International Paper Company (IP) reported fourth quarter 2013 operating earnings with a solid performance and a healthy margin expansion across key businesses. Excluding one-time items, operating earnings in the reported quarter totaled $367 million or 83 cents per share compared with $305 million or 69 cents in the year-ago quarter.
Excluding one-time items, operating earnings for full year 2013 were $1.4 billion or $3.16 per share compared with $1.2 billion or $2.65 per share in the prior year.
Net income for the reported quarter was $436 million or 98 cents per share compared with $235 million or 53 cents per share in the year-earlier quarter. The quarterly net earnings beat the Zacks Consensus Estimate of 87 cents per share.
Net income for full year 2013 was $1.4 billion or $3.11 per share compared with $794 million or $1.80 per share in the prior year. The full-year net earnings missed the Zacks Consensus Estimate of $3.21 per share
Net sales for the reported quarter were $7,249 million versus $7,075 million in the year-ago quarter. However, the quarterly sales missed the Zacks Consensus Estimate of $7,371 million.
Net sales for full year 2013 were $29,080 million versus $27,833 million in the prior year. However, the full-year sales missed the Zacks Consensus Estimate of $29,194 million. The year-over-year increase in sales was attributable to stellar contribution from the Industrial Packaging and Consumer Packaging segments.
Segment Performance
Industrial Packaging: Sales from this segment increased 9.9% year over year to $3,715 million in the reported quarter. Operating income stood at $473 million (including special items) in the reported quarter versus $336 million in the year-ago quarter. The increase in year-over-year operating income was driven by complete realization of containerboard price increase.
Printing Papers: Sales were down 0.6% year over year to $1,570 million in the reported quarter, while operating loss was $47 million versus operating income of $147 million in the year-ago quarter. The dip in operating income was driven by lower sales volume and higher outages.
Consumer Packaging: Sales from this segment increased 6.1% year over year to $865 million. Operating profit was $30 million versus $41 million in the year-ago quarter. The decrease in operating profit was driven by maintenance outage expenses and lower volume.
xpedx (Distribution Business): Sales for the segment declined 7.5% year over year to $1.4 billion. The segment reported an operating loss of $397 million versus an operating income of $4 million in the year-ago quarter largely due to lower demands.
Balance Sheet
Cash and temporary investments aggregated $1.8 billion at year end. Cash flow from operating activities stood at $3.0 billion as of Dec 2013, while long-term debt was $8.8 billion.
International Paper recorded Ilim Joint Venture equity losses of $12 million in the reported quarter versus equity earnings of $11 million in third quarter 2013.
Other
At the end of the quarter, International Paper announced that its distribution business xpedx will merge with a distribution solution company Unisource Worldwide, Inc. to form a new publicly traded company. The merger is expected to close in the middle of 2014.
The transaction will happen in a Reverse Morris Trust structure, which is used when a parent company has a subsidiary that it wants to sell in a tax-efficient manner. International Paper will receive $400 million in cash and contribute the assets of xpedx to a newly formed wholly-owned subsidiary called xpedx Holding Company. The subsidiary will be spun off into a new company. Following the spin off, UWW Holdings, the parent company of Unisource Worldwide, will merge with xpedx Holding Company. International Paper will own 51% of the new company and UWW Holdings will own the remaining stake.
The newly formed publicly traded company is expected to create an enhanced platform for profitable growth across packaging, print and facility solutions. Post merger, the new company is expected to have annual revenue in the range of $9 billion to $10 billion and generate approximately $200 million in synergies. The new company is likely to accelerate and enhance top-line growth opportunities and provide customers with innovative solutions in product packaging, paper and print management, supply chain and logistics services and facility solutions
Outlook
Although the company did not provide any specific guidance, we remain impressed by the robust performance of the company during the quarter that witnessed a healthy top- and bottom-line growth. The company also remains bullish about its performance in 2014.
Share prices dipped in pre-market trading as investors probably expected a more positive outlook from the company with a healthy beat in earnings.
International Paper currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth a look include Resolute Forest Products Inc.(RFP), Rexam plc (REXMY) carrying a Zacks Rank #1 (Strong Buy) and PH Glatfelter Co (GLT) carrying a Zacks Rank #2 (Buy).
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