What Did the First Week of May Bring for the Consumer Sector?
International Paper (IP) fell by 2.7% to close at $42.10 per share at the end of the first week of May 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -2.7%, 6.3%, and 13.1%, respectively. This means that IP is trading 0.30% below its 20-day moving average, 3.9% above its 50-day moving average, and 5.6% above its 200-day moving average.
A related ETF and peers
The Guggenheim Timber ETF (CUT) invests 4.0% of its holdings in International Paper. The ETF tracks the Beacon Global Timber Index, an index that uses a multifactor selection process to identify the global timber stocks with the greatest risk and return potential. The YTD price movement of CUT was -1.9% on May 6, 2016.
The market caps of International Paper’s competitors are as follows:
- Packaging Corporation of America (PKG) – $6.1 billion
- Domtar (UFS) – $2.3 billion
- KapStone Paper and Packaging (KS) – $1.4 billion
Performance of International Paper in fiscal 1Q16
International Paper reported fiscal 1Q16 net sales of $5.1 billion, a fall of 7.4% from the net sales of $5,5 billion in fiscal 1Q15. Sales from the industrial packaging, printing paper, and consumer packaging segments fell by 2.8%, 3.6%, and 36.4%, respectively, between fiscals 1Q15 and 1Q16. It reported net losses on sales and impairment of businesses of $37.0 million in fiscal 1Q16.
Its net income and EPS (earnings per share) rose to $334.0 million and $0.81, respectively, in fiscal 1Q16, compared with $313.0 million and $0.74 in fiscal 1Q15.
International Paper’s cash and temporary investments rose by 10% and its inventories fell by 0.49% between fiscals 1Q15 and 1Q16. In fiscal 1Q16, its current ratio rose to 1.66x and its long-term debt-to-equity ratio fell to 2.1x, compared with the current and long-term debt-to-equity ratios of 1.65x and 2.3x, respectively, in fiscal 4Q15. It reported a free cash flow of $311.0 million in fiscal 1Q16.
On May 3, 2016, Jefferies downgraded International Paper to “hold” from “buy” and reduced the price target to $47 from $51 per share. On April 28, 2016, Credit Suisse downgraded the stock to “neutral” from “outperform.”
International Paper has entered into an agreement to acquire Weyerhaeuser’s pulp business. It will acquire five pulp mills and two converting facilities. These facilities produce fluff pulp, softwood pulp, and specialty pulp for a large number of consumer products such as diapers, other hygiene products, tissue, and textiles.
This transaction is a purchase of assets, so the company expects a tax benefit with the net present value of ~$300 million. Including this tax benefit, the net price of this transaction is ~$1.9 billion. This transaction will be closed in fiscal 4Q16. It has forecast the annual synergies of ~$175 million by the end of 2018.
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