International Paper (IP, Financial) is a global leader in the paper and packaging industry with manufacturing operations in the North America, Europe, Latin America, Russia, Asia and North Africa. International Paper, a Fortune 500 company, is known for its commitment to the environment and the communities it serves.
Its businesses include industrial and consumer packaging along with uncoated papers and pulp. Headquartered in Memphis, Tennessee, the company employs approximately 58,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper's net sales for 2014 were $24 billion.
International Paper produces top-quality coated and uncoated paperboard used by others in a wide variety of packaging and commercial printing applications. End uses for paperboard include packaging for food and beverages, pharmaceuticals, cosmetics, candy, food items, tobacco products and juice and milk cartons.
It is one of the most successful companies in the paper industry. It posted strong fourth-quarter results and is poised to grow. The company is committed to delivering strong results and remaining focused on long-term value creation for shareholders. Its transformation over the past decade has positioned IP well to compete successfully in global packaging, paper and pulp markets. It is continually adapting itself to the changing world economy. The company is now in a position to fully optimize the system in alignment with its strategy to selectively grow the industrial packaging business globally in attractive markets. This company is a buy.
The company is confident in its ability to continue to deliver consistent, robust-free cash flow and create long-term shareholder value despite a global macro environment that remains challenged. The global papers business also posted much-improved revenue year over year.
Strong fourth quarter
Full-year 2015 net earnings attributable to International Paper were $938 million or $2.23 per share (which was $555 million or $1.29 per share) in the prior year period. In the fourth quarter 2015, the company reported net earnings of $178 million or 43 cents per share, which was $134 million or 32 cents per share in the prior year quarter.
Full-year operating earnings were $1.5 billion or $3.65 per share (which was $1.3 billion or $3.00 per share in the prior-year quarter). Operating earnings during the fourth quarter totaled at $361 million or 87 cents per share (which was $227 million or 53 cents per share in the prior-year quarter).
Annual net sales totaled $22.4 billion in 2015 (which was $23.6 billion in the prior-year period). Net sales during the quarter were $5.4 billion (which was $5.9 billion in the prior-year quarter).
Full-year 2015 business segment operating profits were $2.7 billion (which was $2.8 billion in the prior-year period). Business segment operating profits in the fourth quarter of 2015 were $623 million (which was $694 million in the prior-year quarter).
Free cash flow was $1.8 billion for the full-year 2015 and $501 million during the fourth quarter.
Cash from operations was $2.6 billion for the full year and $990 million during the fourth quarter.
Net corporate expenses, excluding nonoperating pension expense, for the fourth quarter of 2015 were $9 million.
Effective tax rate during the fourth quarter was 32%.
Segmentwise performance
Industrial Packaging operating profits in the fourth quarter of 2015 were $441 million. (This was $553 million in the third quarter.)
Printing Papers operating profits during the fourth quarter were $144 million (which was $179 million in the third quarter of 2015).
Consumer Packaging operating profits were $38 million during the fourth quarter (which was $41 million in the third quarter).
International Paper recorded Ilim joint venture equity earnings of $34 million in the fourth quarter of 2015 compared with an equity loss of $9 million in the third quarter of 2015.
Strong attributes of the fourth quarter
- Strong earnings and cash flows.
- North American Industrial Packaging business performed well on seasonally higher sales and increased margins.
- Operations around the globe ran well.
- International Paper finished the year strong with record ROIC of 11%, well above the company’s cost of capital and the highest earnings per share in 20 years.
- Seasonally higher volumes and price increases in Brazil, Russia and Europe.
- Strong sales and production results at Ilim.
Focus at the moment
- Continued strong cost savings.
- Free cash flow productivity.
- Product innovation.
- Improvement in top-line growth.
- Operating profit margin expansion.
- Sales growth.
Focus areas for 2016
- Continue to improve N.A. industrial packaging business.
- Asia Industrial Packaging sale.
- Capital allocation to create value.
- Optimize N.A. Paper commercial opportunities and mix.
Strategy
- Operational excellence.
- Operate in key markets where it can grow profitably.
- Leadership positions in scale businesses.
On a concluding note
International Paper has been named by Fortune magazine as one of "America's Most Admired Companies." This is International Paper's 12th time in the last 13 years to make the list. It has been recognized as one of 2015's World's Most Ethical Companies by the Ethisphere Institute, an independent center of research that promotes best practices in corporate ethics and governance. The World's Most Ethical Companies recognizes those organizations that have had a material impact on the way business is conducted by fostering a culture of ethics and transparency at every level of the company. This is the ninth straight year that International Paper has been honored with this award, which recognizes organizations that continue to raise the bar on ethical leadership and corporate behavior.
Disclosure: I do not hold any position in the company.
