Global paper giant International Paper (IP, Financial) reported modest fourth quarter and full year 2016 results. Being one of the most successful companies in the paper industry, the company ended the quarter with strong cash generation.
The packaging industry has a lot of potential in the emerging markets like India, Brazil and China. International Paper will benefit from these parts of the world. It ended the quarter with the acquisition of Weyerhaeuser’s (WY, Financial) pulp business for $2.2 billion.
Fourth-quarter performance
Net earnings during the quarter were $218 million or 53 cents per share, which was $178 million or 43 cents per share in the prior-year quarter.
Adjusted operating earnings in the fourth quarter of 2016 were $303 million or 73 cents per share, which was $361 million or 87 cents per share in the prior-year quarter.
Net sales during the quarter were $5.4 billion, which was $5.4 billion in the prior-year quarter.
Business segment operating profits in the fourth quarter of 2016 were $464 million, which was $483 million in the prior-year quarter.
Cash provided by operations was $912 million in the fourth quarter of 2016.
Free cash flow (non-GAAP) was $467 million in the fourth quarter of 2016.
Effective tax rate during the fourth quarter of 2016 was 38.6%.
Net corporate expenses during the quarter were $11 million.
Segmentwise performance
- Industrial packaging:Â Operating profits in the fourth quarter of 2016 were $372 million.
- Global cellulose fibers:Â Operating loss in the fourth quarter of 2016 was $70 million.
- Printing papers:Â Operating profits were $121 million in the fourth quarter of 2016.
- Consumer packaging:Â Operating profits were $41 million in the fourth quarter of 2016.
Full-year performance
Full-year 2016 adjusted operating earnings were $1.4 billion or $3.35 per share (which was $1.5 billion or $3.65 per share in the prior-year period).
Full-year 2016 business segment operating profits were $2.2 billion (which was $2.4 billion in the prior year period).
Annual net sales totalled at $21.1 billion in 2016 (which was $22.4 billion in the prior-year period). The reason for this decline was the sale of the IP-Sun joint venture and the Asian Corrugated Packaging business as well as the sale of the Carolina Coated Bristols business.
Cash provided by operations was $2.5 billion.
Non-GAAP free cash flow was $1.9 billion.
Focus
- Cost curtailment.
- Innovation.
- Strong operations and margin improvement.
- Integrating the newly acquired pulp business and driving synergies.
- Debt reduction.
- To increase productivity and efficiency.
- Managing capital spending.
- Maintaining a strong balance sheet.
Conclusion
Headquartered in Memphis, Tennessee, the company has its presence felt in North America, Europe, Latin America, Russia, Asia and North Africa. This global leader in renewable fiber-based packaging, pulp and paper products is a Fortune 500 company. Located in more than 24 countries, it employs about 55,000 people.
In 2017, the company expects higher margins and earnings from the North American Industrial Packaging business due to price increases and growing customer demand. It plans to increase earnings from the European Industrial Packaging business by the second half of this year. It is focused on improving the overall product mix and earnings from the global cellulose fibers business.
2016 was a strong year for the company, marked by strong cash generation and returns solidly above the cost of capital. Since 2009, it has been increasing dividends. It is aligning itself with its strategy to selectively grow the industrial packaging business globally in attractive markets. The company is expanding its position in attractive, fiber-based market segments. It is focused on generating strong free cash flow and making investments for future growth.
The company is pursuing value-creating opportunities. Adding it may reap shareholder returns.
Disclosure: I do not hold any position in the company.
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