International Paper (IP - Free Report) has entered into an agreement to divest its corrugated packaging business in Brazil to Klabin S.A. for R$330 million ($64 million), out of which R$280 million ($54 million) will be paid on closing of the transaction, while the balance will be paid a year after the deal’s closure. The deal is likely to close in the second half of the current year.
Notably, the transaction includes three containerboard mills and four box plants. The move supports International Paper's previously-announced strategic review of the packaging business in Brazil. The company considered to sell its Brazilian containerboard and corrugated packaging business as the unit could not perform profitably. In fact, International Paper’s existing business structure was not competitive enough on the Brazilian packaging market. However, the company will continue to operate its Papers and Forestry businesses in Brazil.
Previously, International Paper completed the divesture of its consumer packaging business in North America to Graphic Packaging Holding Company (GPK - Free Report) . The divesture helped the company maximize the value of the North American Consumer Packaging business by combining it with Graphic Packaging while also focusing on its core businesses and strengthening the balance sheet. The company intends to invest significantly to improve its North American containerboard mill system, enhance product quality, and reduce manufacturing and delivery costs.
In North America, the company envisions a large opportunity within its industrial packaging businesses, which continuing to generate the best margins in the industry. The company is taking initiatives to drive further margin expansion across the business. Also, mergers and acquisitions remain a key strategy for International Paper to fortify its packaging business. The company has completed the acquisition of leading timberland owner Weyerhaeuser Company’s (WY - Free Report) pulp, which has strengthened International Paper’s position in the global fluff pulp market and augmented its operating cash flow. The acquisition provides the company with a higher flexibility to manage a wide portfolio of products to meet customer needs through superior R&D capabilities and a priceless patent portfolio.
International Paper’s current-quarter results will reflect the impact of lower price and unfavorable mix and higher maintenance outages in its segments. The company is facing structural challenges in its Industrial Packaging segment due to the impact of tariffs, strong U.S. dollar and weak demand.
International Paper is the largest manufacturer of containerboard in the United States. With mounting numbers of coronavirus cases in the nation, the company’s operations will likely be impacted. The country have been hit hard by the coronavirus pandemic, with 120,798 confirmed cases and 1973 deaths, as per the World Health Organization’s situation report as of Mar 29, 2020.
The company stated it will continue to operate its mills and converting plants while ensuring health and safety of employees, maintaining social distancing and taking other precautionary measures.
Share Price Performance
International Paper’s shares have lost 36.2% over the past year compared with the industry’s decline of 44.9%.
Zacks Rank & Stocks to Consider
International Paper currently carries a Zacks Rank #4 (Sell). One better-ranked stock in the basic materials space is Newmont Corporation (NEM - Free Report) , currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Newmont has an expected earnings growth rate of 72% for 2020. The company’s shares have gained 35.7% in the past year.
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