International Paper Co. ( IP )
reported second-quarter 2012 adjusted earnings of 46 cents per
share, a 41.8% drop from the prior-year quarter earnings of 79
cents. The results, however, outperformed the Zacks Consensus
Estimate of 47 cents.
After including special items, earnings in the quarter stood at 31
cents a share compared with 51 cents in the prior-year
Net sales rose 6.5% year over year to $7.08 billion, yet missed
the Zacks Consensus Estimate of $7.31 billion.
Cost and Margins
Adjusted cost of goods sold amounted to $5.272 billion, a 7.4%
increase from $4.907 billion in the year-earlier quarter. Adjusted
selling and administrative expenses increased 5.2% to $509 million.
Segment operating income decreased 13.4% year over year to $426
Industrial Packaging : Sales for this segment
increased 27.5% year over year to $3.5 billion. Adjusted operating
income increased 72.9% to $465 million. The improvement was
attributable to synergies from Temple-Inland acquisition, seasonal
volume and mix improvement, better operations along with a hike in
Printing Papers : Sales decreased 5% to $1.51
billion in the quarter. The segment's adjusted operating income
dipped 111% to $105 million. The positive impacts of higher prices
in Brazil and Russia along with better price realizations on U.S.
exports were partially offset by higher planned maintenance
Consumer Packaging : Sales decreased 21% to $780
million from $945 million in the year-earlier quarter. Adjusted
operating profit was $56 million in the quarter versus $164 million
in the year-ago quarter. Increase in costs due to escalation in
maintenance costs along with weak economic conditions unfavorably
affected the segment. However, the Foodservice business performed
well, driven by seasonality and product line expansion.
Xpedx (Distribution Business): Sales for the
segment dropped 10.3% to $1.50 billion from $1.66 billion in the
year-ago quarter. However, adjusted operating income of this
segment increased 171.4% to $38 million.
Cash and cash equivalents were $1.22 billion at the end of the
quarter compared with $4 billion at end-2011. Cash flow from
operating activities improved to $1.4 billion during the quarter
compared with $1.2 billion in the prior-year quarter.
Debt-to-capitalization ratio was 62.9% as of June 30, 2012,
compared with of 62.2% as of March 31, 2012, and 59.9% as of
December 31, 2011.
Mergers and acquisitions continue to be International Paper's
key strategy to strengthen its businesses for the long term. The
company's acquisition of Temple-Inland is expected to be highly
accretive beyond 2013. The combination will fortify the packaging
business of North America by increasing its share in the corrugated
packaging market to 34% from the current 27%.
However, the debt-to-capitalization ratio remains at high
levels. It was further aggravated by the issue of debt to
fund the Temple-Inland acquisition.
International Paper retains a short-term Zacks #3 Rank (Hold).
Currently, we have a long-term Neutral recommendation on the
INTL PAPER (IP): Free Stock Analysis Report
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