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What's in Store for International Paper's (IP) Q2 Earnings?

Zacks Equity Research

 International Paper Company IP is scheduled to report second-quarter 2019 results, before the opening bell on Jul 25.

International Paper is well placed to gain from favorable demand trends across all its segments, restructuring initiatives and investment in high-return capital projects. However, the second-quarter results will be affected by lower price, and unfavorable mix and maintenance outages in its segments.
 
Let’s see how things are shaping up prior to this announcement.

International Paper Company Price and EPS Surprise

International Paper Company Price and EPS Surprise

International Paper Company price-eps-surprise | International Paper Company Quote

Earnings Whispers

Our proven model shows that International Paper is likely to beat estimates in the second quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for International Paper is +0.32%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: International Paper currently carries a Zacks Rank of 3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

It should be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Consider

In the North American Industrial Packaging business, box demand remains strong fueled by e-commerce. This momentum will likely continue throughout this year. Further, the company’s focus to serve the rapidly-growing segments will significantly support its second-quarter performance. International Paper’s concerted efforts to align with customers will also be conducive to its results.

The Zacks Consensus Estimate for the Industrial Packaging segment’s revenues is currently pegged at $3,963 million, representing an expected decline of 1.5% year over year. The segment’s operating profit for the quarter is projected to slip 13.4% year over year to $465 million.
 
The Printing Papers segment revenues will likely flare up 58.6% year over year to $1,098 million in the to-be-reported quarter. The segment’ operating profit is estimated at $121 million for the April-June quarter, calling for an increase of 28.7% from the $94 million reported a year ago. Improved global demand is likely to bolster this segment’s revenues.

At the Global Cellulose Fibers business, global pulp demand remains strong and demand in the fluff segment keeps rising. Product introductions in the fluff pulp segment and the company’s optimization initiatives are anticipated to aid its quarterly performance. The Zacks Consensus Estimate for the segment’s revenues is pinned at $697 million for the quarter to be reported, likely to be marginally up from the year-ago quarter’s $692 million. This segment is expected to incur an operating loss of $1.33 million in the quarter.
 
Notably, the Zacks Consensus Estimate for total sales of $5,817 million for the June-end quarter indicates a marginal fall from the prior-year quarter’s $5,833 million.

Nevertheless, International Paper’s segments will be affected by price and volume pressure during the soon-to-be-reported quarter. Further, maintenance outages will be sequentially higher in the quarter. The company is also plagued with rising input costs and distribution costs which might drag down margins. These apart, the company is also set to incur elevated operational costs in the Printing Papers segment, primarily stemming from unfavorable foreign currency translation.

The Zacks Consensus Estimate for International Paper’s second-quarter earnings is currently pinned at $1.03, underlining year-over-year drop of 13.4%.

Shares of International Paper have lost 21% in the past year compared with the industry's decline of 38.6%.



Other Stocks to Consider

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

Sealed Air Corporation SEE has an Earnings ESP of +1.34% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Terex Corporation TEX has an Earnings ESP of +0.82% and carries a Zacks Rank #3, currently.

AptarGroup, Inc. ATR, another Zacks #3 Ranked stock, has an Earnings ESP of +0.56%.

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