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International Paper (IP) Down 18.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for International Paper (IP). Shares have lost about 18.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is International Paper due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

International Paper Q2 Earnings Top, Sales Lag Estimates

International Paper delivered second-quarter 2019 adjusted earnings of $1.15 per share, down 3.4% year over year. The bottom-line figure, nonetheless, outpaced the Zacks Consensus Estimate of $1.01.

Including one-time items, earnings during the April-June quarter came in at 73 cents compared with the year-ago quarter’s 97 cents.
Net sales declined to $5,667 million in the reported quarter from $5,833 million recorded in the year-ago period. The reported figure, however, missed the Zacks Consensus Estimate of $5,813 million.

Adjusted cost of sales was $3,928 million, up from the $3,931 million recorded in the prior-year quarter. Adjusted gross profit declined 8.6% year over year to $1,739 million. Selling and administrative expenses dropped 13% year over year to $402 million in the quarter. Adjusted operating earnings came in at $460 million, calling for a year-over-year decline of 7.6%.
 
Segment Performance

Industrial Packaging: Sales in this segment slipped to $3,864 million from $4,022 million in the year-earlier period. Adjusted operating profit declined 9.5% year over year to $515 million.

Printing Papers: This segment’s sales were $1,088 million in the second quarter, up 2.6% from $1,060 million in the year-earlier quarter. Adjusted operating profit for the segment was $114 million compared with $94 million recorded in the year-ago period.

Global Cellulose Fibers: Sales of this segment came in at $661 million compared with $692 million recorded in the prior-year quarter. The segment reported break-even results in the second quarter of 2019 compared with $69 million recorded in the year-ago period.

Balance Sheet

Cash and temporary investments aggregated $787 million at the end of the second quarter compared with $589 million at the end of the 2018. As of the quarter’s end, long-term debt was $10,050 million compared with $10,015 million as of Dec 31, 2018.

Cash flow from operating activities was $1,067 million in the reported quarter compared with $801 million generated in the prior-year period. Free cash flow was $732 million during the April-June quarter compared with the year-earlier quarter’s $361 million.

International Paper repurchased shares worth $231 million during the June-end quarter, bringing the trailing 12-month total to $811 million. The company returned $430 million to shareholders through dividends and share repurchases during the reported quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -20.6% due to these changes.

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VGM Scores

At this time, International Paper has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise International Paper has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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