Company Announcement - International Paper has appointed Joy Roman as Senior Vice President, Chief People and Strategy Officer, effective February 1, 2025 [1] - Joy Roman will lead talent development, organizational effectiveness, and corporate strategy, while also overseeing Sustainability and Communications functions [1] - Roman brings extensive experience in human resources and strategy, having previously served as Chief People & Strategy Officer at Berry Global and holding leadership roles at 3M, Toll Brothers, and the De Beers Group [2] Executive Background - Joy Roman holds an MBA from the Yale School of Management and a bachelor's degree in English and communications from the University of Wisconsin [2] - Roman began her career as a management consultant at McKinsey & Company [2] Company Overview - International Paper is a global producer of sustainable packaging, pulp, and fiber-based products, and one of the world's largest recyclers [3] - The company employs approximately 39,000 colleagues globally and operates manufacturing facilities in North America, Europe, Latin America, and Africa [3] - International Paper reported net sales of $18.9 billion in 2023 [3]

Core Viewpoint - International Paper (IP) has received an upgrade to a Zacks Rank 1 (Strong Buy), indicating a positive outlook based on rising earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Performance - The Zacks rating system emphasizes the importance of earnings estimate revisions, which are strongly correlated with near-term stock price movements [4][6]. - International Paper is projected to earn $1.18 per share for the fiscal year ending December 2024, reflecting a year-over-year decline of 45.4% [8]. - Over the past three months, the Zacks Consensus Estimate for International Paper has increased by 10.4%, indicating a positive trend in earnings outlook [8]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - Only the top 5% of Zacks-covered stocks receive a 'Strong Buy' rating, highlighting the superior earnings estimate revision feature of these stocks [9][10]. - The upgrade of International Paper to Zacks Rank 1 positions it among the top 5% of stocks, suggesting potential for higher stock prices in the near term [10].

Industry Overview - The Zacks Paper and Related Products industry benefits from rising e-commerce activities and sustained demand from consumer-oriented sectors like food, beverages, and healthcare [1] - The industry is highly diversified, producing graphic paper, packaging paper, and absorbent hygiene products, catering to sectors such as e-commerce, retail, and healthcare [3] - The industry is positioned to capitalize on the growing consumer preference for environmentally friendly packaging solutions [1] Key Trends - E-commerce is driving packaging demand, with e-commerce accounting for over 19% of global retail sales in 2023, projected to reach 25% by 2027 [4] - Global e-commerce revenues are expected to reach $4,791 billion by 2025, with a CAGR of 7.83% from 2025 to 2029 [4] - Increased M&A activities are transforming the industry, with notable mergers like Smurfit Westrock and International Paper's acquisition of DS Smith [5] - Sustainability is a key driver, with the industry incorporating recycled content and investing in eco-friendly production methods [6] - Rising costs of transportation, chemicals, and fuel are being offset through pricing actions, cost reduction, and automation [7] Industry Performance - The Paper and Related Products industry has outperformed the S&P 500 and the Basic Materials sector, with a 42.5% gain over the past year [11] - The industry's forward 12-month EV/EBITDA ratio is 9.24X, compared to the S&P 500's 13.96X and the Basic Materials sector's 6.64X [13] - Over the last five years, the industry's EV/EBITDA ratio has ranged between 7.82X and 16.26X, with a median of 10.33X [15] Key Companies - Suzano has inaugurated the world's largest single-line pulp mill, increasing its pulp production capacity by 24% to 13.5 million tons annually [16] - Suzano acquired industrial assets in Arkansas and North Carolina, positioning itself as a major supplier of paper for liquid packaging boards in North America [16] - Sylvamo's Project Horizon aims to save over $110 million in 2024 through operational improvements and cost reductions [19] - International Paper is optimizing its cost structure and investing in corrugated packaging, with its acquisition of DS Smith expected to generate $514 million in pre-tax cash synergies annually by the fourth year [22] - Klabin has seen a 6% year-over-year increase in sales volumes and is ramping up production with new paper machines, aiming to boost corrugated cardboard conversion capacity to 1.2 million tons annually [23] Earnings and Valuation - Suzano's 2025 earnings estimate has surged 39% in the past 60 days, indicating a year-over-year growth of 364% [17] - Sylvamo's 2024 earnings estimates have increased by 10.5%, with a year-over-year growth of 17.5% [20] - International Paper's 2025 earnings estimate has risen 3.4%, indicating a year-over-year growth of 156% [22] - Klabin's 2025 earnings estimate has increased by 15%, showing significant improvement from 2024 [24]

