International Paper Shares Rise on Earnings Beat
Shares of the world's largest pulp and paper company are up more than 2.3% after posting better-than-expected earnings for the most recent quarter.
International Paper Co. (NYSE:IP) reported third-quarter results before the opening bell on Thursday, beating analysts' estimates of $1 with adjusted earnings of $1.09 per share.
Shares are currently up just under 6% year to date, which is dismal given the S&P 500 Index has gained more than 21% over the same period. However, this could also be an indication that despite the company's 3.5% gain over the last three days, there is still room to run going into the end of the year.
So do the company's latest results signal a bullish outlook?
International Paper's earnings beat the consensus estimate, but it was a significant decline compared to the adjusted earnings of $1.56 per share reported in the prior-year quarter. Shareholders will be looking at the company's improvement on the cash balances, which stood at $2.7 billion year to date, compared to $2.4 billion in the same period last year.
We should also add that International Paper already increased its dividend for the year while at the same time giving back more than $685 million to shareholders via share repurchases over the last 12 months. More than $74 million of that was paid during the most recent quarter.
The company's ability to generate cash flows stands out after posting $882 million in cash from operations during the third quarter. This is one of the reasons International Paper has boosted the value of its dividend in each of the last five years. Currently, the company's trailing 12-month dividend of $2.12 per share yields 4.69%, while the payout rate is just under 50%, which signifies characteristics of a good dividend growth stock.
International Paper has been very efficient in cutting costs, which is why the bottom line continues to impress despite a significant decline in sales. In the third quarter, the company's top line declined to $5.568 billion from $5.901 billion the year prior. It also missed analysts' expectations of about $5.730 billion.
The company's revenue has grown in each of the last two years through 2018 after slowing in 2016, but this year, another decline appears to be on the cards. International Paper is in the process of divesting its Indian subsidiary after announcing the sale of 21,873,521 shares in an $85 million deal. The company will pursue alternative options to divest its remaining 20% stake (7,954,008 shares). This will improve its cost efficiencies as it adjusts to what management called a "challenging global environment" in the earnings conference call.
From a valuation perspective, shares of International Paper currently trade at a price-earnings ratio of about 11.11, which is better than Packaging Corp of America's (NYSE:PKG) price-earnings ratio of 13.56 and WestRock Co.'s (NYSE:WRK) ratio of 14.07. The company's return on equity of 21% is also better than the packaging industry's average of 15%.
In summary, International Paper appears to be competitively valued. Its impressive dividend payment history, coupled with the ongoing share repurchase program, should give shareholders a reason to be optimistic despite a subdued performance going into the tail-end of the year.
Disclosure: No positions in the stocks mentioned.
Read more here:
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
This article first appeared on GuruFocus.
