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International Paper (IP) Q4 Earnings: What's in the Cards?

Zacks Equity Research

International Paper Company IP is scheduled to report fourth-quarter 2018 results, before the opening bell on Jan 31.
In third-quarter 2018, the company delivered adjusted earnings per share of $1.56, up 54% year over year. Total revenues increased 7% year over year to $5,901 million in the quarter. The company beat the Zacks Consensus Estimate for both the counts.
In fact, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average surprise of 6.91%. Let’s see how things are shaping up prior to this announcement.

Shares of International Paper have lost 28.6% in the past year, compared with the industry’s decline of 37.5%.

Factors to Consider

International Paper's North American Industrial Packaging business outperformed industry shipments in the first three quarters of 2018. The company is witnessing strong demand across all channels and has realized about 90% of its recent box price increase in the third quarter.

The Zacks Consensus Estimate for the Industrial Packaging segment is currently pegged at $4,028 million, reflecting a 3.5% rise year over year. The segment’s operating profit for the quarter is projected to improve 9.7% to $668 million from $609 million in the year-ago quarter.

Revenues at the Printing Papers segment are expected to rise 1.4% from the prior-year quarter to $1,121 million. The segment’ operating profit is estimated at $174 million for the fourth quarter, indicating an increase of 28% from $136 million a year ago.
At the Global Cellulose Fibers business, the company delivered record fluff pulp shipments in the third quarter.  Product introductions at the fluff pulp segment as well as the company’s optimization initiatives are likely to drive results. For the Global Cellulose Fibers segment, the Zacks Consensus Estimate for revenues is pegged at $750 million, calling for year-over-year rise of 4%. The segment’s operating profit is pegged at $92 million.

The Zacks Consensus Estimate for total sales of $5,856 million for the quarter to be reported indicates an increase of 2.5% from the prior-year quarter.

However, Hurricane Florence had a negative impact of $36 million on International Paper’s third-quarter results, which included $8 million in volume and $28 million in operations. The company expects a $15 million impact in the fourth quarter, mostly in the Global Cellulose Fibers business.
The company depends heavily on raw materials such as wood fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain chemicals, including caustic soda and starch, and energy sources, principally natural gas, coal and fuel oil. Elevated input costs are likely to limit margins in the near term. Further, distribution costs have been on the rise of late due to very tight truck and rail availability, and higher diesel fuel costs. This is likely to affect margins in the near term. Moreover, the company is set to incur elevated operational costs in the Printing Papers, primarily because of unfavorable foreign currency translation.
The Zacks Consensus Estimate for International Paper’s earnings has gone down 1.2% over the past 30 days and is pegged at $1.61 for the fourth quarter. Nevertheless, the earnings estimate reflects year-over-year growth of around 26.7%.

International Paper Company Price and EPS Surprise


International Paper Company Price and EPS Surprise | International Paper Company Quote


Earnings Whispers
Our proven model does not conclusively show a beat for International Paper this earnings season as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.
Earnings ESP: The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $1.57 and $1.61, respectively, resulting in an Earnings ESP of -2.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: International Paper has a Zacks Rank #4 (Sell).
Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies that you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

B2Gold Corp. BTG has an Earnings ESP of +12.50% and carries a Zacks Rank #3.

Ryerson Holding Corporation RYI has an Earnings ESP of +48.34% and carries a Zacks Rank #3.

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