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Why Is International Paper (IP) Down 12.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for International Paper (IP). Shares have lost about 12.4% 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 its most recent earnings report in order to get a better handle on the important drivers.

International Paper Q4 Earnings Top, Sales Lag Estimates

International Paper reported fourth-quarter 2019 adjusted earnings of $1.09 per share, down 34% year over year. However, the bottom line outpaced the Zacks Consensus Estimate of $1.02.

Including one-time items, earnings during the fourth quarter came in at 42 cents compared with the year-ago quarter figure of 78 cents.

Net sales declined to $5,498 million in the reported quarter from $5,951 million in the year-ago quarter. Further, the reported figure missed the Zacks Consensus Estimate of $5,576 million.

Adjusted cost of sales was $3,620 million, down from the $3,795 million in the prior-year quarter. Gross profit declined 13% year over year to $1,878 million. Selling and administrative expenses declined 0.9% year over year to $442 million in the quarter. Adjusted operating earnings came in at $669 million, reflecting a year-over-year decline of 29%.

Segment Performance

Industrial Packaging: Sales in this segment fell to $3,810 million in the reported quarter from $4,017 million in the year-earlier quarter. Adjusted operating profit declined 6% year over year to $605 million.

Printing Papers: This segment’s sales were $1,067 million in the fourth quarter, down 8% from $1,160 million in the prior-year quarter. Adjusted operating profit for the segment was $109 million compared with $197 million in the year-ago period.

Global Cellulose Fibers: Sales of this segment came in at $577 million compared with $736 million in the prior-year quarter. The segment reported adjusted operating loss of $45 million in fourth-quarter 2019 against an operating profit of $93 million in the year-ago period.

Balance Sheet

Cash and temporary investments aggregated $511 million at the end of 2019 compared with $589 million at the end of the 2018. As of the 2019 end, long-term debt was $9.6 billion compared with $10.0 billion as of Dec 31, 2018.

Cash flow from operating activities was $3.6 billion in 2019 compared with $3.2 billion generated in the prior year. Free cash flow was $2.3 billion during 2019 compared with $1.7 billion last year.

The company continues to strengthen packaging business through targeted investments. It is also prudently managing costs, capital spending and working capital to generate strong cash flows in 2020, despite earnings headwinds.

International Paper repurchased shares worth $485 million during 2019 and paid dividends worth $796 million.

2019 Results

International Paper reported adjusted earnings per share of $4.43 in 2019, down 17% from the prior-year figure of $5.32. The bottom line surpassed the Zacks Consensus Estimate of $4.37. Including one-time items, earnings came in at $3.07, declining 37% from $4.85 reported in 2018.

Sales declined 4% year over year to $22.4 billion from the prior-year figure of $23.3 billion. However, the top line outpaced the Zacks Consensus Estimate of $22.5 billion.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -33.8% due to these changes.

VGM Scores

Currently, International Paper has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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