Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter and Full Year 2018 International Paper Earnings Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] We ask that you please limit yourself to one question and one follow-up. It is now my pleasure to turn the floor over to Guillermo Gutierrez, Vice President, Investor Relations.

Thank you, Laurie. Good morning and thank you for joining International Paper's fourth quarter and full year 2018 earnings conference 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 two 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 fourth quarter 2018 earnings press release and today's presentation slides. Relative to the Ilim joint venture and Graphic Packaging investments, slide two also provides context around the financial information presented on those slides. I will now turn now the call over to Mark Sutton.

Thank you, Guillermo, and good morning, everyone. We'll begin our discussion on slide three. International Paper delivered very strong earnings in 2018, with strong performance across our three businesses, achieving a second consecutive year of 16% EBITDA growth. Our Ilim joint venture also delivered excellent results with operating EBITDA of more than $1 billion. All in, we continue to grow value for our shareholders with the return on invested capital of 13% which is significantly above our cost of capital. During the year, we invested strategically to further strengthen our Industrial Packaging business. Among these investments, we opened a new box plant in Toluca, Mexico, that will be fully integrated with containerboard provided from our U.S. mill system. We also made targeted investments in our U.S. Box business to enhance our capabilities with a deliberate focus on serving the fastest-growing segments and being aligned with the best customers. These investments all have returned to more than 25%. We also took decisive measures to further derisk the company and strengthen our balance sheet. We paid down $500 million in debt, bringing our leverage ratio down to 2.8 times and we returned $1.5 billion to shareholders through dividends and share repurchases, which reduced our diluted shares outstanding by 3%. Turning to the full year results on slide four. Our revenue increased by more than 7% and we expanded our margins by 150 basis points on strong commercial performance across our businesses. Our equity earnings were $336 million, including $290 million from our Ilim joint venture. All in, we delivered another strong solid year of free cash flow. Turning to slide five. International Paper delivered a very strong year of return on invested capital. We increased our five-year average to 11%. This performance reflects the strength of our portfolio. We are making the right investment choices and delivering on those commitments. I'll now turn it over to Tim who will cover the performance across our businesses and our first quarter outlook. Tim?

