International Paper Company (IP Quick QuoteIP - Free Report) is scheduled to report third-quarter 2018 results before the opening bell on Oct 25. Per Zacks projections, the company’s bottom-line is anticipated to witness year-over-year growth in the to-be-reported quarter despite a drop in the top line.

 

In second-quarter 2018, International Paper delivered adjusted earnings per share of $1.19, surging 80% year over year. Total revenues increased 8% year over year to $5.8 billion in the last reported quarter. The company also beat the Zacks Consensus Estimate on both counts.

 

Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average surprise of 6.44%. Let’s see how things are shaping up prior to this announcement.

 

International Paper Company Price and EPS Surprise
 

The Zacks Consensus Estimate for revenues from the Industrial Packaging segment, which accounts for majority of total revenues, is currently pegged at $4,079 million, up 9% year over year. The segment’s operating profit for the quarter is projected to improve 35% to $634 million from $469 million recorded in the year-ago quarter.

 

Revenues from the Printing Papers segment are expected to rise 5% from the prior-year quarter to $1,094 million in the to-be-reported quarter. The segment’ operating profit is estimated at $171 million in the third-quarter, indicating an increase of 27% from $135 million in the prior-year quarter.

 

In the Global Cellulose Fibers business, the company delivered record fluff pulp shipments during the to-be-reported quarter. Global pulp demand remains strong. Further, demand in the fluff segment continues to grow at 4-5% annually. New product introductions in the fluff pulp segment as well as the company’s optimization initiatives are likely to drive results. For the Global Cellulose Fibers segment, the Zacks Consensus estimate for  revenues is pegged at $759 million, an expected year-over-year increase of 16%. The segment’s operating profit is pegged at $104 million. 

 

The Zacks Consensus Estimate for total sales of $5.9 billion for the quarter to be reported indicates a decline of 0.4% from the prior-year quarter.

 

The company depends heavily on raw materials such as wood fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (“OCC”), and certain chemicals, including caustic soda and starch, and energy sources, principally natural gas, coal and fuel oil. Elevated input costs are likely to limit margins in the near term. Further, distribution costs have been on the rise of late due to a very tight truck and rail availability, and higher diesel fuel cost. This is likely to affect the company’s margins in the near term. Moreover, adverse foreign currency translation is likely to strain its bottom line.

 

The Zacks Consensus Estimate for International Paper’s earnings has gone down 5% over the last 30 days and is pegged at $1.47 for the third quarter. Nevertheless, the earnings estimate reflects year-over-year growth of around 36%.

 

 

Shares of International Paper have dropped 30% over the past year, compared with the industry’s decline of 13%.

 

 

Our proven model does not conclusively show that International Paper is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

 

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $1.47, resulting in an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

 

Zacks Rank: International Paper has a Zacks Rank #4 (Sell), which when combined with a 0.00% Earnings ESP makes a beat unlikely this quarter.

 

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

 

 

Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

 

CF Industries Holdings, Inc. (CF Quick QuoteCF - Free Report) has an Earnings ESP of +12.07% and a Zacks Rank #1.  You can see the complete list of today’s Zacks #1 Rank stocks here. The stock has gained 35% over the past year.

 

Arch Coal, Inc. (ARCH Quick QuoteARCH - Free Report) has an Earnings ESP of +6.32% and a Zacks Rank #1. Its shares have gained 28% over the past year.

 

Allegheny Technologies Incorporated (ATI Quick QuoteATI - Free Report) has an Earnings ESP of +2.16% and a Zacks Rank #3.  Its shares have gained 12% in a year’s time.

 

 

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