VOL. 123 | NO. 26 | Thursday, February 7, 2008
Earnings Preview: International Paper
NEW YORK (AP) - International Paper Co. reports earnings for the fiscal fourth quarter today. The following is a summary of key developments and analyst opinion related to the period available by press time.
OVERVIEW: The global paper and forest products industry is going through a decline, as consumers and businesses continue to move from printed products to the Web. A faltering U.S. housing market has also hurt demand and prices for wooden building materials, and a weaker dollar has added cost pressures, because the sector has significant lumber operations in Canada.
However, International Paper has been weathering the storm better than most because of its limited exposure to a stronger Canadian dollar. Large reductions in production capacity have also allowed it to increase prices for paper products.
The company has been working to reduce costs and restructure its business by closing plants, selling off assets, shifting its focus to in-demand paper products and paying down debt. In addition, International Paper has begun looking overseas to prop up profits, buying a 50 percent stake in Russian peer Ilim Holding SA last October.
Chief Executive John Faraci said the company expected "slightly" higher fourth-quarter earnings with a "modest" improvement in pricing, but noted that the company also faces increasing costs for wood, energy and transportation.
BY THE NUMBERS: Analysts polled by Thomson Financial expect a profit of 65 cents per share on revenue of $5.63 billion, on average. Those estimates typically exclude special items.
Earnings in the year-ago quarter were $4.37 per share, or 47 cents per share from continuing operations, excluding special items.
ANALYST TAKE: Two-thirds of the 15 analysts who cover International Paper rate its stock a "Strong Buy" or "Buy," with the rest rating it a "Hold."
Soleil Securities analyst Anna Torma upgraded its shares to "Buy" from "Hold" in a Jan. 24 note, citing a recent stock decline and an outlook for higher product pricing. Torma said International Paper will also benefit from its cost-cutting initiatives and growth outside the U.S. because of the weaker dollar.
"We expect International Paper to begin to see greater benefits from its recent profit improvement programs, restructuring initiatives, and investments," she wrote.
CIBC World Markets analyst Don Roberts cited International Paper as a top pick and one of the few paper and forest products companies he expects to post a fourth-quarter profit. He said in a note Jan. 29 that he expects it to post the biggest rise in earnings per share among the companies he covers.
STOCK PERFORMANCE: IP's share price fell $3.49, or 9.7 percent, during the fourth quarter to close at $32.38. Over the past 52 weeks, it has shed $2.66, or 7.6 percent, to close at $32.26 on Monday.
By comparison, the Dow Jones U.S. Forestry & Paper Index dropped about 6 percent during the fourth quarter and has fallen 13 percent over the past 52 weeks.
To read about the U.S. Securities and Exchange Commission's investigation into executive pay at International Paper, see Wednesday's edition at www.memphisdailynews.com.
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