Memphis-based International Paper Co. (NYSE: IP – $51.47) reported second quarter 2018 net earnings of $405 million compared $80 million the second quarter of last year. On an adjusted basis, IP earned $1.19 per share up 80% from last year’s $0.66 and ten cents better than Street consensus. Total revenue increased to $5.83 billion from $5.38 billion and beat the estimated $5.80 billion. On a business-by-business basis:
- Industrial Packaging operating profits were $569 million – excluding special items – compared with $464 million in the first quarter of 2018. In North America, continued strong box and export containerboard demand and higher sales prices across all channels drove improved earnings. Input costs were favorable in the quarter driven by lower recovered fiber.
- Global Cellulose Fibers operating profits in the second quarter of 2018 were $69 million (excluding special items) compared with $15 million in the first period. Earnings were favorably affected by continued price realization for fluff and commodity grades across all regions, lower planned maintenance outage expense and lower operating costs.
- Printing Papers operating profits were $94 million versus $64 million in the first quarter of 2018. In North America, improved earnings were driven by higher sales volume, continued price realization, better geographic mix, improved mill operations and lower input costs, which were partly offset by higher distribution and planned maintenance outage expense.
Positions in International Paper should appeal to both aggressive and income investors alike. Full-year earnings should top $5.10 per share vs. $3.51 in 2017 and next year, Street estimates are for $5..60, affording the company a very reasonable estimated price-to-earnings ratio. Shares, in my view, possess wide 3- to 5-year total return potential, which is supported by an above average dividend yield of 3.6%.