Core Viewpoint - International Paper (IP) is recognized as a strong buy with a focus on renewable fiber-based products, including packaging and paper items, indicating a positive outlook for the stock [1] Company Overview - International Paper Co. specializes in producing renewable fiber-based packaging and pulp products, operating through segments such as Industrial Packaging and Global Cellulose Fibers [2] - The company was founded in 1898 and is headquartered in Memphis, TN [2] Earnings History - The company has a solid earnings history, surpassing the Zacks Consensus Estimate in 3 of the last 4 quarters, with a recent earnings gain of 44 cents against a consensus of 24 cents, resulting in an 83% positive earnings surprise [4] - The average earnings surprise over the last four quarters is 28% [4] Earnings Estimates Revisions - Recent earnings estimate revisions show an increase for the next quarter from $0.42 to $0.44, while the full year 2024 estimate decreased from $1.42 to $1.18, and next year's estimate increased from $2.92 to $3.02 [5] Growth Projections - Revenue for 2024 is projected to be around $18.7 billion, reflecting a contraction of just under 1%, while 2025 is expected to see sales of $19.6 billion, indicating a growth of 4.7% [6] Valuation Metrics - The forward price-to-earnings (PE) ratio stands at 18.3x, which is considered high given the lack of growth in 2024, while the price-to-book ratio of 2.2x remains attractive for value-oriented investors [7] - The price-to-sales ratio is slightly above 1x, typical for commodity-based products [7] Margin Analysis - Operating margins are relatively thin, having decreased from 3.3% to 2.9% over the last two quarters, indicating a lack of competitive advantage [8]

Company Performance - International Paper (IP) has returned approximately 1.6% year-to-date, outperforming the Basic Materials sector, which has returned an average of -11.5% [4] - The Zacks Consensus Estimate for IP's full-year earnings has increased by 13.9% over the past three months, indicating improved analyst sentiment and a more positive earnings outlook [3] Industry Context - International Paper is part of the Paper and Related Products industry, which currently ranks 44 in the Zacks Industry Rank, with stocks in this group gaining about 36.4% year-to-date [6] - In comparison, New Found Gold Corp. (NFGC), which belongs to the Mining - Gold industry ranked 163, has seen a year-to-date increase of 12.9% [7]

Core Insights - International Paper Company (IP) is experiencing growth due to strategic initiatives, ongoing investments, and acquisitions aimed at enhancing capacity and market presence [1][3][4] Group 1: Growth Initiatives - IP is expected to see volume growth in its Industrial Packaging segment in Q4 2024, driven by stable demand in e-commerce and strong performance in food and beverage sectors [1][12] - The company has entered an agreement to acquire DS Smith, which will strengthen its corrugated packaging business in Europe and focus on sustainable packaging [3][4] - The acquisition is projected to be accretive to earnings in the first year and generate at least $514 million in pre-tax cash synergies annually by the end of the fourth year post-closure [4] Group 2: Demand Trends - There has been a notable pickup in demand for IP's products after a period of softness in 2023, attributed to inventory destocking [5] - The fresh food segment is benefiting from consumer trends favoring home-cooked meals, while the beverage segment is expected to improve despite previous pressures [6] Group 3: Operational Focus - IP is exploring options for its Global Cellulose Fibers business, with around 75% of the benefits from strategic actions anticipated in 2025 [7] - The Global Cellulose Fibers volumes decreased in Q3 2024, but the company expects higher earnings sequentially in the Industrial Packaging segment for Q4 2024 due to prior price index increases and lower costs [8][12] Group 4: Financial Performance - The company's shares have increased by 57.1% over the past year, outperforming the industry growth of 46.9% [15]

Group 1 - International Paper's shares have increased over 70% in the past year, indicating strong business momentum [1] - The company is exploring strategic alternatives, which could enhance its growth potential [1]

Group 1 - International Paper's Chairman and CEO Andy Silvernail will present at the Citi 2024 Basic Materials Conference on December 4, 2024, at 8 a.m. Eastern time, followed by a Q&A session [1] - Interested parties can access the webcast through the company's website, with a replay available approximately three hours after the presentation [2] - International Paper is a leading global producer of sustainable packaging, pulp, and fiber-based products, with net sales of $18.9 billion in 2023 and approximately 39,000 employees worldwide [3]