Thank you, Mark. Good morning, everyone. I'm on slide 6 which shows our year-over-year operating earnings bridge. Operating earnings improved by $1.83 driven primarily by price and mix improvement across our three businesses. Operations and costs were negatively impacted by weather events during the year and startup costs associated with the Madrid mill. Ops and costs were also impacted by LIFO inventory revaluation charges related to price activity in 2018. Input costs were a headwind in 2018 driven by higher wood, chemicals and distribution which were partially offset by lower OCC. Corporate expenses, interest and taxes were lower and equity earnings improved on strong performance in Ilim and the benefit of Graphic Packaging. As Mark said, International Paper delivered very strong results in 2018. Turning to slide 7, our fourth quarter results. EBITDA improved by 8% year-over-year as we expanded margins in our three businesses. Our equity earnings were $79 million including $67 million from our Ilim joint venture and $10 million from Graphic Packaging. Free cash flow in the quarter was solid and we completed $200 million in share repurchases. All in the company finished on a strong note. Moving to the quarter-over-quarter earnings bridge on slide 8. Operating earnings improved by $0.09. Price and mix improved in all businesses and regions. Operations in cost improved due to lower Madrid mill startup costs and favorable one-time items of about $20 million. The fourth quarter was the lowest maintenance outage quarter of the year representing less than 10% of our total maintenance outage expense in 2018. Input costs were a headwind particularly for energy and wood. We expect hardwood cost to remain elevated due to poor operating conditions from heavy rains. Now let me turn to the segments. Starting with Industrial Packaging on slide 9. The North American business performed very well delivering $641 million in earnings and a 25% EBITDA margin. Box demand was strong driven by e-commerce and produce and we continue to see strong box demand as we enter 2019 with shipments in January we're estimating between 1.5% and 2%. Export containerboard came under pressure in the fourth quarter with demand slowing in China and some other -- in some regions in EMEA. We're also seeing the impact of higher tariffs in Turkey which is a major importer of U.S. containerboard. We expect volume and price pressure to continue in the first quarter as inventory destocking plays out. Continuing with the fourth quarter performance. Operations and cost benefited from onetime items, which were largely offset by higher distribution cost. Input costs were a significant headwind in the quarter due to higher natural gas and wood cost. Fourth quarter was another good example of the strength of our Industrial Packaging team and their ability to execute well. On slide 10. The Global Cellulose Fibers business delivered earnings of $93 million in the fourth quarter. Earnings were largely in line with our expectations with the exception of input costs, which were impacted by higher wood and energy again. We delivered a strong fourth quarter against a changing macro backdrop. Towards the end of the quarter, we saw a softening in softwood and fluff demand in China along with slowing demand in Turkey largely due to foreign currency headwinds. These trends have continued into the seasonally slower first quarter as customer destocking plays out and we move into the Chinese New Year. Printing Papers on slide 11. The business delivered excellent results, driven by strong commercial and operating performance. Price realization and volume were favorable across all geographies. Again input costs were a headwind due to the higher wood and energy costs. Overall a very strong quarter and year. In North America, our uncoated free sheet volume outpaced industry shipments for the year. Our Europe and Russia Papers businesses delivered solid earnings of about $130 million, overcoming high wood costs and other operational challenges. And in Brazil, earnings for the year improved by 17% and our EBITDA margins continue to be very healthy in the low 30% range. All in, we have good momentum as we move into 2019. Now, I'll turn to Ilim. Ilim's results on slide 12. The joint venture delivered solid performance in the fourth quarter with operating EBITDA of $310 million. Volume was higher with no planned maintenance outages in the fourth quarter. International Paper's equity earnings were $67 million and were impacted by a noncash foreign exchange charge on Ilim's U.S. dollar-denominated net debt, of which IP's portion was $19 million or $0.05 per share in the quarter. For the full year, Ilim operating EBITDA was $1.2 billion, which represents a 45% margin. IP's equity earnings were $290 million. Overall, the business performed very well and provided $128 million in cash dividends to IP in 2018. Turning to slide 13 and our first quarter outlook. I'll take you through all of the puts and takes by business. So, starting with Industrial Packaging. We expect price and mix to be down $15 million, driven by containerboard exports. Volume is expected to be down $40 million on seasonally lower volume in North America and lower export containerboard volume as customer destocking continues into the first quarter. Operations and costs are expected to increase by $100 million largely due to unabsorbed fixed costs related to lower volume, higher seasonal energy consumption as well as inflation and the non-repeat positives from the fourth quarter. Staying with Industrial Packaging. Planned maintenance outages are expected to increase by $102 million and input costs are expected to be flat. In Global Cellulose Fibers, we expect price and mix to be down $5 million and volume to be down $10 million. Operations and costs are expected to increase by $50 million due to unabsorbed fixed costs related to lower volume, higher seasonal energy consumption as well as inflation and the non-repeats from the fourth quarter. Planned maintenance outages are expected to increase by $20 million. So all-in this will be a significant reduction for the business in the quarter. So, let me add some color on Cellulose Fibers. Earlier I shared the macro environment in certain regions of the world. Complicating that for us a poor commercial decision was made that is going to negatively impact our fluff pulp volume in the quarter. While I believe this is only a temporary setback, it is going to take us until sometime between the second and the third quarter of this year to fully resolve. However, it does not change our belief in the fundamentals of the business and our ability to create value over time. Moving to Printing Papers. Price and mix are expected to be down $10 million due to seasonal mix in Brazil. Volume is expected to be down $10 million from lower seasonality in Brazil. Operations and costs are expected to increase by $35 million driven by higher seasonal energy inflation and timing of spending. Staying with Printing Papers, planned maintenance outages are expected to increase by $3 million and input costs are expected to increase by $5 million on continued pressure on hardwood in North America. Under equity earnings, you will see the outlook for our Ilim joint venture and Graphic Packaging. In other items, we include corporate and interest expense as well as our estimated effective tax rate of 24% to 26%. We expect our full year corporate expense to be $70 million and interest expense to be $500 million. I'll move to the full year outlook on slide 14. We are projecting full year EBITDA for the company of between $4.3 billion and $4.4 billion. Our North American Industrial Packaging business is performing well and domestic box demand is strong. In Europe, the benefits of the Madrid mill will accelerate through the year. Volume recovery in our fluff pulp business is against the backdrop of 4% growth in the market and our Papers business is performing very well. Putting all of these together, we expect strong free cash flow of $2 billion among other positive factors that will impact our cash flow; CapEx is planned at $1.4 billion; and we expect to receive $200 million in dividends from Ilim. As we did in 2018, we will use our free cash flow for debt reduction and cash to shareholders. We are committed to a strong and sustainable dividend and we have a $2.2 billion share repurchase authorization. On slide 15, we made progress strengthening our balance sheet as Mark referenced in 2018. We reduced balance sheet debt by $500 million, our pension plan is sufficiently funded and we took definitive actions to further derisk the plan. In 2018, we also reduced our cash balance by $400 million. Effectively we put this cash to better use by applying it toward debt reduction and share repurchases. Going forward, we expect our cash balance will remain in the $600 million range. So, with that, let me turn it back over to Mark.

Thank you, Tim. I just want to take this opportunity to share my views on International Paper and the year we have ahead of us in 2019. Coming off of strong record earnings in 2018 with really solid performance across the portfolio, and more importantly, we strengthened our businesses and we strengthened the company as we head into 2019. Our businesses are stronger. We're well positioned to drive through any challenge we may face. We have the people, the innovation, the best value chain to solve our customer's needs and a low-cost high-quality manufacturing system to succeed. We're investing in high-return projects to improve our businesses all of which drives our strong cash generation. We've also improved overall International Paper. We're a stronger company. We're well positioned to grow free cash flow in 2019 meaningfully, and we're strengthening our balance sheet and returning cash to shareholders. To me it's all about value creation. That's what drives our decisions. And we're looking forward to 2019. And with that, we are ready to take your questions.

