International Paper Company
) recently held its investor day highlighting its performance, its
strategies, and its future growth drivers. The main takeaways from
the presentation are elaborated below.
The company has raised its synergy expectation from the
Temple-Inland acquisition to $400 million (from $300 million) over
the first two years and projects earnings before interest, taxes,
depreciation and amortization (EBITDA) at $5.1 billion annually
over the next three to four years, up from $3.7 billion in
North America is expected to generate $3.75 billion in EBITDA,
with a major contribution of $2.4 billion from Industrial Packaging
followed by Printing Papers, Consumer Packaging and Xpedx, each of
which contributing $0.66 billion, $0.47 billion and $0.22 billion,
respectively. Emerging markets are expected to earn an EBITDA of
$1.35 billion, with Latin America and EMEA contributing $0.55
billion and Asia $0.25 billion. The company believes that free cash
flow will go up to $2.2 billion from $1.7 billion in 2011.
International Paper's acquisition of Texas-based Temple-Inland
is its largest since the August 2008 acquisition of
Weyerhaeuser Co.'s corrugated-packaging business for $6 billion.
The company generated $10 million in synergies in the first partial
quarter of ownership. The combination will fortify the North
American packaging business by increasing its share in the
corrugated packaging market to 34% from the current 27%.
The company also completed the acquisition of a majority stake
in a leading Indian paper company, Andhra Pradesh Paper Mills
Limited. This transaction made International Paper the first global
paper and packaging company to have a significant presence in
India's growing paper and packaging industries.
Furthermore, the International Paper Ilim joint venture in
Russia has been growing rapidly. It is currently working on two
major projects which should be complete by 2012 end. A pulp mill is
being modernized, upgraded and expanded in Bratsk, which will be
the closest and lowest-delivered-cost softwood pulp mill to China.
A new paper machine at Koriatza mill in Russia will be added as the
Russian market is growing at about 6% a year. These represent a
combined $1 billion of investment and International Paper is
expecting over 20% in returns.
In China, the International Paper-Sun joint venture is building
a new consumer paperboard line that should come online late in
2012. These initiatives will contribute to both earnings and cash
flow substantially, going forward. The Franklin Fluff Pulp mill,
Sun Joint Venture, Ilim Joint Venture, and Temple-Inland and Andhra
Pradesh Paper Mills acquisitions are all expected to be the drivers
Besides, International Paper is working towards transforming and
improving the profitability of its distribution business, xpedx.
Improvements are expected in procurement, replenishment of orders,
reduced stock keeping units (SKU), and the supply chain (including
fewer/larger warehouses). We believe that these initiatives will
boost results and be accretive to EPS going forward.
We maintain our Neutral recommendation on International
The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the shares over
the near term
Memphis, Tennessee-based International Paper is a global paper
and packaging company with operations in North America, Europe,
Latin America, Russia, Asia and North Africa. International Paper
conducts its businesses through five segments: Printing Papers,
Industrial Packaging, Consumer Packaging, Distribution (Xpedx) and
Forest Products. International Paper competes with
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