Will IP's FY2026 non-GAAP adjustment items shrink below $300M (from ~$958M in FY2025)?

The $958M in FY2025 was dominated by accelerated depreciation from specific mill closures (Savannah, Riceboro, Red River). These are one-time charges that should not recur in FY2026. However, the EMEA spin-off will generate separation-related charges, the Riverdale conversion creates ~$165M in nonrecurring costs, and any additional mill closures in EMEA (7 sites + 700 roles in consultation) could generate new accelerated depreciation. The question asks about adjustments below $300M, which requires a >$650M reduction from FY2025. The mill closure D&A rolls off (~$650M+), but new items may partially offset. DS Smith PPA finalization could create additional adjustments. On balance, convergence below $300M is possible but not certain.

The $300M threshold is specific. FY2026 known adjustments: Riverdale conversion (~$165M nonrecurring), potential EMEA separation charges (amount unknown), any remaining accelerated D&A from mills in closure process, DS Smith PPA adjustments. The Riverdale costs alone consume more than half the $300M budget. Add EMEA separation-related charges and ongoing restructuring, and the total likely exceeds $300M. The question excludes 'standard D&A' -- so the issue is whether non-standard items (restructuring charges, accelerated D&A, separation costs) total above or below $300M.

This is a technical accounting question with significant uncertainty about what counts as a 'non-GAAP adjustment item.' If the question narrowly focuses on accelerated depreciation (which was the dominant $958M item in FY2025), then convergence below $300M is quite likely since the closed mills' D&A is complete. If it broadly includes all reconciliation items (restructuring, separation costs, PPA adjustments, Riverdale nonrecurrings), then $300M is a tight target. The ambiguity in the resolution criteria creates uncertainty. Low confidence because the answer depends on accounting classifications.

Companies in active transformation rarely show clean GAAP/non-GAAP convergence. IP has multiple ongoing transformation activities: Riverdale conversion, EMEA spin-off preparation, EMEA site closures, and DS Smith integration wrap-up. Each generates non-GAAP adjustments. The $958M was extreme (mostly one-time accelerated D&A), but FY2026 may still have $300-500M in various restructuring, separation, and transformation charges. Below $300M is aspirational given the ongoing activity level.

The $300M threshold is too tight for a company with this much ongoing restructuring. Known items: ~$165M Riverdale nonrecurrings, EMEA separation charges (likely $50-100M for professional fees, IT separation, legal structuring), ongoing EMEA restructuring (7 sites + 700 roles), any residual DS Smith PPA adjustments. Just the known items could sum to $250-350M+ before accounting for unexpected items. A company closing and converting mills, separating businesses, and restructuring workforces across two continents will have material non-GAAP adjustments. Probability below 40%.

The outcome is genuinely uncertain because it depends on how EMEA spin-off costs are classified and the scope of ongoing restructuring. If management aggressively completes most restructuring in H1, the H2 run-rate could look much cleaner. But full-year totals will include H1 charges. Low confidence reflects accounting classification uncertainty.

Accelerated D&A from FY2025 mill closures rolls off, which is the single biggest item. But Riverdale and EMEA separation charges partially offset. Convergence below $300M is possible but not certain.

Multiple ongoing transformation activities suggest adjustments remain above $300M. The $958M was extreme, but $300-500M seems more realistic for FY2026 given the ongoing restructuring across NA and EMEA.

Lean slightly below 50% because the known transformation activities suggest adjustments above $300M. The acceleration from $958M will be dramatic, but landing below $300M requires minimal new charges beyond Riverdale.