Analyst Actions: International Paper 2013 Estimates Lowered; Shrs Down Near 2%

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Initial Thoughts on 8-K/TIN Pro Forma; Lowering 2013 Estimates

Reviewing Incremental Data Points; Maintain Neutral Rating: Incremental information disclosed in the 8-K include TIN full year results, additional detail on pro forma balance sheet items including net debt, and further quantification of the step up of D&A. While we think 2013 could be interesting if all goes according to plan, we believe 2012 expectations skew to the high side, noting we do not expect that implementation of a containerboard price increase is likely this year.

Temple-Inland (TIN) 4Q11 Results Modestly Softer than We Expected: Based on the filing, we calculate 4Q11 TIN adjusted EBITDA of $32m, a little below our estimate of $47m. However, this includes a higher than expected $9m sequential increase in unallocated corporate costs (versus our expectations) that likely isn't representative of normal run-rate. Corrugated Packaging EBIT of $80m declined $23m y/y ($4m sequentially) on what we believe was primarily cost inflation. Full year TIN EBITDA was $392m in 2010 versus $404m in 2010.

Additional Debt of ~$100m (Likely From Transaction Costs): Post the close of the Temple-Inland acquisition, IP updated that assumed TIN debt of $740m. We believe the increase from ~$600m is likely due to transaction costs.

TIN Transaction Still Appears Neutral to EPS This Year; Building Products Will Be a Discontinued Op Going Forward: The step-up of $147m in D&A is higher than initial estimates of $100m. That said, our understanding is that Building Products ($30m reported loss of operating profit in 2011) will be excluded from continuing operations going forward. As such, the TIN continues to look neutral to EPS this year (dilutive in 1Q as synergies begin ramping up). Earnings from required mill divestitures (~$100m of annual EBITDA) will be included in earnings until sale (3Q/4Q timing per agreement with DOJ). Annual pro forma D&A with the step-up in asset value is $1.5b (excluding the Building Products business).

We Estimate ~$1B in Proceeds from Divestitures: We assume approximately ~$600m for required mill divestitures (6x EBITDA) and ~$400m for Building Products. We believe it's possible Building Products could yield more than $400m noting valuations for building/housing related companies have experienced a meaningful rise in recent months.

Minor Adjustments to Our Earnings Forecast: Our 2012 EPS estimates do not change as the exclusion of building products offsets a $30m higher than expected D&A step-up versus our previous forecast. Our 2013 EPS estimate moves to $3.14 from $3.21 primarily due to higher D&A expense (our previous forecasts started excluded Building Products beginning in 2013 rather than 2012).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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