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International Paper (IP) Q2 Earnings Beat, Dip Y/Y on Low Prices
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International Paper Company (IP - Free Report) reported second-quarter 2024 adjusted earnings of 55 cents per share, which surpassed the Zacks Consensus Estimate of 40 cents by 38%. The bottom line declined 7% year over year due to lower year-over-year prices in both the Industrial Packaging and Global Cellulose Fibers segments.
Including one-time items, such as an environmental remediation adjustment, combination costs related to the acquisition of DS Smith (DITHF - Free Report) , strategic advisory fees and a tax benefit resulting from internal legal entity restructuring, IP posted earnings per share of $1.41 from continuing operations. This compared favorably with earnings of 68 cents per share from continuing operations in the year-ago quarter.
Net sales were around $4.7 billion, up 1% from the year-ago quarter as higher volumes were offset by lower prices. The top line missed the Zacks Consensus Estimate of $4.8 billion.
International Paper Company Price, Consensus and EPS Surprise
The adjusted cost of sales was $3.3 billion, down 0.7% from the year-ago quarter's level. Gross profit increased 6% year over year to $1.4 billion.
Adjusted selling and administrative expenses were $424 million, which increased 26% from $336 million in the prior-year quarter. Total segment operating profit decreased 4% year over year to $322 million. Adjusted operating profit was $300 million, which marked an 8% decline from the second quarter of 2023.
Adjusted EBITDA was $561 million compared with $570 million in the year-ago quarter. Adjusted EBITDA margin was 11.9% in the quarter, reflecting a 30-basis point contraction year over year.
Segment Performances
Industrial Packaging: The segment’s sales totaled $3.9 billion, up 1% from last year’s reported figure as an improvement in total volume helped offset lower prices. Operating profit fell 4% year over year to $291 million.
The segment reported corrugating packaging volumes of 2,255 thousand short tons, down 6% from last year’s comparable quarter. We projected corrugating packaging volumes to be 2,325 thousand short tons.
Containerboard volumes were 791 thousand short tons, up 32% from the year-ago quarter's figure. The figure beat our estimate of 741 thousand short tons.
Recycling volumes rose 4.5% year over year to 552 thousand short tons, thereby surpassing our projection of 536.5 thousand short tons.
Volumes in Saturated Kraft were up 11% year over year, and the same for Gypsum /Release Kraft rose 9.8%. EMEA Packaging reported a 1.9% improvement in volumes.
Overall, volumes for the Industrial Packaging segment were 4,037 thousand short tons, which rose 2.4% from the second quarter of 2023. Our projection for the metric was 4,029 thousand short tons, which was based on 2.2% growth from the prior-year quarter.
Global Cellulose Fibers: Segmental sales rose 3% year over year to $717 million as higher volumes were negated by lower prices. Operating profit was $31 million, up 3% from the year-ago quarter's figure. The segment has returned to profitability after incurring losses for the past two quarters.
The segment’s volumes were 684 thousand metric tons, which were up 9% year over year. The figure fell short of our expectation of 729 thousand metric tons, which factored in a 17% year-over-year improvement.
Cash & Debt Position
Cash and temporary investments aggregated $1.05 billion at the end of the second quarter compared with $1.11 billion at the end of 2023. Throughout the first half of 2024, the company paid $321 million as dividends.
At the end of the reported quarter, IP’s long-term debt was $5.33 billion, lower than $5.46 billion as of 2023-end. Cash flow from operating activities was $760 million in the first half of 2024 compared with $873 million in the first half of 2023. IP generated $311 million in free cash flow in the first six-month period of 2024, higher than $265 million in the comparable period of 2023.
Expectations for Q3
International Paper anticipates volumes in the Industrial Packaging segment to be lower sequentially due to one less day and seasonal factors. Volumes in Cellulose Fibers are also expected to dip due to seasonality.
Lower volumes, combined with higher costs, are expected to offset the benefits from prior price index increases. IP, therefore, anticipates third-quarter earnings to dip from the second-quarter level.
The company stated that it will be making changes to its portfolio, optimizing cost structure and focusing on a customer-driven strategy to deliver profitable growth.
Update on Acquisition of DS Smith
International Paper is progressing on the acquisition process of DS Smith, announced on Apr 16, 2024. This should strengthen IP’s corrugated packaging business in Europe and prioritize sustainable packaging. The buyout is expected to be accretive to IP’s earnings in the first year of closure and provide at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the close.
The acquisition, which remains subject to the fulfillment of remaining conditions, including regulatory clearance from the European Commission and the court’s sanction, is expected to close by the fourth quarter of 2024.
Price Performance & Zacks Rank
International Paper’s shares have surged 42.9% in the past year compared with the industry’s 32.6% growth.
Packaging Corporation of America (PKG - Free Report) reported adjusted earnings per share of $2.20 in the second quarter, which beat the Zacks Consensus Estimate of $2.12. However, the bottom line decreased 5% year over year. Gains from higher volumes in both segments and decreased costs were partially offset by lower prices and mix.
PKG’s sales in the second quarter grew 6.3% year over year to $2.08 billion. The top line beat the Zacks Consensus Estimate of $2.03 billion. Packaging currently sports a Zacks Rank of 1. Its shares have gained 43% in the past year.
A Paper & Related Product Stock Awaiting Results
Sylvamo (SLVM - Free Report) is scheduled to release second-quarter results on Aug 9. The Zacks Consensus Estimate for earnings is pegged at $1.64 per share, indicating year-over-year growth of 44%. Sylvamo has a trailing four-quarter average surprise of 23.2%. The company currently carries a Zacks Rank #2 (Buy). SLVM's shares have surged 57.3% in the past year.
