International Paper (IP) Up 15.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for International Paper (IP). Shares have added about 15.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is International Paper due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
International Paper Q4 Earnings Lag Estimates, Down Y/Y
International Paper reported fourth-quarter 2020 adjusted earnings of 75 cents per share, which missed the Zacks Consensus Estimate of 84 cents. The bottom line also declined 31% year over year from $1.09 reported in the prior year quarter due to higher input and operating costs.
Including one-time items, the company posted earnings per share of 39 cents in fourth-quarter 2020 compared with the year-ago quarter’s 42 cents.
Net sales declined 5% to $5.24 billion in the fourth quarter from the year-ago quarter. The top line also lagged the Zacks Consensus Estimate of $5.26 billion.
Adjusted cost of sales was $3,654 million, up 1% from the prior-year quarter’s $3,620 million. Gross profit declined 16% year over year to $1,585 million. Adjusted selling and administrative expenses fell 10% year over year to $396 million during the reported quarter. Adjusted operating profit was $296 million, reflecting year-over-year plunge of 31% due to higher input and operating costs.
Segment Performance
Industrial Packaging: Sales in this segment remained flat year over year at $3.8 billion. Operating profit fell 29% year over year to $431 million.
Global Cellulose Fibers: In the reported quarter, the segment’s sales inched up 1% to $582 million from the prior-year quarter. The segment incurred an operating loss of $114 million in the quarter under review, compared with the year-ago quarter’s operating loss of $45 million.
Printing Papers: Sales of this segment amounted to $802 million, reflecting a plunge of 25% from the year-earlier quarter. The segment’s operating profit declined 27% year over year to $80 million in fourth-quarter 2020.
Financial Position
Cash and temporary investments aggregated $595 million as of Dec 31, 2020 compared with $511 million as of Dec 31, 2019. Through 2020, the company returned $800 million to shareholders and reduced debt by $1.7 billion. As of 2020-end, the company’s long-term debt was at $8.1 billion.
Cash flow from operating activities was $3 billion in 2020 compared with $3.6 billion in the prior year. Free cash flow was $2.3 billion in 2020, flat compared with the prior year.
2020 Results
International Paper’s adjusted earnings per share plunged 37% year over year to $2.80 in 2020 and missed the Zacks Consensus Estimate of $2.88. Including one-time items, the bottom line was $1.22, down 60% from the $3.07 in 2019. Sales declined 8% year over year to $20.6 billion from the prior year’s $22.4 billion. The top-line figure matched the Zacks Consensus Estimate.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, International Paper has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 these revisions indicates a downward shift. Notably, International Paper has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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