[Operator Instructions] Our first question comes from the line of Anthony Pettinari of Citi.

Just looking at Industrial Packaging, it seems like your January shipments are stronger than what you saw on 4Q. And that seems consistent with what some of your competitors are saying. Is it possible to say what kind of drove the weakness in 4Q in terms of end markets or categories or regions?

Well, I think that – hi, Anthony, it's Tim.

Hi.

I think there were some strong comps that we were up against. We did finish the year very strong. December was a very good month for us at 2.5% and we see that continuing as we go into January. So part of its timing and part of it is the way the months lay out. But on balance, the fourth quarter for us was a pretty strong quarter.

Okay. That's helpful. And then just in your 1Q outlook and kind of prepared remarks you referenced export destocking. Any visibility in terms of how long that could take to run its course or where customer inventories are maybe relative to history? And then just kind of related question, how do you feel about your own internal containerboard inventory levels? I think some of your competitors have talked about opportunities to take inventories down but they have some projects and M&A situations that you don't. Just any kind of general thoughts you have on your own inventory levels.

Yeah. I don't think the destocking is a long-term impact. Depending on the region of the world some things make it a little bit harder to see clearly like Chinese New Year. We always – every year we have this for pulp and to some extent containerboard, where buying stops ahead of Chinese New Year and then you have to see how it picks up, once everyone is back. We do know that in Europe there's customers inventories, especially given the tightness that existed through a lot of last year. There's probably safety stocks that we think are in place and it'll take a month or two for those to kind of flow through. I don't see it as being longer than that, but we'll have to see how it plays out. As far as our inventories, I think we feel good. We're adequately supplied. We've got tremendous flexibility.

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

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

Good morning, Mark. Good morning, Tim.

Good morning.

Good morning.

I wonder Mark just to kind of start off, if you could talk a little bit about how you see the impact of that GP announcement down at Port Hudson affecting your business. I'm particularly interested in kind of the – well there's change of the timing around the Selma conversion and also whether you've announced a price increase in uncoated paper?

That's a great question, Mark. The – specifically to the impact of changing supply in the uncoated free sheet business and its impact on our Selma conversion, the original reason and the reason we communicated about making that conversion was to go into high-quality bleached linerboard. And that's something we need for the places we're growing the box business. So it wasn't really a – the driver wasn't our white paper system. It was what we need for our packaging system and it's a great asset to do it. So we communicated a change into 2020 and right now we're sticking with that plan. We're going to need that product pretty quickly as we get into 2020 for the box growth that we are targeting and experiencing. So I don't see any change in that plan. What it does in terms of the market obviously is it just -- a continuing evolving change in the supply base as that product line and market goes through its normal evolution. So for us our Printing Papers business is well positioned. We've got great products, a full range of products and great customers. And we -- that business is still playing an important position on the team. Q – Mark Wilde: Okay. My follow-on question is really around capital allocation. And I'm just curious, it sounds like you guys pulled back pretty dramatically on capital projects in the fourth quarter. And I wondered if you could you just put a little color around the things that went into that decision. And it's also in the fourth quarter, it seemed like your cadencing on share repurchase was pretty much in line with what we had seen through the first three quarters of the year. And I'm just kind of curious about why you might not have accelerated that given the weakness in equities in the fourth quarter? A – Tim Nicholls: Yes I'll take the second part of the... A – Mark Sutton: You take the second. I'll take the first yes. A – Tim Nicholls: Yes. So we got our hand signals mixed up there for a minute. So yes I think Mark, what you saw on the fourth quarter was continuing to buy shares, but also making sure that we were applying cash to the balance sheet as well. And as I mentioned a minute ago or showed on the slide, we did get to the top end of our range in terms of leverage for the balance sheet. And there's opportunity to take that lower, but we expect we're going to have a lot of cash to apply to share repurchases as we go through this year as well. So it was just a choice. We had bought shares in the second and in the third. We continue to buy in the fourth and we paid down some debt at the same time. A – Mark Sutton: Mark on the capital projects, there was nothing that we did in the fourth quarter that's not somewhat normal as you look at finishing your year. Some projects move faster than you expected, some move slower and it was just a matter of managing the spending that we had committed to. This happens from time to time. It's just a little bit more activity. So we ended up where we thought we would end up right in the zone that we communicated to investors for total capital spending. And so when you have as many projects and as large an asset base, you just got to sync these stuff up toward the end of the year. So it's just a matter of changing the cadence of some of the final execution of these projects. Q – Mark Wilde: Okay, fair enough, thanks and good luck in '19. A – Mark Sutton: Thank you.

