Leading packaging and paper manufacturer International Paper Company (IP) is scheduled to report its third-quarter 2014 results before the opening bell on Nov 4. In the last reported quarter, International Paper’s operating earnings comfortably beat the Zacks Consensus Estimate by 13 cents. Let’s see how things are shaping up for this announcement.
Key Factors in the Third Quarter
During the quarter, International Paper completed the spin-off of its struggling xpedx distribution business as part of its corporate strategy to divest non-core operations and focus on the traditional industrial packaging businesses.
The company also recently increased its quarterly dividend by 14% year over year to 40 cents per share. This is the third consecutive double-digit dividend hike for International Paper in three years.
Over the years, International Paper has consistently returned significant cash to its shareholders through dividends and share repurchases. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the broader industry.
However, International Paper’s failure to realize synergies from acquisitions has negatively impacted its earnings. International Paper also divested Temple-Inland's mills in Ontario, CA and New Johnsonville, TN, and its existing mill in Hueneme, CA. This has reduced some of the positives from the Temple-Inland acquisition.
In addition, the company has a huge burden of pension obligations for substantially all U.S. salaried employees hired prior to Jul 1, 2004 and largely all hourly and union employees regardless of hire date. This is likely to be a drag on its earnings.
Earnings Whispers
Our proven model conclusively shows that International Paper is likely to miss earnings this quarter as it does not possess the key ingredients for a success recipe.
Negative Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -2.27%%. This indicates a likely earnings miss for the shares.
Zacks Rank #4 (Sell): International Paper’s Zacks Rank #4 combined with a negative ESP makes an earnings miss highly likely. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 (Hold) have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Kemper Corp. (KMPR), earnings ESP of +13.33% and a Zacks Rank #2.
Loews Corp. (L), earnings ESP of +10.45% and a Zacks Rank #3.
Nationstar Mortgage Holdings Inc. (NSM), earnings ESP of +3.81% and a Zacks Rank #3.
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