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, Tenn., 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 third quarter results and is poised to grow. The company is committed to delivering strong results and remaining focused on long-term value creation for the 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.
"International Paper delivered another strong performance in the third quarter, highlighted by 25% EBITDA margins in our North American Industrial Packaging business," said Mark Sutton, chairman and chief executive officer. "We remain confident in our ability to continue to deliver consistent, robust free cash flow and create long-term shareholder value despite a global macro environment that remains challenged."
Strong third quarter
IP reported third quarter 2015 net earnings of $220 million (53 cents per share), which was $355 million (83 cents per share) in the prior year quarter.
Operating earnings were $407 million (97 cents per share) in the third quarter of 2015, which was $409 million (95 cents per share) in the prior year quarter.
Quarterly net sales were $5.7 billion ($6.1 billion in the third quarter of 2014).
Business segment operating profits before special items in the third quarter of 2015 were $773 million ($840 million in the third quarter of 2014).
Free cash flow was $512 million in the third quarter.
Cash from operations was $837 million.
Industrial Packaging's operating profits during the quarter were $553 million ($528 million in the second quarter). In North America, earnings were higher due primarily to lower planned maintenance outage costs, partially offset by lower export pricing and higher input costs.
Printing Papers' operating profits were $179 million during the current quarter ($101 million in the second quarter). Earnings in North America were higher due to increased volume, strong operations and lower planned maintenance outage expenses. In Brazil, earnings improved primarily due to seasonally higher volume in the domestic Brazilian market and strong results on export sales.
Consumer Packaging's operating profits were $41 million (a loss of $153 million including special items) during the present quarter ($34 million in the second quarter). In North America, improved manufacturing operations and lower planned maintenance outage costs were partially offset by weaker commercial conditions, which resulted in increased market-related downtime, slightly lower prices and a less favorable mix. Earnings in Europe were higher mainly due to increased volume and lower planned maintenance outage costs.
Net corporate expenses, excluding nonoperating pension expense, for the third quarter were $10 million ($8 million in the second quarter).
The effective tax rate during the third quarter was 33% (33% in the second quarter).
Strong attributes of the third quarter
- Strong earnings and cashflows.
- North American Industrial Packaging business performed well on seasonally higher sales and increased margins.
- Operations around the globe ran well.
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.
On a concluding note
2014 was a successful year for International Paper as it generated $2.1 billion of free cash flow, record cash from operations and record earnings from its industrial packaging business. It completed the successful spinoff of xpedx (International Paper's distribution solutions business), from which it received more than $400 million in cash payments. The global papers business also posted much-improved revenue year over year.
IP 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.