Your next question comes from the line of George Staphos of Bank of America Merrill Lynch. Q – George Staphos: Thank you, operator. Hi, good morning, thanks for all the detail guys. I wanted to spend the first question probing some of the hopefully one-off related issues in the quarter that have implications in for 2019. Can you comment a bit on what was in the $20 million of one-off good guys I guess for 4Q? And can you comment on what the commercial decision in Cellulose Fibers is related to and why it will take until the middle of the year to correct that? And I have a follow-on. A – Tim Nicholls: Yes, hey, George, it's Tim. The $20 million it's a bunch of things honestly. It's all at corporate and a lot of small items that added up to a bigger-than-usual number in the quarter. I think that's the best way to describe it. A – Mark Sutton: So George on the commercial decision, we make these type of decisions all the time running our businesses. And this particular decision had to do with trying to shift some of our customer mix for all the right reasons, to improve our margins, to actually improve customer service across our portfolio. We made some decisions and of course when you shift customer mix, you need to replace what you’re shifting out of and shifting into. And what's happening is it's just taking us longer to do the second part of that. So our execution isn't as good as it has been when we've made these kind of decisions, but it's not an abnormal type of decision. It's just our execution is not something that we've done as well as we normally do on. It will be fine. It will just take us a little longer. The market is growing. We're outperforming the market. We'll continue to do that based on our portfolio of products and customers. We just had a shift project that's taking longer than we originally intended. Q – George Staphos: Mark, just to fill in some white space there. But ultimately you expect to replace whatever volume was lost I mean, that's my takeaway with fluff volume and fluff customers correct in terms of the shift?

Yes. Yes, fluff volume, fluff customers and we fully expect to continue to perform very well. And we should perform better than the market based on our footprint of capability, but also our product portfolio. So absolutely, it's absorbent for absorbent. It's just in different customers in different regions at higher economic value. Q – George Staphos: Thank you. My second question and I'll do it quickly here. If we think about the free cash flow guidance for 2019 at $2 billion I recognize that's your guidance and so that's the number you want to stick to. But given that the markets are kind of in an interesting position in terms of the supply and demand there's some destocking pressure not for you but for others in some of your bigger markets, where do you think the tensions are on that free cash flow? Are we more apt to see holding price constant free cash flow be in excess of $2 billion? Or do you -- are you pulling every lever you can to get to that figure? Thank you and good luck in the quarter.

Yes, well we always try to pull all the levers for free cash flow, so that doesn't change. But I do think to your point George, the $2 billion is what we put out there, but I can see upside to it as we go through the year. Q – George Staphos: Thank you, Tim.

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

Thank you. Two things. What has been happening and will happen now after GP to your white paper mix? And I'm curious whether you're seeing any meaningful difference in U.S. versus other markets in terms of how the decline in demand is playing out in terms of your particular mix?

I think our mix Mark is staying pretty constant relative to the roll business for the printing industry the cut size business and some of the specialties we make. I think it's a little early to tell. Obviously, we are a major supplier. So we're seeing customers interested in us becoming their supplier post the GP announcement. But it's a little early to see what we're going to take and what it's going to do to our mix. But actually with the system we have now with essentially four mills -- 3.5 mills our mix is kind of ridden down with the decline because not all parts of the mix are declining at the same rate. But our facilities are pretty flexible, so we've continued to be able to optimize the mix for the best margin and best profitability. We should see pretty quickly here in the first quarter, how any incremental business that comes our way starts to shift that.

Okay. So, you answered the flexibility question. Just one more. Can you give us a sense of how you're getting to your 1% to 2% growth estimate? Are you still thinking in terms of GDP plus? And what would drive a plus? I'm sorry I didn't...

Yes. I may not be responding to exactly what you're asking Mark this is Tim, but I referenced the 1.5% to 2%. That's what we were seeing in January. And I think fundamentally with the way we see the economy performing we expect it to be in that range. So, that's how we're looking not only at January, but I think that probably holds up for the year.

So, Mark we've talked about this before. We acknowledged that sometime in the past, box demand and GDP kind of decoupled a bit. We actually have a model that we've developed with some outside resources and some internal data analytics that GDP is obviously a major function, but there are other indicators about how we think about box demand and it doesn't always track directly with GDP. There were periods where box demand slightly outperformed GDP, but we didn't conclude that it was now back on that track. So, it's a set of analytics we use. GDP is obviously a function and the input to GDP, but it's not just a GDP measure for us.

That's helpful. Thank you.

Your next question comes from the line of Steve Chercover of Davidson.

Thanks. Two quick questions. First of all IP makes about one in three boxes in North America and I think it's more like one in two for the big e-commerce player. I'm wondering if that's still the case. And how this alleged making the boxes more appropriate size-wise can you actually get paid for doing so?

We think we can. And yes I'd say your figures are directionally correct. I think the good news is we service a lot of customers in the e-commerce space and we work with all of them very closely, our design teams our commercial teams. And it's not just optimizing box size, its optimizing flow through fulfillment centers to make sure that they are getting the most efficiency in their fulfillment centers as well as getting it to the customers. So, it's not just -- is the box the absolute precisely the optimum box? It's what works in the broader system.

