International Paper Tops Estimates - Analyst Blog

International Paper Co. (IP) delivered adjusted earnings per share (EPS) of 68 cents for the fourth quarter ended December 31, 2010, beating the Zacks Consensus Estimate of 65 cents per share. The reported quarter's EPS was more than double that of the year-ago quarter's 24 cents.

Both the reported quarter and the year ago quarters' EPS did not include any special items. The fourth quarter of fiscal 2010 EPS excluded a benefit of 5 cents per share and the year ago quarter excluded special items of 48 cents per share. Including these, International Paper's fourth quarter EPS was 73 cents, a reversal from the loss per share of 24 cents in the prior year quarter.

Revenues of $6.5 billion were ahead of the Zacks Consensus Estimate of $6.4 billion. Revenues increased 9% year over year, driven by growth across all of its segments.

Adjusted cost of sales increased 6% year over year to $4.75 billion, and, as a percentage of revenues, it improved 200 basis points to 73% in the year-ago quarter. Adjusted selling, general and administrative expenses increased 11% year over year to $533 million, and, as a percentage of sales, it contracted 20 basis points to 8.2%. Adjusted operating profit in the quarter was $580 million in the quarter compared with $321 million in the prior year quarter.

Segment Performance

The Industrial Packaging segment posted a revenue growth of 16% year over year to $2.57 billion. Its adjusted operating profit was $274 million, up 226% year over year.

The Printing Papers segment's revenue inched up 1% year over year to $1.54 billion. The segment's adjusted operating profit was $236 million, an increase of 70% year over year.

Consumer Packaging posted revenues of $880 million in the quarter, up 12% year over year. The segment's adjusted operating profit was $64 million, a 31% growth over $49 million in the year-ago quarter.

The company's Distribution business, xpedx, reported a 6% year-over-year growth in revenues to $1.77 billion. Its operating profit dipped 71% year over year to $9 million.

Earnings at Forest Products were not meaningful as International Paper sold the remaining land portfolio in North America during the third quarter of 2010.  Beginning in 2011, Forest Products will no longer be reported as a separate industry segment.

Fiscal 2010 Performance

International Paper's adjusted EPS for fiscal 2010 was $2.05 compared with 88 cents in fiscal 2009, and ahead of the Zacks Consensus Estimate of $2.02 per share. Fiscal 2010 EPS excluded a special item of 57 cents per share and fiscal 2009 adjusted EPS excluded a gain of 67 cents per share.

Including these special items, fiscal 2010 EPS was $1.48 compared with $1.55 in fiscal 2009. Revenue during the year increased 8% to $25.2 billion and was above the Zacks Consensus Estimate of $25 billion.

Financial Position

As of December 31, 2010, International Paper had cash and cash equivalents of $2.1 billion, down from $1.43 billion as of September 30, 2010. During the year, the company generated cash flows from operating activities of $1.6 billion, down from $4.6 billion in fiscal 2009.

The company repaid $350 million of debt during 2010 and contributed $1.2 billion toward its pension plan.  As of December 31, 2010, the debt-to-capitalization ratio improved to 55.9% from 57.9% as of September 30, 2010.

Peer Comparison

International Paper competes with MeadWestvaco Corporation (MWV) and Weyerhaeuser Co. (WY). MeadWestvaco recently reported adjusted EPS of 41 cents in its fiscal fourth quarter, beating the Zacks Consensus Estimate by a penny.

The EPS was more than double of 20 cents in the prior-year quarter. The company delivered net sales of $1.49 billion surpassing $1.45 billion in the year-ago quarter. However, sales fell short of the Zacks Consensus Estimate of $1.53 billion.

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. We currently have a Zacks #3 Hold (short-term Hold recommendation) on the stock.

 
INTL PAPER (IP): Free Stock Analysis Report
 
MEADWESTVACO CP (MWV): Free Stock Analysis Report
 
WEYERHAEUSER CO (WY): Free Stock Analysis Report
 
Zacks Investment Research