Paper and packaging firm, International Paper CompanyIP , reported solid fourth-quarter 2017 results, with adjusted operating earnings of $530 million or $1.27 per share compared with $279 million or 67 cents per share in the year-ago quarter, largely driven by top-line growth. Operating earnings also exceeded the Zacks Consensus Estimate by 8 cents.
GAAP earnings for the quarter were $1,460 million or $3.50 per share compared with $218 million or 53 cents in the year-ago quarter. The significant year-over-year increase in earnings was primarily attributable to a provisional net tax benefit of $1.2 billion ($2.93 per share) related to the U.S. enactment of the Tax Cuts and Jobs Act of 2017. GAAP earnings for full year 2017 were $2,144 million or $5.13 per share compared with $904 million or $2.18 per share in 2016.
Net sales improved to $5,711 million in the reported quarter from $5,000 million in the year-ago quarter but missed the Zacks Consensus Estimate of $5,942 million. The year-over-year increase was primarily due to benefits from the pulp business that was acquired in late 2016. Full year 2017 net sales improved to $21,743 million from $19,495 million in 2016.
Total business segment operating profit in the reported quarter was $824 million compared with $442 million in fourth-quarter 2016. The significant year-over-year increase in operating profit was largely attributable to higher revenues.
International Paper Company Price, Consensus and EPS Surprise
Industrial Packaging: Sales from this segment increased to $3,893 million from $3,555 million in the year-ago period. Operating profit improved to $609 million from $391 million in the year-ago quarter. The improved performance was mostly driven by record box shipments, higher average sales prices and volumes in North America. In EMEA, the segment benefited from seasonally higher sales volume.
Printing Papers: Sales from this segment were $1,106 million in the reported quarter versus $1,055 million in the year-earlier quarter. Operating profit for the segment was $136 million versus $121 million in the year-ago quarter due to higher sales volumes and a favorable geographic mix due to seasonally stronger domestic demand in Brazil.
Global Cellulose Fibers: Sales from this segment were $721 million compared with $379 million in the prior-year quarter due to higher fluff pulp sales volume as global demand remained strong. Operating profit was $79 million compared with operating loss of $70 million a year ago, largely driven by higher average sales prices, record volume and strong synergy realization.
In fourth-quarter 2017, International Paper completed the divesture of its consumer packaging business in North America. The assets were sold to Graphic Packaging Holding Company, a leading provider of paper-based packaging solutions for food, beverage and other consumer product companies. The divested asset portfolio included two manufacturing plants and four converting facilities with employee strength of roughly 3,900.
Graphic Packaging will own 79.5% of the combined company while International Paper will have ownership of the remainder. The transaction would help Graphic Packaging extend its business in the foodservice and folding carton markets. Also, the divesture helped International Paper to focus on its core businesses and strengthen its balance sheet as Graphic Packaging assumed $660 million of its debt.
As of Dec 31, 2017, cash and temporary investments aggregated $1,018 million while long-term debt was $10,846 million compared with respective tallies of $1,033 million and $11,075 million in the year-ago period. Cash flow from operating activities for 2017 was $1,757 million compared with $2,478 million in the prior-year period. Free cash flow for quarter was $732 million compared with $467 million in the prior-year period, bringing the respective tallies for 2017 and 2016 to $1,970 million and $1,880 million.
International Paper expects solid traction in the future with price increases, acquisition synergies and significantly lower outage expenses, thereby remaining confident to continue its earnings growth momentum in 2018.
International Paper currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Domtar Corporation UFS , P. H. Glatfelter Company GLT and KapStone Paper and Packaging Corporation KS , each carrying Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Domtar has a long-term earnings growth expectation of 5%. It has a positive earnings surprise history with an average of 21% in the trailing four quarters, beating estimates thrice.
P. H. Glatfelter has a long-term earnings growth expectation of 5%.
KapStone has a long-term earnings growth expectation of 13%.
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