No bad stock

International Paper Company
CEO : Mr. Mark Stephan Sutton

Quarterly earnings growth(YoY,%)

Period	Revenue	Operating Income	EPS	Release Date
2022 Q4	92.2% YoY	-655.0%	-131.8%	2023-01-31

Tim Nicholls says,

Year-over-year earnings bridge

• Price and mix improved significantly
• Volume was lower in 2022 due to shifts in consumer priorities and high inflation
• Operating costs were negatively impacted by high inflation on materials and services and significantly higher supply chain costs
• Input costs rose sharply across every category, with more than half of the increase directly related to higher energy and fuel costs
• Total corporate expenses and other items decreased as follows: Corporate expenses declined, interest expense was lower, tax expense was higher, and share repurchases impact earnings

Fourth quarter sequential earnings bridge

• Price and mix improved due to better mix in Industrial Packaging and additional price realization in Global Cellulose Fibers business
• Volume was lower in Industrial Packaging, but Global Cellulose Fibers demand was stable
• Operations and costs were impacted by lower volume, resulting in higher economic downtime and unabsorbed fixed costs as well as seasonality
• Maintenance outages were higher in the fourth quarter as planned
• Input costs were significantly lower and improved earnings by $144 million sequentially

Industrial Packaging segment

• Price and mix improved due to commercial mix initiatives focused on margin improvement
• Fourth quarter volumes remained at lower levels due to constrained consumer demand and ongoing retailer inventory destocking
• In a lower demand environment, the company believes there is a large opportunity to further optimize the system and take out high marginal costs
• Input costs were significantly lower, but the company continues to face elevated supply chain costs as well as the impact from high inflation on materials and services
• Maintenance outages were higher than the previous quarter as planned

Cellulose Fibers segment

• Price and mix improved due to previously announced price increases
• Operations and costs were negatively impacted by disruptions from winter storm Elliott and some reliability incidents at 2 of our mills
• Planned maintenance outages were higher sequentially
• Input costs were lower, but the company expects some customer inventory destocking to impact demand through the first quarter
• The Global Cellulose Fibers business increased earnings by approximately $100 million in 2022 and was near cost of capital returns in the second half of the year

Building a Better IP set of initiatives

• The company delivered $75 million of earnings in the fourth quarter for a total of $250 million in 2022 which exceeded their target for the year
• About half of the benefits today are from the lean effectiveness initiative
• Another significant driver of full-year results was strategy acceleration
• Going forward, the company is committed to getting the Global Cellulose Fibers business to deliver value-creating returns and profitably growing the Industrial Packaging business
• The process optimization initiative has the potential to reduce costs across various areas of the business

Capital allocation actions

• The company has a very strong balance sheet which they will preserve because they believe it is core to their capital allocation framework
• The company returned $355 million to shareholders in the fourth quarter, including $191 million through share repurchases
• At year-end, their total authorization for share repurchases was approximately $3.2 billion
• The company invested $931 million in their businesses in 2022 to support long-term profitable growth
• The company plans to continue being disciplined and selective when assessing M&A opportunities that may supplement their goal of accelerating profitable growth

First quarter outlook

• Price and mix is expected to decrease earnings due to prior index movement in North America and lower average export prices based on declines in the fourth quarter
• Volume is expected to increase earnings due to more days sequentially in North America, partially offset by the normal seasonal decline in daily shipments in North America
• Operations and costs are expected to decrease earnings due to the non-repeat of favorable onetime items in the fourth quarter, but will benefit from lower unabsorbed fixed costs due to higher volumes and more planned maintenance outages
• Maintenance outage expense is expected to increase
• The first quarter will be the highest for maintenance outages and the company expects it to decline in the second quarter of 2023

Mark Sutton says,

Full year 2022 results

• International Paper (IP) grew revenue and earnings despite significant inflation and lower demand in H2 2022
• IP delivered $250 million of earnings benefits from its initiatives and exceeded its full-year target
• IP is confident in the profitable growth opportunities across its Industrial Packaging business and has made strategic investments to support growth
• IP delivered $100 million of earnings growth in its Global Cellulose Fibers business in 2022 and expects significant earnings improvement this year
• IP returned $1.9 billion of cash to shareowners and its balance sheet is very strong, which allows it to navigate the uncertain macroeconomic environment

Full year key financials

• Revenue increased by 9% year-over-year, driven by strong price realization in the 2 business segments
• Operating earnings per share improved by 32%
• EBIT improved by about $300 million year-over-year, with both Industrial Packaging and Global Cellulose Fibers segments contributing to earnings growth
• Corporate expenses were lowered by about $100 million, primarily driven by building better IP initiatives and favorable FX
• IP generated $1.2 billion of free cash flow, above its prior outlook

Progress on Ilim joint venture

• IP has entered into an agreement to sell its 50% interest in Ilim SA to its JV partners for $484 million
• The JV partners have expressed interest in purchasing all of IP shares in JSC Ilim Group which represents a 2.39% stake for $24 million
• IP intends to divest all other residual and nonmaterial interest associated with Ilim to its JV partners
• The deal is subject to regulatory approvals in Russia
• Upon finalizing this deal, IP will no longer have any investments in Russia

Q4 2022 results

• Demand for IP products played out as expected, with U.S. box shipments down about 6% year-over-year
• Earnings and free cash flow for the quarter were above prior periods and better than the outlook provided last quarter
• IP saw meaningful relief from lower input costs and benefited from building a better IP initiatives and favorable one-time items in the quarter
• IP generated solid free cash flow and returned $355 million to shareholders during the quarter

Q & A sessions,

Diverse portfolio and strategic relationships

• IP is well positioned due to its diverse portfolio of products and services and strategic relationships with a large number of national and local customers across a broad range of attractive end-use segments.

Building a Better IP Initiatives

• IP’s building a better IP initiatives are focused on continuing to invest in projects to drive structural cost reduction through efficiency improvements and accelerating profitable growth.
• The company exceeded its target in 2022 and has solid momentum as it enters 2023.

Financial strength and flexibility

• IP has significantly enhanced its financial strength and flexibility, making it well positioned for success across a spectrum of economic environments and to deliver profitable growth over the long term.

Full year 2022 results

• IP grew revenue and earnings driven by solid commercial and operational execution, while facing significant inflation and lower demand in the second half of the year.
• Industrial Packaging and Global Cellulose Fibers segments contributed to earnings growth by about $100 million each as profit improvement initiatives and price realization offset significant inflationary cost headwinds.
• Corporate expenses were also lowered by about $100 million, primarily driven by building a better IP initiatives and some favorable FX.

Sale of 50% interest in Ilim SA

• IP has entered into an agreement to sell its 50% interest in Ilim SA to its JV partners for $484 million.
• The deal is subject to regulatory approvals in Russia.

Fourth quarter results

• Earnings and free cash flow for the quarter were above prior periods and came in better than the outlook provided in the last quarter.
• Underlying demand for absorbent pulp was stable.
• Fourth quarter earnings benefited from building a better IP initiatives and some favorable one-time items in the quarter.