The interesting thing Steve is that every e-commerce major player has a slightly different value proposition to customers and this velocity through their supply chain is more important to some than others. And so for the ones that it's as not as important you might actually be able to get to the perfect box even if it slows you down because that's their value proposition. But for others, there's a physics issue here that you've got to be able to load the product through the value chain. And so we're at the table with all the major people who sell direct and helping them to figure out not how to make a box smaller how to make their business model work better. And sometimes that changes the amount of packaging needed. Sometimes it actually improves our economics because of the way we're able to help them meet their goals.

Terrific. Yes, that's what I wanted to clarify that it's not necessarily a negative just because the volume is lower. And my other quick question was with respect to Consumer Packaging. I mean you're not directly reporting it but you still have a lot of skin in the game. So, are you optimistic about the prognosis for the industry and are you happy with how your partner is behaving?

I would say the investment we made with our business into Graphic is doing what we expected it to do. They're building out the business, integrating the SPS. We think that that is working out as intended. And I think the market is -- got a lot of potential because you see every day question marks about types of packaging, single-use packaging, sustainable versus non-sustainable, and I think it's going to be an interesting ride as we look at policy and we look at consumer preferences. But those products are pretty good pretty well-positioned for where the buyer and the public sentiment is going.

Great. Thank you very much.

Your next question comes from the line of Adam Josephson of KeyBanc Capital Markets.

Mark and Tim, good morning. Thanks so much for taking my question.

Good morning.

Tim, just one on the guidance. The one -- thanks for the bridge earlier. The EBITDA guidance seems like it's around $815 million, which seems to imply the year is going to be somewhat back-half weighted. I know maintenance costs are appreciably lower in the second half as they are every year. And I know you called out seasonality a fair bit. Is there a way to help us just with what the seasonality impact is in 1Q perhaps relative to the other three quarters? Just so we can get a figure out how you're getting to that full year guidance based on what you talked about for 1Q?

Yes, sure. I mean, directionally it's probably our lowest quarter from a demand standpoint seasonally. So it picks up in the second quarter. And it used to be that the fourth quarter was a weaker quarter as well, but we've seen that change over the past three or four years. Your comment on maintenance outages is correct. In the first half of the year we'll have roughly 80% of our maintenance outages completed, and then it drops off significantly in the third, and again, significantly in the fourth quarter as well.

Okay. Thanks for that. And Mark on Europe, European containerboard prices are falling a fair bit. And obviously you're interested in getting into that market earlier last year. I mean, what are your thoughts about that market at this point with the overcapacity situation there the demand? And any implications of what's happening there for what may happen in the U.S. at some point down the road? Thank you.

It's a good question, Adam. I think the European market is different than the U.S. and the price of containerboard and the price of boxes behave a little bit differently. I think I've made this comment before. With the recycled part of that industry, which is 75%, 78% of it, it's really a series of regional markets. So, lower containerboard prices on average in Europe don't mean a whole lot. It means something in a region, but not across Europe. And then there's always the spread between recycled linerboard and the virgin paper that's typically used because it's needed for some performance spec. And so that's how that market kind of frames up. And as far back as I can personally remember there's always been somewhere in the neighborhood of 10% to 15% overcapacity, nameplate capacity of containerboard versus demand. But because of that regional nature you had very good parts of the market even if you got an average overcapacity. We tend to be targeted right now in the southern part of Europe with a certain end-use box mix and largely are going to be mostly integrated on our recycled grades with Madrid. And we're integrated on our Kraftliner from the U.S. So we like our position we have right now. I think over time it'll depend on how the European industry evolves. But you've really got to think about, my premise is you have to think about it as multiple regional markets.

Thanks a lot, Mark.

Your next question comes from the line of Scott Gaffner of Barclays.

Thanks. Good morning.

Good morning.

Good morning, Tim. Good morning, Mark. Just focusing on cash and the return of cash to shareholders. For a minute, I mean, if I look at the $1.65 billion of free cash flow in 2018 and you're pretty close to that 50% payout ratio on the dividend, but then on -- so one I guess just questioning whether you would increase the dividend further or maybe just some caution on doing that just as we get later into the current cycle. And then the second part is really on the share repurchase versus debt reduction. I mean you're right at the sort of long-term target on the balance sheet as far as net debt. I mean how should we think about debt reduction versus share repurchase at this point in the cycle?

Yes so, two good questions. The first on the dividend, we typically look at that once a year and we tend to do it in the fourth quarter. That's been our practice over the past seven or eight years and we'll continue to do that. The key is that, we want it to be sustainable. And so we'll evaluate how we're thinking about things when we come to it later this year. In terms of debt reduction and share repurchases as you can imagine, it would be somewhat situational and based on what we think of as the outlook that we're heading into. So we are in the range, but we're at the top end of the range on the balance sheet. We believe the balance sheet strength is foundational to the company, so we'll look at that very seriously. And if there is opportunities to buy our shares below what we believe intrinsic value to be, we're going to be very active on that as well. So what we're trying to do is saying, there's a lot of cash and it's going to be applied to debt reduction and share repurchase and we will be as thoughtful as we can be as to how we divide the two.

