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International Paper (IP) Q2 Earnings: What Lies in Store?
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International Paper Company (IP - Free Report) is scheduled to report second-quarter 2018 results before the opening bell on Jul 26. The company is anticipated to report year-over-year growth in its bottom-line in the to-be-reported quarter despite a drop in the top line, as per our projections.
In first-quarter 2018, International Paper delivered adjusted earnings per share of 94 cents, which surged 68% year over year. Total revenues increased 10% year over year to $5.6 billion in the quarter. The company beat the Zacks Consensus Estimate on both counts.
Notably, the company surpassed the Zacks Consensus Estimate in the last four quarters, delivering an average surprise of 4.44%. Let’s see how things are shaping up prior to this announcement.
International Paper Company Price and EPS Surprise
International Paper is continuing with its restructuring initiatives to transform itself into a core packaging company. The company is investing considerably to improve its North American containerboard mill system, enhance product quality, as well as reduce manufacturing and delivery costs. At the same time, International Paper is divesting its non-core businesses to focus more on high-return capital projects in its core businesses that can drive additional earnings growth.
Additionally, the company expects the acquisition of Weyerhaeuser Company’s (WY - Free Report) pulp business to generate annual synergies of approximately $175 million by the end of 2018. Mergers and acquisitions also remain a key strategy for International Paper to strengthen its scale of operations in the long term. In North America, the company envisions a large opportunity within its Industrial Packaging business which continues to generate the best margins in the industry. Further, it is taking initiatives to drive margin expansion across the business through inorganic growth.
The Zacks Consensus Estimate for revenues from the Industrial Packaging segment, which accounts for the lion’s share of total revenues, is currently pegged at $3,988 million, up 8% year over year. The segment’s operating profit for the quarter is projected to improve to $539 million from $407 million recorded in the year-ago quarter.
Revenues from the Printing Papers segment are expected to rise 7% from the prior-year quarter to $1,086 million in the to-be-reported quarter. However, the segment’ operating profit will decline to $86 million in the quarter from $88 million in the prior year-quarter.
International Paper has underperformed the industry over the past year. Shares of the company have dropped 7% while the industry gained 11%.
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. The North American mill operation was affected by severe weather experienced at the beginning of this year, summing to a cumulative impact of $35 million, primarily in the Industrial Packaging and Global Cellulose Fibers businesses. All these factors are likely to drag profitability down by some extent.
The Zacks Consensus Estimate for total sales of $5.7 billion for the quarter indicates a decline of 1% from the prior-year quarter. The Zacks Consensus Estimate for International Paper’s earnings has gone down 4% over the last 30 days and is pegged at $1.09 for the second quarter. Nevertheless, the earnings estimate reflects year-over-year growth of around 68%.
Earnings Whispers
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: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -5.85%. 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 #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident about an earnings beat.
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 a negative estimate revisions momentum.
Stocks to Consider
Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Orion Engineered Carbons S.A (OEC - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank #1. Shares of the company have gained 39% in the past year.
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International Paper (IP) Q2 Earnings: What Lies in Store?
International Paper Company price-eps-surprise | International Paper Company Quote
Factors to Consider
International Paper is continuing with its restructuring initiatives to transform itself into a core packaging company. The company is investing considerably to improve its North American containerboard mill system, enhance product quality, as well as reduce manufacturing and delivery costs. At the same time, International Paper is divesting its non-core businesses to focus more on high-return capital projects in its core businesses that can drive additional earnings growth.
Additionally, the company expects the acquisition of Weyerhaeuser Company’s (WY - Free Report) pulp business to generate annual synergies of approximately $175 million by the end of 2018. Mergers and acquisitions also remain a key strategy for International Paper to strengthen its scale of operations in the long term. In North America, the company envisions a large opportunity within its Industrial Packaging business which continues to generate the best margins in the industry. Further, it is taking initiatives to drive margin expansion across the business through inorganic growth.
The Zacks Consensus Estimate for revenues from the Industrial Packaging segment, which accounts for the lion’s share of total revenues, is currently pegged at $3,988 million, up 8% year over year. The segment’s operating profit for the quarter is projected to improve to $539 million from $407 million recorded in the year-ago quarter.
Revenues from the Printing Papers segment are expected to rise 7% from the prior-year quarter to $1,086 million in the to-be-reported quarter. However, the segment’ operating profit will decline to $86 million in the quarter from $88 million in the prior year-quarter.