International Paper's third-quarter results came in better than some investors had braced for, but analysts at RBC Capital Markets caution that the packaging giant is heading into a more challenging final stretch of the year. In a note published Thursday, the Canadian bank said management's update largely confirmed that the company's self-help initiatives are on track, even as the near-term operating environment gets tougher.
The company, one of the world's largest producers of paper and packaging, has been working through a series of productivity and investment projects aimed at cutting costs and boosting efficiency. RBC said those efforts are starting to show up in operations, pointing to the Riverdale mill, which is "progressing well" and expected to become a meaningful contributor in the fourth quarter.
Waterloo plant: a big swing factor
The bigger variable, according to RBC, is International Paper's new box plant in Waterloo. The facility is expected to start up in the fourth quarter, but RBC doesn't see it reaching full run-rate until the second quarter of 2027. That extended ramp-up matters because new plants typically bring start-up costs and lower utilization in the early months, while the real payoff—higher throughput and lower unit costs—arrives only later.
This "payoff later" shape can make a company's earnings and cash flow look worse before they look better. In the near term, International Paper will absorb inefficiencies and underutilization at Waterloo, which could weigh on margins. The benefits, RBC argues, will come once the plant is running at scale, potentially in 2027.
RBC also flagged "improved tension and pricing momentum" in North American containerboard—the thick cardboard used to make shipping boxes—which it believes could set up better results once Waterloo is fully operational. Containerboard prices have been under pressure in recent quarters as demand softened, but any stabilization or uptick could help margins.
What it means for investors
For everyday investors, the key takeaway is that International Paper's stock may be more dependent on how 2027 looks than on the next couple of quarters. RBC kept an outperform rating and a $45 price target, while the shares were trading around $35.96 at the time of the note. That gap implies meaningful upside, but it relies on Waterloo delivering the scale benefits RBC expects.
If the fourth quarter brings a cost squeeze or weaker box demand, the shares could feel the pressure even if the long-term plan remains intact. That's because investors often focus on near-term earnings, and any disappointment can hit the stock. The stakes are also high on execution: the difference between the current share price and RBC's target depends on International Paper successfully ramping up Waterloo and capturing the promised efficiencies.
For context, the broader packaging sector has been navigating softer demand as consumers and businesses pull back on discretionary spending. Box shipments, a key indicator of industrial activity, have been sluggish. However, any signs of a rebound in containerboard pricing could provide a tailwind.
Investors should also keep an eye on the company's productivity plans, which are designed to offset some of the cost pressures. RBC's note suggests these are on track, which is a positive signal, but the near-term environment remains uncertain.
In the meantime, the market will be watching for any updates on Waterloo's progress and containerboard pricing trends. As always, it's important to remember that analyst ratings and price targets are just one person's view, and the actual outcome could differ. For those holding International Paper shares, the next few quarters may require patience as the company invests for the future.
