International Paper Company (IP, Financial), a global paper and packaging company, reported decent fourth-quarter and full-year 2016 results.
Net earnings increased during the fourth quarter; 2016 was marked by strong cash flow generation. The four segments ended the quarter with operating profits.
Fourth quarter and full-year performance
In the fourth quarter of 2016, the company reported net earnings of $218 million or 53 cents per share ($178 million or 43 cents per share in the prior-year quarter).
Net earnings attributable to International Paper for the full year were $904 million or $2.18 per share ($938 million or $2.23 per share in the prior-year period).
Adjusted operating earnings in the fourth quarter of 2016 totaled $303 million or 73 cents per share ($361 million or 87 cents per share in the prior-year quarter).
Full-year 2016 adjusted operating earnings were $1.4 billion or $3.35 per share ($1.5 billion or $3.65 per share in the prior-year period).
Net sales during the quarter were $5.4 billion ($5.4 billion in the prior-year quarter). Annual net sales totaled $21.1 billion in 2016 ($22.4 billion in the prior-year period).
Business segment operating profits in the fourth quarter of 2016 were $464 million ($483 million in the prior-year quarter).
Business segment operating profits during the full year were $2.2 billion ($2.4 billion in the prior-year period).
Cash provided by operations during the full year was $2.5 billion.
Cash provided by operations in the fourth quarter was $912 million.
Non-GAAP free cash flow in the fourth quarter was $467 million. Non-GAAP free cash flow for the full year was $1.9 billion.
Net corporate expenses during the quarter were $11 million.
Effective tax rate during the fourth quarter was 38.6%.
Segmentwise results
Industrial packaging – Operating profits in the fourth quarter of 2016 were $372 million. Sales during the fourth quarter were $3.559 billion (which was $3.595 billion in the prior-year quarter).
Global cellulose fibers – Operating loss in the fourth quarter of 2016 was $70 million. Sales during the fourth quarter were $379 million ($244 million in the prior-year quarter).
Printing papers – Operating profits were $121 million in the fourth quarter of 2016. Sales during the fourth quarter were $1.055 billion ($1.052 billion in the prior-year quarter).
Consumer packaging – Operating profits during the fourth quarter were $41 million. Sales during the fourth quarter decreased to $464 million.
Dividend
The company declared a quarterly dividend of 46.25 cents per share for the period from Jan. 1 to March 31 inclusive, on its common stock, par value $1.00. This dividend is payable on March 15 to holders of record at the close of business on Feb. 15. (Source: company’s web site)
Focus
- Productivity improvements.
- Cost curtailment.
- Margin improvement.
- Product innovation.
Conclusion
This leading pulp and paper supplier has its primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. It has maintained a strong balance sheet and is strengthening its dividend policy. It is engaging in strategic investments to generate long-term value. With strong positions in appealing markets, it is positioned to serve the customers well.
Headquartered in Memphis, Tennessee, the company was featured in Fortune magazine’s “World’s Most Admired Companies 2016.” It employs around 55,000 people in more than 24 countries. The company has been known to increase dividends since 2012. It boasts of a sound financial position and growth in emerging markets. It is making its presence felt in fast growing markets like China, since the emerging markets are potential for the company’s success. It is selling the unprofitable businesses and is buying Weyerhaeuser's (WY, Financial) pulp operations for $2.2 billion. Management expects synergies worth $175 million by the end of 2018. These will add to the company’s profitability in the long run.
The company is generating healthy returns and substantial free cash flow. It returned value above cost of capital. The company plans to improve profitability. The synergies achieved from the acquisition of the pulp business are fueling the company to move forward. It has a systematic approach toward capital allocation and is focused on debt reduction steps. Adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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