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International Paper (IP) Q2 Earnings Beat, Dip Y/Y on Low Prices
International Paper Company (IP - Free Report) reported second-quarter 2024 adjusted earnings of 55 cents per share, which surpassed the Zacks Consensus Estimate of 40 cents by 38%. The bottom line declined 7% year over year due to lower year-over-year prices in both the Industrial Packaging and Global Cellulose Fibers segments.
Including one-time items, such as an environmental remediation adjustment, combination costs related to the acquisition of DS Smith (DITHF - Free Report) , strategic advisory fees and a tax benefit resulting from internal legal entity restructuring, IP posted earnings per share of $1.41 from continuing operations. This compared favorably with earnings of 68 cents per share from continuing operations in the year-ago quarter.
Net sales were around $4.7 billion, up 1% from the year-ago quarter as higher volumes were offset by lower prices. The top line missed the Zacks Consensus Estimate of $4.8 billion.
International Paper Company Price, Consensus and EPS Surprise
International Paper Company price-consensus-eps-surprise-chart | International Paper Company Quote
The adjusted cost of sales was $3.3 billion, down 0.7% from the year-ago quarter's level. Gross profit increased 6% year over year to $1.4 billion.
Adjusted selling and administrative expenses were $424 million, which increased 26% from $336 million in the prior-year quarter. Total segment operating profit decreased 4% year over year to $322 million. Adjusted operating profit was $300 million, which marked an 8% decline from the second quarter of 2023.
Adjusted EBITDA was $561 million compared with $570 million in the year-ago quarter. Adjusted EBITDA margin was 11.9% in the quarter, reflecting a 30-basis point contraction year over year.
Segment Performances
Industrial Packaging: The segment’s sales totaled $3.9 billion, up 1% from last year’s reported figure as an improvement in total volume helped offset lower prices. Operating profit fell 4% year over year to $291 million.
The segment reported corrugating packaging volumes of 2,255 thousand short tons, down 6% from last year’s comparable quarter. We projected corrugating packaging volumes to be 2,325 thousand short tons.
Containerboard volumes were 791 thousand short tons, up 32% from the year-ago quarter's figure. The figure beat our estimate of 741 thousand short tons.
Recycling volumes rose 4.5% year over year to 552 thousand short tons, thereby surpassing our projection of 536.5 thousand short tons.
Volumes in Saturated Kraft were up 11% year over year, and the same for Gypsum /Release Kraft rose 9.8%. EMEA Packaging reported a 1.9% improvement in volumes.
Overall, volumes for the Industrial Packaging segment were 4,037 thousand short tons, which rose 2.4% from the second quarter of 2023. Our projection for the metric was 4,029 thousand short tons, which was based on 2.2% growth from the prior-year quarter.
Global Cellulose Fibers: Segmental sales rose 3% year over year to $717 million as higher volumes were negated by lower prices. Operating profit was $31 million, up 3% from the year-ago quarter's figure. The segment has returned to profitability after incurring losses for the past two quarters.
The segment’s volumes were 684 thousand metric tons, which were up 9% year over year. The figure fell short of our expectation of 729 thousand metric tons, which factored in a 17% year-over-year improvement.
Cash & Debt Position
Cash and temporary investments aggregated $1.05 billion at the end of the second quarter compared with $1.11 billion at the end of 2023. Throughout the first half of 2024, the company paid $321 million as dividends.
At the end of the reported quarter, IP’s long-term debt was $5.33 billion, lower than $5.46 billion as of 2023-end. Cash flow from operating activities was $760 million in the first half of 2024 compared with $873 million in the first half of 2023. IP generated $311 million in free cash flow in the first six-month period of 2024, higher than $265 million in the comparable period of 2023.
Expectations for Q3
International Paper anticipates volumes in the Industrial Packaging segment to be lower sequentially due to one less day and seasonal factors. Volumes in Cellulose Fibers are also expected to dip due to seasonality.
Lower volumes, combined with higher costs, are expected to offset the benefits from prior price index increases. IP, therefore, anticipates third-quarter earnings to dip from the second-quarter level.
The company stated that it will be making changes to its portfolio, optimizing cost structure and focusing on a customer-driven strategy to deliver profitable growth.
Update on Acquisition of DS Smith
International Paper is progressing on the acquisition process of DS Smith, announced on Apr 16, 2024. This should strengthen IP’s corrugated packaging business in Europe and prioritize sustainable packaging. The buyout is expected to be accretive to IP’s earnings in the first year of closure and provide at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the close.
The acquisition, which remains subject to the fulfillment of remaining conditions, including regulatory clearance from the European Commission and the court’s sanction, is expected to close by the fourth quarter of 2024.
Price Performance & Zacks Rank
International Paper’s shares have surged 42.9% in the past year compared with the industry’s 32.6% growth.
Image Source: Zacks Investment Research
International Paper currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Peer Performance
Packaging Corporation of America (PKG - Free Report) reported adjusted earnings per share of $2.20 in the second quarter, which beat the Zacks Consensus Estimate of $2.12. However, the bottom line decreased 5% year over year. Gains from higher volumes in both segments and decreased costs were partially offset by lower prices and mix.
PKG’s sales in the second quarter grew 6.3% year over year to $2.08 billion. The top line beat the Zacks Consensus Estimate of $2.03 billion. Packaging currently sports a Zacks Rank of 1. Its shares have gained 43% in the past year.
A Paper & Related Product Stock Awaiting Results
Sylvamo (SLVM - Free Report) is scheduled to release second-quarter results on Aug 9. The Zacks Consensus Estimate for earnings is pegged at $1.64 per share, indicating year-over-year growth of 44%. Sylvamo has a trailing four-quarter average surprise of 23.2%. The company currently carries a Zacks Rank #2 (Buy). SLVM's shares have surged 57.3% in the past year.