International Paper is undergoing restructuring initiatives to transform itself into a core packaging company. Last year, International Paper divested its distribution business, xpedx, and merged it with distribution solution firm Unisource Worldwide, the parent company of UWW Holdings, to form a new publicly traded entity called Veritiv Corporation VRTV . International Paper received $400 million in cash and owns 51% stake of the new company, with UWW Holdings owning the remaining stake.
With the divesture of xpedx, the company's overall margins and return on invested capital are likely to increase steadily, with expected improvements in procurement, replenishment orders, stock keeping units (SKU), and supply chain mechanisms. The formation of Veritiv is expected to unlock considerable value for International Paper and generate significant synergies. International Paper is likely to gain from the extensive geographic footprint, wide-ranging product portfolio and differentiated service platform of Veritiv.
Mergers and acquisitions also remain a key strategy for International Paper to strengthen its long-term business proposition. In North America, the company envisions a large opportunity within its industrial packaging businesses, which continue to generate the best margins in the industry. The company is taking initiatives to drive further margin expansion over time across the business.
International Paper aims to utilize its sound cash flow by investing in capital projects, reducing its total debt and returning a greater proportion of cash to shareholders through increased dividend payouts and share repurchases. The company expects to grow its EBITDA by approximately 5% in the near future by executing its operational plans. The company's restructuring initiatives and operational strategies bode well for its near-term growth prospects.
International Paper currently has a Zacks Rank #3 (Hold). A couple of stocks that look promising and are worth a look now in the industry include Sappi Limited SPPJY and Stora Enso Oyj SEOAY , both carrying a Zacks Rank #2 (Buy).
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