Financial Performance - Net earnings in Q3 2024 were $150 million ($0.42 per diluted share), compared to $498 million ($1.41 per diluted share) in Q2 2024 and $165 million ($0.47 per diluted share) in Q3 2023[121] - Adjusted operating earnings in Q3 2024 were $153 million ($0.44 per diluted share), compared to $193 million ($0.55 per diluted share) in Q2 2024 and $224 million ($0.64 per diluted share) in Q3 2023[121] - Net sales in Q3 2024 decreased by $48 million (1%) compared to Q2 2024 but increased by $73 million (2%) compared to Q3 2023, driven by seasonally lower volumes and higher sales prices respectively[147] - Cost of products sold in Q3 2024 decreased by $18 million (1%) compared to Q2 2024, with net special items charges of $7 million and $25 million included in Q3 2024 and Q2 2024 respectively[148] - Selling and administrative expenses in Q3 2024 increased by $55 million (12%) compared to Q2 2024, primarily due to higher employee medical claims and professional fees, with net special items charges of $51 million and $29 million included in Q3 2024 and Q2 2024 respectively[150] - Free cash flow for the first nine months of 2024 was $620 million, compared to $505 million in the same period of 2023, with cash provided by operations totaling $1.3 billion for both periods[143][144] - Depreciation and amortization in Q3 2024 increased by $6 million (2%) compared to Q2 2024, primarily driven by higher production at mills[152] - Distribution expenses in Q3 2024 decreased by $22 million (6%) compared to Q2 2024, primarily due to lower warehousing and freight expenses[154] - Taxes other than payroll and income taxes in Q3 2024 increased by $2 million (6%) compared to Q2 2024, primarily driven by higher sales and use tax expenses[155] - Net special items expense totaled $114 million in Q3 2024, including severance costs of $18 million and third-party warehouse fire costs of $13 million[141] - Adjusted operating earnings per share for Q3 2024 were $0.44, compared to $0.64 in Q3 2023 and $0.55 in Q2 2024[143] - Earnings from continuing operations in Q3 2024 were $150 million, compared to $192 million in Q3 2023 and $498 million in Q2 2024[146] - Net interest expense decreased by $4 million (7%) in Q3 2024 compared to Q2 2024, primarily due to higher interest income[156] - Earnings from continuing operations in Q3 2024 totaled $150 million ($0.42 per diluted share), compared to $498 million ($1.41 per diluted share) in Q2 2024 and $192 million ($0.55 per diluted share) in Q3 2023[157] - Income tax benefit of $71 million was recorded in Q3 2024, with a reported effective income tax rate of (89)%, primarily driven by an additional tax benefit from internal legal entity restructuring[165] - Operational effective income tax rate was 15% in Q3 2024, lower than the 21% in Q2 2024, due to tax benefits from lower foreign taxes and additional U.S. federal tax credits[165] Business Operations and Strategy - The company plans to close five packaging plants in North America and the Georgetown, South Carolina pulp and paper mill in Q4 2024, with expected pre-tax charges of $270 million, including $220 million in accelerated depreciation[122][128] - The company announced a corporate overhead restructuring plan on October 15, 2024, aiming to reduce the workforce by approximately 650 employees, with estimated pre-tax restructuring charges of $80 million[126][127] - The company expects to recognize a $60 million gain in Q4 2024 from the sale of the Orange, Texas containerboard mill[129] - The company is exploring strategic options for its Global Cellulose Fibers business, consistent with its focus on sustainable packaging solutions[131] - The company continues to progress towards the acquisition of DS Smith, expected to close in early Q1 2025[133][136] - In Q3 2024, the Industrial Packaging business saw higher sales prices and improved demand, while the Global Cellulose Fibers business experienced higher prices due to prior index movements[123] - For Q4 2024, the company expects lower volume in North America due to fewer shipping days, but improved earnings from prior index movements and the box go-to-market strategy[124] - The company anticipates $220 million in accelerated depreciation charges in Q4 2024 related to the closure of the Georgetown, South Carolina pulp and paper mill[125] - Industrial Packaging sales volumes decreased by 41 million short tons in Q3 2024 compared to Q2 2024, driven by lower sales volumes and higher operating costs[159] - Industrial Packaging net sales in Q3 2024 were flat compared to Q2 2024 but 4% higher than Q3 2023, with operating profit 32% lower than Q2 2024 and 39% lower than Q3 2023[172] - North American Industrial Packaging sales in Q3 2024 were higher than Q2 2024 due to higher average sales prices, partially offset by seasonally lower volumes and one less shipping day[174] - EMEA Industrial Packaging sales in Q3 2024 were seasonally lower compared to Q2 2024, with operating costs lower in both the mill and box system[175] - Corrugated Packaging sales volumes decreased to 2,192 thousand short tons in Q3 2024 from 2,329 thousand short tons in Q3 2023[162] - Global Cellulose Fibers sales volumes decreased to 648 thousand metric tons in Q3 2024 from 692 thousand metric tons in Q3 2023[162] - Global Cellulose Fibers net sales in Q3 2024 were $710 million, 1% lower than Q2 2024 and 2% lower than Q3 2023[178] - Business Segment operating profit in Q3 2024 was $40 million, $9 million higher than Q2 2024 and $13 million higher than Q3 2023[178] - Total maintenance and economic downtime in Q3 2024 was 9,000 short tons lower than Q2 2024 and 136,000 short tons lower than Q3 2023[178] - Strategic review of the Global Cellulose Fibers business[198] Cash Flow and Capital Management - Cash provided by operations totaled $1.3 billion for the first nine months of 2024, with working capital components contributing $216 million[179] - Investments in capital projects totaled $661 million in the first nine months of 2024, with full-year 2024 capital spending expected to be $800 million to $1.0 billion[180] - Debt reductions in Q3 2024 totaled $25 million, including $22 million from the repayment of EDB with a 1.90% interest rate[188] - The company's credit agreements totaled $1.9 billion at September 30, 2024, with no borrowings outstanding under the $1.4 billion credit agreement or the $500 million receivables securitization program[185] - The company expects to meet projected capital expenditures, service existing debt, and make dividend payments with current cash balances and cash from operations[189] - Cash dividend payments related to common stock totaled $482 million for the first nine months of 2024, with dividends at $1.3875 per share[192] - The company's pension plan is fully funded, with no anticipated required cash contributions for the next 12 months[192] Risks and Challenges - Risks related to climate change and greenhouse gas emissions, including the company's ability to meet environmental targets and goals[198] - Potential impact of global and domestic economic conditions, including inflationary pressures and supply chain disruptions[198] - Risks associated with international business operations, including geopolitical conditions and currency exchange rate fluctuations[198] - Future pension funding obligations and healthcare costs[198] - Compliance costs with environmental, tax, labor, and other governmental regulations[198] - Potential disruptions at manufacturing facilities due to severe weather or natural disasters[198] - Cybersecurity and information technology risks, including security breaches[198] - Risks associated with the spin-off of Sylvamo Corporation and its tax implications[198] - No material changes in the company's exposure to market risk since December 31, 2023[199]

