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International Paper (IP) Down 6.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
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A month has gone by since the last earnings report for International Paper (IP). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is International Paper due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

International Paper Beats on Q1 Earnings, Misses on Sales

International Paper delivered first-quarter 2019 adjusted earnings of $1.11 per share, up 18% year over year. The bottom-line figure also outpaced the Zacks Consensus Estimate of 91 cents.

Including one-time items, earnings in the first quarter came in at $1.05 compared with the year-ago quarter’s $1.74.

Net sales improved to $5,643 million in the reported quarter from $5,621 million recorded in the year-ago quarter. The reported figure, however, missed the Zacks Consensus Estimate of $5,741 million.

Adjusted cost of sales was $3,956 million, down from $3,966 million recorded in the prior-year quarter. Adjusted gross profit climbed 2% year over year to $1,687 million. Selling and administrative expenses dropped 2% year over year to $413 million in the quarter. Adjusted operating earnings of $447 million indicated a year-over-year improvement of 13%.

Segment Performance

Industrial Packaging: Sales in this segment increased to $3,832 million from $3,827 million in the year-ago period. Adjusted operating profit declined 9% year over year to $421 million.

Printing Papers: This segment’s sales were $1,065 million in the reported quarter, up 1.1% from $1,053 million in the year-earlier quarter. Adjusted operating profit for the segment was $144 million compared with $64 million recorded in the year-ago quarter.

Global Cellulose Fibers: Sales of this segment came in at $689 million compared with $677 million posted in the prior-year quarter. The segment’s adjusted operating profit increased to $35 million from $15 million in the year-ago quarter.

Balance Sheet

Cash and temporary investments aggregated $641 million at the end of the first quarter compared with $589 million at the end of the 2018-end. As of the quarter’s end, long-term debt was $9,965 million compared with $10,015 million as of Dec 31, 2018.
 
Cash flow from operating activities was $733 million in the reported quarter compared with $663 million witnessed in the prior-year period. Free cash flow was $440 million during the January-March quarter compared with the year-earlier quarter’s $174 million.

International Paper returned $400 million to shareholders through dividends and share repurchases during the March-end quarter.

The company projects improved seasonal demand in the ongoing quarter. It is also well poised to generate strong cash flows in 2019.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -8.25% due to these changes.

VGM Scores

At this time, International Paper has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

International Paper has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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