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International Paper (IP) Up 3.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for International Paper (IP - Free Report) . Shares have added about 3.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is International Paper due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

International Paper's Earnings Trump Estimates in Q2

International Paper reported second-quarter 2020 adjusted earnings of 77 cents per share, significantly down 33% year over year. However, the bottom-line figure outpaced the Zacks Consensus Estimate of 38 cents.

Including one-time items, the company recorded earnings per share of 67 cents during the June-end quarter compared with the year-ago quarter’s 73 cents.

Net sales declined to $4,866 million in the second quarter from the year-ago quarter’s $5,667 million. The reported figure also missed the Zacks Consensus Estimate of $5,124 million.

Adjusted cost of sales was $3,385 million, down from the prior-year quarter’s $3,890 million. Adjusted gross profit slid 17% year over year to $1,481 million. Selling and administrative expenses dropped 17.4% year over year to $332 million during the June-end quarter. Segment operating profit came in at $428 million, reflecting a year-over-year plunge of 32%.

Segment Performance

Industrial Packaging: Sales in this segment fell to $3,633 million in the second quarter from the year-earlier quarter’s $3,864 million. Operating profit decreased 12.8% year over year to $449 million.

Printing Papers: This segment’s sales came in at $583 million in the April-June quarter, down 46.4% from the prior-year quarter. The segment incurred an operating loss of $11 million, as against the year-ago quarter’s operating profit of $114 million.

Global Cellulose Fibers: Sales of this segment came in at $605 million compared with the $661 million witnessed in the year-earlier quarter. The segment posted an operating loss of $10 million in second-quarter 2020.

Balance Sheet

Cash and temporary investments aggregated $847 million as of Jun 30, 2020 compared with $511 million as of Dec 31, 2019. As of Jun 30, 2020, long-term debt was $9.4 billion compared with $9.6 billion as of Dec 31, 2019.

Cash flow from operating activities was $1,539 million in the first half of the current year compared with the $1,800 million generated in the first half of 2019. Free cash flow was $638 million in the reported quarter compared with the prior-year quarter’s $732 million. The company will continue to focus on cash generation to strengthen its liquidity position in a bid to battle the coronavirus crisis.

 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 8.19% 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 A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, International Paper has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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