International Paper Co. (IP) F3Q10 Earnings 10/27/10-(Jeremy Pellizzari)

International Paper reported third-quarter earnings on 10/27/2009. They reported record earnings of $397 million or $0.91 per share, which beat the market expectations of $0.79 per share. This is an increase from second-quarter EPS of $0.41, and an increase from 3Q 2009 EPS of $0.37. The increase in earnings for this quarter was led by strong business, realization of price increases and restructuring, improved operations, and a favorable business mix.

The Industrial Packaging segment saw a record increase in earnings due to realization of price increases and improved input costs. Its profits grew 17% year over year and 7% sequentially amounting to $2.6 billion. The Printing Papers segment saw a 5% revenue growth year over year and 7% revenue growth sequentially. This can be attributed to favorable pulp and paper pricing, reduced fixed costs, fewer mill outages, bad debt recovery, and increased volumes to the U.S. and Europe. Consumer Packaging posted revenues of $870 million, up 10% year over year and 3% sequentially. Higher volumes, realization of price increases, and fewer maintenance outages drove the improvement. The Forest Products segment sold off a majority of their land portfolio and recorded revenues of $205 million, which was an improvement from the $5 million both sequentially and year over year. Their last segment, xpedx, which is their distribution segment, shows a year over year increase of 5% to revenues and an 8% sequential increase in revenues. Although revenue increased, they showed a drop in operating profit of 15%, due to increased overhead and lower margins.

The company reported an increase in free cash flow of more than $750 million dollars and ended the quarter with more than $1.4 billion dollars in cash on hand. They also reduced their long-term debt by $200 million and put $1.4 billion dollars into their pension plan. Some investors were concerned with the debt of the company and the status of their pension plan and I believe they are showing steps towards taking care of these issues. John Faraci, CEO, stated in their fourth-quarter outlook that they expect to continue to see strong earnings and free cash flow, but at seasonally lower levels than the third quarter. I believe the company has a strong outlook for the long-term, but don’t see much higher return in the near future.

-Jeremy