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International Paper (IP) to Distribute 80.1% of Sylvamo Shares

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International Paper Company (IP - Free Report) has declared the pro-rata distribution of 80.1% of the outstanding shares of Sylvamo Corporation. The distribution will be effective Oct 1 to the International Paper’s shareholders of record as of Sep 15, 2021. This move is related to the company’s announcement of the spin-off of its Printing Papers business.

Each stakeholder of International Paper will receive one share of the Sylvamo stock for holding every 11 shares of the International Paper stock on the distribution day. International Paper will own 19.9% of the Sylvamo shares after the distribution comes into effect.

Last December, International Paper announced its plan to spin-off the company’s Printing Papers segment into a standalone, publicly-traded company. Last month, the company announced that the new entity will be named Sylvamo, with its headquarters planned for Memphis, TN. This move will enable International Paper to focus on its Industrial Packaging segment, and capitalize on the growing demand for corrugated packaging, cut costs and improve earnings. The transaction is expected to close on Oct 1. Apart from this, last month, International Paper sold its Kwidzyn pulp and paper mill, and the supporting operations to Mayr-Melnhof Group.

The separation of the Printing Papers business is a prudent move for the company, as paper demand has been significantly impacted by the transition to digital media and paperless communication. The company has been witnessing a decline in commercial printing due to the significant pullback in print advertising. On top of this, the coronavirus pandemic has affected paper consumption in schools, offices and businesses due to the stay-at-home measures. Even though demand for printing papers has picked up, lately, as offices and schools have restarted, it has been below the prior-year levels.

International Paper has taken initiatives in three areas. First, the company will streamline and simplify its organization to form a packaging-focused company. Second, it will redesign processes to increase efficiency and reduce costs in maintenance and reliability, distribution and logistics as well as sourcing. Third, the company is identifying opportunities to optimize fleet of assets to make the right products and own the right assets to further fortify cost position. International Paper is committed to deliver $350-$400 million in incremental earnings by the end of 2023. This includes $50-$100 million of incremental annual earnings growth and $300 million in structural cost reductions.

International Paper is riding on the surging demand for corrugated and containerboard packaging, as it plays a key role in the supply chain to deliver essential products to consumers. The company will continue to benefit from the growing e-commerce demand as it has become a primary spending channel for customers owing to the containment measures amid the pandemic. Moreover, the Global cellulose fibers segment is gaining from the robust consumer demand for absorbent hygiene products and tissue products as a result of the pandemic.

Price Performance

International Paper’s shares have gained 19.3% so far this year, outperforming the industry’s growth of 18.9%.

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Zacks Rank & Stocks to Consider

International Paper currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the basic materials space include Avient Corporation (AVNT - Free Report) , The Mosaic Company (MOS - Free Report) and Veritiv Corporation (VRTV - Free Report) , each sporting Zacks Rank #1 (Strong Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avient has a projected earnings growth rate of 75% for 2021. The company’s shares have gained 17.7% so far this year.

Mosaic has an estimated earnings growth rate of 472.9% for the current year. So far this year, the company’s shares have appreciated 40.1%.

Veritiv has an estimated earnings growth rate of 215% for the current year. The company’s shares have soared 320.1% so far this year.

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