Okay. And how should we think about sort of the annual share creep as we go forward?

The annual share creep, are you talking about from incentive compensations?

From compensation correct.

Yes. I mean, I'm not going to forecast what hasn't been fully approved yet because that comes later in the first quarter. But we said minimum share repurchases of dilution. We ended the year at 400 million shares and you saw what we did last year. And you see the guidance that we've given this year around how much cash we have for debt reduction and share repurchase. So it will be well -- I would imagine it will be well in excess of any dilution that we see from incentive comp.

Yes, Scott. I think one way to think about what we're trying to do and it's a little bit different for International Paper over the prior period, but we're trying to figure out how to optimize for our shareholder base, the long-term returns through good investments and the short-term capital returns that happen through a dividend and share repurchases. And as we said last year, we have not been as systematic and as understandable in that area. We think we made a lot of progress in 2018 and we plan on continuing that in 2019. But the balance sheet being in that zone that Tim described 2.5 to 2.8 is really important to us. We think it's the right way to run a basic materials company and a company that is exposed to the kinds of economic cycles we are. But we do want to do and we're committed to doing a better job that shareholders understand on short-term capital returns and the longer-term returns that in many cases are the source of some of the cash flow that we actually have to allocate. The investments we made yesterday are producing this cash flow today.

Okay. Just one last quick one on box shipments, can you just talk about the cadence throughout the fourth quarter how you saw that progressed? Appreciate it.

Yes. It was fairly even October and November and then we finished strong in December. So on balance we had a strong quarter -- fourth quarter of 2018.

All right. Thanks guys.

Your next question comes from the line of Mark Weintraub of Seaport Global.

One point that you've made in the past is fluff pulp tends to have much more stable pricing than commodity paper grade pulp and certainly that's what we've been seeing so far. Now that, we've got a lot of the contracts now in place recognizing some reference to the commercial activity you talked about before, but are most of the contracts in place now that you have a good visibility for the great majority of what your fluff pulp pricing will be this year, or does that actually move with other indexes et cetera?

A portion Mark of our mix is contracted for the year and we know what that visibility is. There's a portion of the mix that is not on long-term contracts and so we've got pretty good visibility. And it's a true statement that the absorbent pulp is much more resilient on a price – well from a price perspective. Again, there's always the question mark of how it compares to people who can make both softwood market pulp and fluff what's happening in the other market that's been under pressure. So you would typically see any available slowing capacity that could make fluff that has a qualified quality product to move into fluff. And that happens from time-to-time based on the health of the softwood market. I think we've seen a little bit of that play out as we went through the – especially the second half of the fourth quarter. But with the growth rate and the type of products that ultimately this pulp goes into we feel real good about the market itself and our position in the market. And we think pricing will continue to be much more resilient than a typical softwood pulp grade would be.

Sure. That makes a lot of sense. And just – given that you've got more of a global footprint than many of the other folks in the industry. I was hoping that you might provide a view on what you're seeing outside of North America and where there are maybe places of weakness or relative strength?

I think we see what you see. I mean, you hear about Europe and some of the country-by-country distractions that are going on whether it's France, Germany or Brexit that all results in a slightly lower economic rate of growth in Europe. And we see that, that's what Tim was talking about on some of the containerboard comments on export both volume and price. We also see there is no secret that Chinese economy is slowing. We don't have a direct impact in some cases because of the types of products we sell there, but we see a demand change. And again, it's hard to figure out right now because of the overlay with Chinese New Year. And then I think, there's some disturbances on currency. Turkey's a great example. A lot of times that ends up being temporary, but that is a little bit of turmoil right now. Latin America is actually improving. I think our biggest exposure is what we make in Brazil and sell everywhere else in Latin America, mostly white paper. That's actually kind of looking up, because of the new government in Brazil and the stabilization other than what's happening of course in Venezuela which we have no exposure to. We feel pretty good about the stability of Latin America. But I think it's really Europe and how they've manage through their political issues and what ends up happening. I'm hopeful that, we figure out a solution between the U.S. and China on trade and the things that might be weighing on that whole exchange of commerce and we'll benefit, our customers will benefit and that's how that we benefit. So we're doing our part to try to influence policy and work on that as one of many voices.

Okay. Thanks for the quick tour. Very helpful. Thanks.

