International Paper Co. (NYSE: IP – $47.43) posted better-than-expected earnings in the fourth quarter and full year 2018, driven by solid commercial and operational performance across all three business segments: Industrial Packaging, Global Cellulose Fibers and Printing Papers. Net sales grew to $6.0 billion compared to $5.7 billion in the fourth quarter of 2017. Annual net sales totaled $23.3 billion last year compared with $21.7 billion in 2017. Adjusted earnings for the quarter were $670 million or $1.65 per share compared with $1.27/share last year and six cents better than analysts’ forecasts. Full-year 2018 adjusted earnings totaled $2.2 billion, equal to $5.28 per share.
International Paper is trading at depressed valuations, in my opinion. Despite a recent improvement in share price, the issue is trading 34% below its 2018 high. The fall has coincided with rising costs and revised projections of a larger-than-expected industry-wide increase in capacity over the long haul. I still see strong demand for containerboard, which is a key part of the Industrial Packaging unit, with suppliers such as IP announcing several expansion projects around the world. I believe the current price discounts the oversupply issue to a large degree leaving the stock trading at a P/E ratio of 9 times estimated 2019 earnings of $5.31. And the well-covered $2.00 per share annual dividend yielding 4.23% at current levels helps solidify a decent total return argument, not without some risk, for the company in the years to come.