International Paper Co
. (
IP
) reported first quarter adjusted EPS of 57 cents, a 26% drop from
the prior-year quarter but outperforming the Zacks Consensus
Estimate of 51 cents.
After including special items, EPS in the quarter stood at 42
cents compared with 70 cents in the prior-year quarter. Net sales
were $6.65 billion, versus $6.39 billion during the year-ago
quarter, missing the Zacks Consensus Estimate of $6.84 billion.
Cost and Margins
Adjusted cost of goods sold amounted to $5 billion, an 8%
increase from $4.6 billion during the year-earlier quarter.
Adjusted selling and administrative expenses increased 157% to $556
million. Segment operating income decreased 21% to $462 million
from the prior-year quarter.
Segment Performance
Industrial Packaging
: Sales for this segment increased 22% to $3.1 billion. Adjusted
operating income increased 1% to $278 million. Income in North
America was impacted by operational issues, increased annual
outages and higher costs.
Export market containerboard price erosion also affected
results. However, improvement in volumes, lower input costs
and earnings from the acquired Temple-Inland packaging operations
provided some relief.
Printing Papers
: Sales increased 2% to $1.56 billion compared to the year-earlier
quarter. The segment's adjusted operating income dipped 31% to $145
million from the year ago quarter.
North American earnings were adversely impacted by lower pulp
and export paper prices as well as higher Franklin fluff pulp
mill start-up costs, which were partially offset by increased
exports and lower outages. Earnings in Brazil were also
affected as lower export prices and seasonally lower market demand
led to a higher export mix.
Consumer Packaging
: Sales decreased 10% to $810 million from $905 million in the
year-earlier quarter. Adjusted operating profit was $96 million in
the quarter versus $101 million in the year-ago quarter. North
American Coated Paperboard operating earnings benefitted from the
absence of annual maintenance outages during the quarter.
Higher volume and favorable manufacturing operations were offset
by higher costs. Foodservice delivered record earnings in the
quarter attributed to higher margins, favorable operations and
improved sales volumes.
Xpedx
(Distribution Business): Sales for the segment dropped to $1.47
billion from $1.64 billion in the year-ago quarter. However,
adjusted operating income of this segment increased 58% to $19
million.
Financial Position
Cash and cash equivalents of the company were $1.29 billion as
of quarter end compared with $3.994 billion as of fiscal 2011 end.
Cash flow from operating activities improved to $633 million during
the quarter compared with $514 million in the prior year quarter.
As of March 31, 2012, the debt-to-capitalization ratio was 62.2%
compared with 59.9% as of December 31, 2011.
Performance of Competitors
International Paper competes with
MeadWestvaco Corporation
(
MWV
) and
Weyerhaeuser Co.
(
WY
). MeadWestvaco reported adjusted earnings of 34 cents per share
compared with 43 cents in the year-ago quarter. Adjusted earnings
were ahead of the Zacks Consensus Estimate of 24 cents.
Weyerhaeuser reported adjusted earnings of 2 cents per share
compared with breakeven results last quarter, outperforming the
Zacks Consensus Estimate of $0.00 per share.
Our Take
The company continues with its merger and acquisition strategy
to strengthen its businesses. International Paper's merger with
Temple-Inland will increase its share of the North American
corrugated-packaging market from 27% to 34%.
International Paper's acquisition of a 75% stake in Andhra
Pradesh Paper Mills will help capitalize on the burgeoning demand
for paper and packaging products in India. Furthermore, through its
joint ventures, International Paper has significant projects
underway in Russia and China, which will help the company sustain
its earnings growth.
We expect International Paper to continue utilizing its sound
cash flow by investing in capital projects, acquisitions and
reducing its total debt. However, integration risks associated with
the Temple-Inland merger, margin headwinds and high debt levels
remain concerns. The shares of International Paper currently retain
a Zacks #3 Rank (short-term Hold rating).
Memphis, Tennessee-based International Paper Company is a global
paper and packaging company with operations in North America,
Europe, Latin America, Russia, Asia and North Africa. International
Paper conducts its business through four segments: Printing Papers,
Industrial Packaging, Consumer Packaging and Distribution.
INTL PAPER (
IP
): Free Stock Analysis Report
MEADWESTVACO CP (
MWV
): Free Stock Analysis Report
WEYERHAEUSER CO (
WY
): Free Stock Analysis Report
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