Your next question comes from the line of Chip Dillon of Vertical Research. Q – Chip Dillon: Yes, good morning and thanks for all the details. I had a question on the maintenance change from year-to-year. It looks like it's going down maybe $20 million, $25 million. And I recall a year or so ago you talked about shifting from a 12-month to an 18-month rotation if I had that right and that would cause 2018 to be much higher or that -- 2019 would be I thought down closer to $60 million or even more. Maybe it was $100 million. But could you just talk to us what's going on with maintenance and maybe why it didn't fall as far as maybe if I heard you right a year ago as you thought it would? A – Tim Nicholls: Yes, hey Chip, it's Tim. So I think what we said a year ago at this time was that on a normalized level, we saw maintenance outage spending in the $460 million to $470 million range and last year was an elevated year and we expected some decrease in 2019. But you do this planning to varying degrees in terms of how far out in time you go. And so as we're into the second half of the year and later in the year finalizing some of that planning there's a little bit more for 2019 than we thought there could have been in this time last year. But we constantly work that number too, so that's a target. And our goal is to try to bring it as low as possible. But that, I mean, that's really the simplest explanation for how it rolls up. Q – Chip Dillon: Okay. So in other words there could be more room down in the future? A – Tim Nicholls: Yes. Q – Chip Dillon: Okay, okay. And then just back to the dividend. You guys have actually raised it at least once, but generally once a year for the last nine years. There are a lot of companies that tend to fall into different kind of screens when they start to get into double digits. And I know that it's very important that it remains sustainable so you don't want to get ahead of your skis on that, but what is your thought in terms of having some increase every year versus holding back and making it more meaningful and not raising it every year? Have you ever thought about that? A – Tim Nicholls: Yes. And I think we go back to what we said about 40% to 50% of free cash flow. So we want it to be sustainable. We have a target range of free cash. And we look at longer term not just the year we're in, but longer-term planning about how we feel about that cash flow -- that cash flow stream. And we have a very good dividend today, but we also have as I mentioned earlier the option of returning more cash through share repurchases as well. So I'm not making a call one way or the other. I'm just saying that's the framework that we look at and that's the same framework we'll go through later this year when we evaluate it. Q – Chip Dillon: Okay. And then last one quickly on the whole -- on the Fluff Pulp business. How much would you say the issue with the customer shift is likely to take away this year? Maybe it's an EBITDA number that you can give us. And I assume it's all in the first half. And if you make the replacement as you expect could -- and let's say prices stay where they are, would there be any reason you wouldn't see the results whether it's EBITDA or EBIT in the fourth quarter be comparable or better than what we saw in the fourth quarter of 2018? A – Tim Nicholls: Well, there's a lot of moving parts as you referenced some of them. But yes we think it's going to take us a couple of quarters for this to be fully resolved. I would hesitate to get into forecasting specific items across the company, but you see the impact in the first quarter from volume and the extra costs related to unabsorbed fixed. And as we referenced, we see it correcting itself in the second to third quarter and then we also provided how EBITDA is shaking out, we think, for the year. So I...

Yes. I think that's the way to think about it. I mean the guidance we gave on full company full year EBITDA factors in the specific issue along with some others, but the specific issue we mentioned in Cellulose Fibers. And I would -- the way I think about it, we were on a very good trend. We're still on a good trend, except for this one issue that we'll recover from. So I think about it as sort of quarter-and-a-half, two-quarter pause in our integration of that business, outperforming the market, heading toward really being almost a year ahead of the investment plan. And we'll be in the second half of the year fully back on the track. And we factored that into the full year outlook. Had none of this happened, in a perfect world with hindsight, we would see that incremental improvement. So we left that incremental improvement on the table. We're going to do our best. It's only January 31, so we're going to do our best to close that gap. But that's our best thinking right now in terms of how that flows into the full year company outlook.

Great. Thanks for the details.

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

Hi. Good morning, guys.

Hi, Brian.

Mark, appreciate the color and the perspective you gave on the slide around value creation. One thing you didn't really mention on there was acquisitions. I'm just wondering, how you're really thinking about that these days, whether it be mill assets globally, or converting assets in different regions. Has that changed meaningfully in the last couple of months? And presumably, multiples have come down a little bit, or some of the public equity multiples have changed. Would that impact your thinking on uses of cash from here, so just general thoughts on M&A at this point?

On the small types of acquisitions, where you could be talking about a box plant or something like that, there's always an opportunity to compare the economics of acquiring a plant in a location with a certain book of business, versus if you're already in that region, like the U.S. For us, we are everywhere, so we could organically invest the same amount of money or less in four plants and get exactly what we need, exactly where we need it. That typically ends up winning out for International Paper. It may not be the right decision for other companies, because they may have a total lack of capacity in an area, but for us, most of our investments that look and smell like acquisitions on the small end had been organic investments. But we'll always compare the options when we're looking to improve a part of the business, what's the best economic way to do it. And it's not simply just the financials. Do you like the location? Do you like the customers? Is it actually part of your strategy or is it just for sale? We don't like to buy things that are just for sale, if they're not part of the original strategic intent we have. And so I wouldn't say we'd never look at it, because it would be probably foolish to say that, because you could miss a good opportunity that's better than an organic investment. But that's how we think about it. The reason you haven't seen us do much of it, is we've had better options organically with our internal asset base.

