International Paper's 2Q Earnings Beat

Zacks

International Paper (IP) reported second quarter 2013 earnings of $259 million or 57 cents per share compared with $134 million or 31 cents per share in the year-earlier quarter. The year-over-year increase in earnings was driven by seasonally stronger volumes and solid operating performance in most of its segments despite higher planned maintenance outage costs. The reported earnings exceeded the Zacks Consensus Estimate by a couple of cents.

Excluding one-time items, operating earnings for the reported quarter were $288 million or 64 cents per share, versus $232 million or 53 cents per share in the year-ago quarter.  

Net sales for the reported quarter were $7.3 billion versus $7.1 billion in the year-ago quarter.  The year-over-year increase in sales was attributable to stellar contribution from all the operating segments, barring the Distribution business. However, the quarterly sales missed the Zacks Consensus Estimate of $7.4 billion.

Segment Performance

Industrial Packaging: Sales for this segment increased 9.6% year over year to $3.8 billion. Operating income stood at $474 million in the reported quarter versus $260 million in the year-ago quarter. The increase in this segment was driven by higher selling prices for boxes and containerboard, more box shipments and lower operating costs in North America; offset partially by a weak demand in Europe.

Printing Papers: Sales improved 2.0% year over year to $1.5 billion in the reported quarter, while operating income declined to $76 million from $104 million in the prior-year period. The dip in operating income was driven by higher maintenance outage expenses in North America and Europe, and the establishment of a reserve ($28 million) to cover potential credit exposure related to the National Envelope bankruptcy.

Consumer Packaging: Sales increased 9.6% year over year to $855 million. Operating profit dipped to $51 million from $57 million in the year-ago quarter. The segment performance was affected by annual outage costs in both North America and Europe, partially offset by higher sales volumes and lower manufacturing costs in North America.

Xpedx (Distribution Business): Sales for the segment plummeted 6.3% year over year to $1.4 billion. The segment reported break-even results versus an operating profit of $5 million in the year-ago quarter largely due to strategic restructuring efforts.

Balance Sheet

Cash and temporary investments at quarter-end aggregated $1.2 billion. Cash flow from operating activities stood at $1.3 billion, while long-term debt was $9.1 billion.

International Paper recorded Ilim Joint Venture equity losses of $34 million in the reported quarter versus equity losses of $11 million in first quarter 2013.

Outlook

International Paper expects to further improve its performance in the remainder of the year to complement is strong second quarter results. Although the company did not provide any specific guidance, we remain impressed by the robust performance of the company during the quarter that witnessed a healthy top- and bottom-line growth.

International Paper currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering in the industry include Rock-Tenn Company (RKT) and KapStone Paper and Packaging Corp. (KS), both carrying a Zacks Rank #1 (Strong Buy), and Resolute Forest Products Inc. (RFP) that retains a Zacks Rank #2 (Buy).

Read the Full Research Report on IP

Read the Full Research Report on RKT

Read the Full Research Report on RFP

Read the Full Research Report on KS

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