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Will International Paper (IP) Disappoint in Q3 Earnings?
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Leading packaging and paper manufacturer International Paper Company (IP - Free Report) is scheduled to report third-quarter 2016 results before the opening bell on Oct 27. In the last reported quarter, the company’s adjusted earnings comfortably exceeded the Zacks Consensus Estimate by 8 cents. In the trailing four quarters, the company beat earnings estimates on every occasion with an average positive earnings surprise of 8.93%.
Let’s see how things are shaping up for this announcement.
Key Factors in the Third Quarter
International Paper had initiated a pension plan in the last reported quarter, based on which it offered a voluntary pension buyout for term vested former employees. The company paid a total of $1.2 billion to approximately 25,000 former employees out of plan assets. Such contributions provide tax benefits along with fee savings, and is consistent with the company’s strategy of derisking the plan over time and managing its balance sheet.
The company expects volume to be mostly stable across its various businesses, with the exception of EMEA packaging which is likely to be lower due to normal seasonality in Morocco. During the to be reported quarter, price is expected to be lower in North American industrial packaging owing to the flow-through effect of the January PPW Index change. This will negatively impact earnings by approximately $10 million.
Third quarter earnings are also expected to be impacted by a less favorable mix in the pulp business, as majority of the quantity will be derived off the new capacity at Riegelwood. All other pricing is expected to remain stable.
During the quarter, operations are likely to have continued to perform well. Input costs, particularly energy and OCC in North America are expected to be higher by roughly $35 million. Maintenance outage expenses are estimated to be lower by approximately $60 million.
During the second quarter, International Paper inked a definite agreement with leading timberland owner Weyerhaeuser Co. (WY) to acquire the latter’s pulp business for $2.2 billion in cash. With a combined capacity of nearly 1.9 million metric tons of pulp, the transaction is likely to strengthen International Paper’s position in the global fluff pulp market and augment its operating cash flow. In addition, the company expects the acquisition to generate annual synergies of approximately $175 million by the end of 2018 along with a higher flexibility to manage a wide portfolio of products to meet customer needs through superior R&D capabilities and priceless patent portfolio.
The U.S. Department of Justice has recently concluded the Hart-Scott-Rodino review of this transaction. Other regulatory reviews for the transaction in other non-U.S. jurisdictions are currently in process. The acquisition is expected to be completed in the fourth quarter.
Earnings Whispers
Our proven model does not conclusively shows that International Paper is likely to beat earnings this quarter as it lacks some key components. A stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. This is perfectly 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 currently pegged at -3.23%.
Zacks Rank:International Paper’s Zacks Rank #2 when combined with negative ESP makes an earnings beat uncertain this quarter.
Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.
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:
Navigant Consulting Inc. (NCI - Free Report) , with an Earnings ESP of +6.90% and a Zacks Rank #3.
ABB Ltd. , with an Earnings ESP of + 17.86 and a Zacks Rank #3.
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Will International Paper (IP) Disappoint in Q3 Earnings?
Leading packaging and paper manufacturer International Paper Company (IP - Free Report) is scheduled to report third-quarter 2016 results before the opening bell on Oct 27. In the last reported quarter, the company’s adjusted earnings comfortably exceeded the Zacks Consensus Estimate by 8 cents. In the trailing four quarters, the company beat earnings estimates on every occasion with an average positive earnings surprise of 8.93%.
Let’s see how things are shaping up for this announcement.
Key Factors in the Third Quarter
International Paper had initiated a pension plan in the last reported quarter, based on which it offered a voluntary pension buyout for term vested former employees. The company paid a total of $1.2 billion to approximately 25,000 former employees out of plan assets. Such contributions provide tax benefits along with fee savings, and is consistent with the company’s strategy of derisking the plan over time and managing its balance sheet.
The company expects volume to be mostly stable across its various businesses, with the exception of EMEA packaging which is likely to be lower due to normal seasonality in Morocco. During the to be reported quarter, price is expected to be lower in North American industrial packaging owing to the flow-through effect of the January PPW Index change. This will negatively impact earnings by approximately $10 million.
Third quarter earnings are also expected to be impacted by a less favorable mix in the pulp business, as majority of the quantity will be derived off the new capacity at Riegelwood. All other pricing is expected to remain stable.
During the quarter, operations are likely to have continued to perform well. Input costs, particularly energy and OCC in North America are expected to be higher by roughly $35 million. Maintenance outage expenses are estimated to be lower by approximately $60 million.
During the second quarter, International Paper inked a definite agreement with leading timberland owner Weyerhaeuser Co. (WY) to acquire the latter’s pulp business for $2.2 billion in cash. With a combined capacity of nearly 1.9 million metric tons of pulp, the transaction is likely to strengthen International Paper’s position in the global fluff pulp market and augment its operating cash flow. In addition, the company expects the acquisition to generate annual synergies of approximately $175 million by the end of 2018 along with a higher flexibility to manage a wide portfolio of products to meet customer needs through superior R&D capabilities and priceless patent portfolio.
The U.S. Department of Justice has recently concluded the Hart-Scott-Rodino review of this transaction. Other regulatory reviews for the transaction in other non-U.S. jurisdictions are currently in process. The acquisition is expected to be completed in the fourth quarter.
Earnings Whispers
Our proven model does not conclusively shows that International Paper is likely to beat earnings this quarter as it lacks some key components. A stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. This is perfectly 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 currently pegged at -3.23%.
Zacks Rank:International Paper’s Zacks Rank #2 when combined with negative ESP makes an earnings beat uncertain this quarter.
Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.
INTL PAPER Price and EPS Surprise
INTL PAPER Price and EPS Surprise | INTL PAPER Quote
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:
Amazon.com, Inc. (AMZN - Free Report) , with an Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Navigant Consulting Inc. (NCI - Free Report) , with an Earnings ESP of +6.90% and a Zacks Rank #3.
ABB Ltd. , with an Earnings ESP of + 17.86 and a Zacks Rank #3.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>