Okay. Appreciate the color. And then, just one last one on the -- back to the Cellulose Fibers issue. Just thinking about it operationally how this would work, will you be continuing to run that volume that you would have otherwise sold, and keep it in inventory until such time when you think you can find a home for it? Or operationally do you think you're just going to run those assets at a lower rate for the time being? And then, assuming you do find some new customers for it, do you think there'll be qualification period needed there? Or operationally do you think you're just going to run those assets at a lower rate for the time being? And then assuming you do find some new customers for it, do you think there'll be qualification period needed there? Or are we talking about stuff that's pretty ubiquitous and pretty easily qualified in with the kind of customers you usually deal with?

Yes, you're right. It does vary from customer to customer so there'll be probably some of all of that. To your question on running, I think we've been very straightforward about running our businesses to our customers' demand and making sure that we are optimizing our supply chain. And hence you saw the reference in the commentary of the unabsorbed fixed charge that we'll have in the quarter because we won't be running and covering that fixed cost.

I think the other reality on the replacement is in most cases it is with existing customers. It's just a matter of capturing that growth. Some of those customers are in the macro backdrop that Tim described around the last part of the fourth quarter with some slowing demand heading into Chinese New Year; some like in containerboard with a very tight fluff pulp market; some buying patterns that occurred when you could get it; and then some destocking. If you think about interruptions we -- just our company had, and we're a large player, we had some operating issues earlier in the year we shared with you and then we had a hurricane and other things that I think for customers they say, man I better get what I can get now if it's qualified. So, that's part of what's happening. It's just the ability for that to regain traction. The good news is it's the kind of product in most cases that we're already qualified on with many existing accounts that are growing at rates higher than the average. So, that's why I'm really confident we'll be able taking -- it's going to take a little longer than our original plan hence why we termed the decision a poor decision. We didn't just -- we just didn't have the execution of the recovery properly done.

Okay, appreciate the color guys.

Your next question comes from the line of Gabe Hajde of Wells Fargo Securities.

Good morning gentlemen. Thanks for taking the question. The first one centers around, I guess, mill outage or production. 2018 kind of struck me as a pretty heavy year. You guys had roughly 520,000 tons of lost production from maintenance. Is there any way to help us understand what 2019 could look like given what you know now and what you plan to do in the mills? Or I guess maybe in another way is there incremental production that you would have access to that you otherwise didn't in 2018 due to the maintenance?

Well, there's always a lot of puts and takes around capital projects that are completed during the current year and you get the benefit of it next year. Maybe the way to think about it is just from a dollar standpoint. In 2018, we spent $548 million on outages and we're guiding to $525 million this year. But as I referenced in an earlier comment we're always looking to do that more efficiently and evaluate whether certain things absolutely have to be done or not. So, we're going to -- we have the target of $525 million, but we're obviously going to try to be lower than that in terms of our spending.

Okay. And then can you remind us any debottlenecking efforts that you completed in 2017 or 2018 that would flow through into 2019 in terms of again incremental capacity? And I don't -- I apologize if you said Mark, if you confirmed that you did or did not go out with a price increase in the white paper?

Gabe, I didn't answer that question. So as we always say pricing, especially forward-looking pricing is really between International Paper and our customers. So you didn't miss anything.

The only big material debottlenecking was our Maysville containerboard mill, which is a non-integrated mill. It produces recycled --sorry, lost my train of thought for a minute, our recycled containerboard. So we had a major project that, I think it started back in late July and it took us about 30-plus days to complete the project itself and it's running well. But other than that it's just the normal small stuff, the benefits that you get from maintenance outages and things like that.

Thank you, gentlemen, and good luck in the year.

Thank you.

Our final question will come from the line of Paul Quinn of RBC Capital.

Yeah, thanks for taking my question. Just following up on this line of question around cellulose pulp. Just -- I'm trying to get idea to what you think the China slowdown right now. How much of that is a factor the U.S. - China trade issue? And then if you could outline sort of in broad strokes what your percentage exposure to the Chinese market is on pulp for SBSK and I guess NBSK at Ilim?

I think the cost of the slowdown, how much of it is related to the U.S. - China trade discussion is hard to predict. I hear all kinds of assessments of it. But clearly if China was in the high-single digits in terms of growth and now they're in the mid to low I think a reasonable expectation is that -- a catalyst for that is the kind of uncertainty that's been put in place with these trade negotiations. That's why I think underlying demand is not really changing all that much. But when you're not sure about the trade environment you -- and the Chinese are very good at inventory management, you just use your inventory for a while. So we are speaking with all of our customers, trying to understand are consumers buying less of the product, it's the type of product that typically that doesn't happen unless you just can't afford it? Or is it you have enough inventory and we don't need the input material, which is the fluff pulp in its greater quantities? So, for your second part of the question. For our absorbent product pulp, so the fluff pulp category about 33% of our product goes into China.

Thank you. I'll now return the call to Guillermo Gutierrez for any additional or closing remarks.

Thank you, again, for joining International Paper's fourth quarter earnings call. As always Michele and I will be available for follow-up questions. Have a great day.

Thank you for participating in the fourth quarter and full year 2018 International Paper earnings conference call. You may now disconnect your lines and have a wonderful day.