What To Expect From International Paper (IP) In Q1 Earnings?
Zacks Investment Research | Apr 23, 2018 10:42PM ET
Paper and packaging firm, International Paper Company (NYSE:IP) is scheduled to report first-quarter 2018 financial results before the opening bell on Apr 26. The company is likely to report higher revenues in the quarter across most of the operating segments due to healthy growth dynamics. However, total corporate revenues in the to-be-reported quarter are expected to decline to $5,430 million from $5,511 million generated in first-quarter 2017.
Whether such a juxtaposition could result in higher earnings for the quarter remains to be seen.
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, and 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.
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. It is further 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 $3,759 million, up from $3,499 million generated in first-quarter 2017. Revenues from Printing Papers segment are expected to be $1,025 million compared with $995 million reported in the prior-year quarter.
Industrial Packaging segment’s operating profit for the quarter is expected to improve to $455 million from $365 million recorded in the year-ago quarter, while the same for Printing Papers segment is likely to decrease to $83 million from $100 million.
Other Key Factors
International Paper has huge pension obligations for substantially all U.S. salaried employees hired prior to Jul 1, 2004 and largely all hourly and union employees regardless of the hire date. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and in the number of retirees are likely to increase pension costs and reduce its cash flow, thereby limiting its earnings growth potential. Rising energy, chemical and old corrugated containers’ costs remain headwinds, particularly in harsh winter conditions.
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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 Original post
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