrial Packaging will likely be lower from 1Q to 2Q and thereafter. Is that -- I just want to make sure I'm clear on the moving parts from 1Q onward.

It all sounds reasonable.

Got it. And just last one for me is what are you -- what is your sense, Tim or Mark, as to how -- the extent to which the customer destocking has played out in terms of box demand? Do you think you're 90% of the way there? 70%? What are you hearing from your customers as to what their inventory levels are and their expectations are?

I think, Adam, we're hearing -- there is a range but we're hearing, as Tim, I think, mentioned in the earlier question, a large portion of the destocking did occur in the fourth quarter. There are a couple of segments that are maybe still going through it. But in some cases, we've had orders pick up in certain segments to kind of replenish inventory. So it feels like based on what we're hearing qualitative and what we're seeing in order book that the destocking story of demand chain played out largely. And now the question mark on everybody's mind is what does the consumer do as we move through the first half of the year with respect to disposable income, what happens with inflation, they're getting some relief on fuel prices and does the consumer move back into the goods economy. And more than likely, everybody who looks at it will get it wrong and it will probably come back faster or it will take longer to come back but we won't get it precisely right but that's what we're hearing.

Our last question will come from Citi in line of Anthony Pettinari.

Just a couple of quick ones. Maybe following up on Adam's question on the outlook. I think over the last few years, when you've given a full year outlook, you've given kind of a range of $300 million EBITDA. This year, you're giving $2.8 billion which is maybe a bit more of a specific number. I'm just wondering if there's sort of a different way that you're formulating or presenting the outlook is 2.8 million kind of an internal target? Or how do you think about sort of upside, downside there?

Anthony, it's Tim. We said approximately $2.8 billion. It could be a little bit higher or a little bit lower is just a dynamic environment and we think it will be around that $2.8 billion level.

Okay. And then you talked about lower fiber costs in the 1Q outlook slide. I was wondering if that's just a function of seasonality or if you're seeing real deflation or maybe price declines there. And then I was just wondering if you're seeing any uptick in OCC? And if you could just kind of comment on Southern virgin fiber costs, understanding those are kind of local markets.

No. I think it's OCC and virgin fiber, we're expecting to be down modestly. You've had a lot of transportation cost impact on -- really on both. But on virgin fiber and our inventories are in good shape. And so we think we have an opportunity to bring virgin wood cost down slightly as well.

I'll now turn the call back over to Mark Sutton for closing comments.

Thank you and thanks, everyone, for joining our call today. Just to kind of wrap up with a couple of key points. We're excited about 2023. We believe in our outlook. We've got opportunities to maximize our performance in this uncertain environment. A lot of opportunity to get our cost structure back to something that we would consider more normal on different cost ratios. And then, looking at the commercial improvements we are making throughout 2022 and into 2023, we expect to see dividends on improving our profitability regardless of the demand environment and then the investments we're making are primarily in our box system, we'll continue to make those and we will be ready with a more sustainable operating model when demand returns to a more normal level with the appropriate level of converting capacity and capability in the right geographic locations. So a lot to do. We're excited about it and we look forward to updating you along the way. Thanks for joining our call today.

Once again, we'd like to thank you for your participating in today's International Paper's fourth quarter 2022 earnings call. You may now disconnect.