International Paper Co. (IP) reported third quarter EPS of 92 cents, a penny ahead of the prior-year quarter and outperforming the Zacks Consensus Estimate of 80 cents. Results reflect record profit levels in North American Coated Paperboard and solid results in emerging markets despite increasing input costs of most raw materials.
After including restructuring and other charges of 7 cents and net gain of sales or impairments of business of 34 cents, EPS in the quarter stood at $1.19 versus 91 cents in the prior year quarter.
Net sales were $6.63 billion, versus $6.72 billion during the year-ago quarter, missing the Zacks Consensus Estimate of $6.76 billion.
Cost and Margins
Cost of goods sold amounted to $4.79 billion, an increase from $4.76 billion during the year-earlier quarter. Selling and administrative expenses, however improved 5% to $477 million. Operating income dropped to $669 million from $752 million in the prior-year quarter.
Segmental Performance
Industrial Packaging: Sales for this segment increased 2% to $2.66 billion. Adjusted operating income declined 9% to $301 million.
Printing Papers: Sales remained flat at $1.55 billion compared to the year-earlier quarter. The segment’s adjusted operating income dipped 14% to $238 million from the year ago quarter.
Consumer Packaging: Sales increased to $955 million from $870 million in the year-earlier quarter. Adjusted operating profit was $103 million in the quarter versus $71 million in the year ago quarter.
Xpedx (Distribution Business): Sales for the segment dropped to $1.7 billion from $1.75 billion in the year-ago quarter. However, operating income of this segment increased 23% to $27 million.
Financial Position
Cash and cash equivalents of the company were $2.72 billion as of September 30, 2011, which increased from $2.40 billion as of June 30, 2011. Cash flow from operating activities improved substantially to $2.04 billion in the first nine months of 2011 compared with $587 million in the comparable period of 2010. As of June 30, 2011, the debt-to-capitalization ratio was 53.3% compared with 50.5% as of June 30, 2011.
Performance Of Competitors
International Paper competes with MeadWestvaco Corporation (MWV) and Weyerhaeuser Co. (WY). MeadWestvaco reported adjusted EPS of 70 cents in the third quarter, up from 62 cents in the year-ago period, beating the Zacks Consensus Estimate of 65 cents per share. Weyerhaeuser is yet to release its third quarter earnings.
Our Take
The company continues with its merger and acquisition strategy to strengthen its business for the long term. Recently, in a strategic bid to tap India’s growing paper and packaging market, the company completed the acquisition of a majority stake in leading Indian paper company Andhra Pradesh Paper Mills Limited. The company also finalized a deal to acquire Texas-based Temple-Inland in order to serve the North American container board market.
We expect International Paper to continue utilizing its sound cash flow by investing in capital projects, indulging in acquisitions and reducing its total debt. Its high debt levels and underfunded pension liability remain concerns as it curbs the company’s ability to ramp up its capital expenditure. Further margins remain under pressure due to input cost inflation. The shares of International Paper currently retain a Zacks #4 Rank (short-term Sell 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 five segments: Printing Papers, Industrial Packaging, Consumer Packaging, Distribution (Xpedx) and Forest Products.
INTL PAPER (IP): Free Stock Analysis Report
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WEYERHAEUSER CO (WY): Free Stock Analysis Report
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