Core Viewpoint - International Paper Company (IP) reported third-quarter 2024 adjusted earnings of 44 cents per share, exceeding the Zacks Consensus Estimate of 24 cents by 83%, but reflecting a 31% year-over-year decline due to lower volumes in key segments, offset somewhat by higher prices [1][2]. Financial Performance - Net sales for the quarter reached $4.69 billion, a 1.6% increase from the previous year, surpassing the Zacks Consensus Estimate of $4.67 billion [3]. - Cost of sales was reported at $3.34 billion, slightly down from $3.35 billion in the year-ago quarter, while selling and administrative expenses surged 78% to $508 million from $286 million [4]. - Total segment operating profit decreased 33% year-over-year to $237 million, with adjusted operating profit at $233 million, marking a 30% decline [5]. Segment Performance - **Industrial Packaging**: Sales totaled $3.9 billion, up 3.7% year-over-year, but operating profit fell 39% to $197 million [6]. Corrugating packaging volumes decreased by 6% to 2,195 thousand short tons [7]. - **Global Cellulose Fibers**: Sales dipped 2% to $710 million, with operating profit increasing 48% to $40 million despite a 6% decline in volumes [9][10]. Cash and Debt Position - Cash and temporary investments totaled $1.16 billion at the end of Q3, up from $1.11 billion at the end of 2023. Long-term debt decreased to $5.3 billion from $5.46 billion [11][12]. Future Expectations - The company anticipates higher earnings for the Industrial Packaging segment in Q4 due to prior price index increases and lower costs, although volumes may be impacted by two fewer days in the quarter [13]. - Earnings in Global Cellulose Fibers are expected to decline sequentially due to price index declines and planned maintenance outages [14]. Acquisition Update - International Paper is progressing with the acquisition of DS Smith, expected to enhance its corrugated packaging business in Europe and provide significant pre-tax cash synergies by the end of the fourth year post-acquisition [15]. Stock Performance - International Paper's shares have increased by 45.3% over the past year, outperforming the industry growth of 38.7% [16].