Overview: Third Point Partners' positions in 2Q14 (Part 8 of 8)
Third Point Partners and International Paper
Dan Loeb’s Third Point Partners added new positions in Ally Financial (ALLY-B), Rackspace Hosting (RAX), IAC/InterActiveCorp (IAC), and FMC Corp. (FMC) last quarter. Notable exits included Verizon Communications (or VZ), Cabot Oil & Gas (or COG), and International Paper (IP).
Third Point Partners exited its position in International Paper Co. (IP) last quarter. It accounted for 1.98% of the fund’s total first quarter portfolio.
International Paper is a global paper and packaging company. It’s complemented by an extensive North American merchant distribution system. It has primary markets and manufacturing operations in North America, Europe, Latin America, Russia, Asia, Africa, and the Middle East.
At the end of 2013, it operated 25 pulp, paper, and packaging mills,181 converting and packaging plants, 18 recycling plants, and three bag facilities in the U.S. The international papers industry segments are Industrial Packaging, Printing Papers, Consumer Packaging, and Distribution Businesses.
It’s the largest manufacturer of containerboard in the U.S. Its products include linerboard, medium, whitetop, recycled linerboard, recycled medium, and saturating kraft. It’s also one of the world’s leading printing and writing paper producers.
In North America, International Paper is a leading producer of solid bleached sulfate (or SBS), also known as coated paperboard. It’s used in a wide range of packaging and commercial printing applications.
IP has exited non-strategic businesses
Over the years, International Paper has been restructured. It also exited non-core businesses. News reports noted that the company has diversified itself into emerging markets. It has worked to counter the declining need for copy paper in North American.
IP continually evaluates its operations for improvement opportunities. IP focuses its portfolio on its core businesses. It rationalizes and realigns its capacity to operate fewer facilities with the same revenue capability. It closes high-cost facilities and reduces costs.
IP signed a definitive agreement to merge its distribution company, xpedx, with Unisource Worldwide Inc. in January, 2014. The merger formed an independent, publicly-traded company. As part of this transaction, IP said that it will receive a dividend of ~$400 million from the new company. The unit accounted for ~22% of IP’s $27.83 billion revenue in 2013.
IP’s second quarter profit
IP posted earnings of $161 million—or $0.37 per share—compared with a net loss of $95 million—or $0.21 per share—in 1Q14. However, it was down from net earnings of $259 million—$0.57 per share—in 2Q13. Quarterly net sales were $7.2 billion compared to $7 billion in 1Q14 and $7.3 billion in 2Q13.
In its 10Q filing, the company said that “The 2014 second quarter reflected sequential improvements in volumes, operations and input costs associated with the non-repeat of the significant adverse weather events that impacted much of the U.S. in the 2014 first quarter. Its North American Industrial Packaging business also had higher volumes associated with seasonal demand increases.”
The company also said that while input costs remain relatively high, its North American industrial packaging, printing papers, and pulp businesses experienced lower input costs compared to 1Q14—particularly lower energy costs.
Maintenance outages were higher than 1Q14. There were significant outages in its North American industrial packaging, printing papers, and pulp businesses. There were also outages in the European printing papers businesses.
For its Russian Ilim joint venture, the continued improvements in operational performance were offset by lower pulp prices in China.
Authorizes $1.5 billion share buyback plan
In its 2013 annual report, IP said that it believes its current global footprint positions it for significant and sustained growth in free cash flow. The free cash flow will be used for dividends and share repurchases.
The company recently authorized management to acquire additional shares up to $1.5 billion. The shares would supplement the $1.5 billion share repurchase program that it authorized in September 2013. It also declared a quarterly dividend of $0.35 per share.
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