International Paper Co. (IP)

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 Paper and packaging firm,

International Paper Company IP is scheduled to report first-quarter 2018 financial results before the opening bell on Apr 26. The company is likely to report higher revenues in the quarter across most of the operating segments due to healthy growth dynamics. However, total corporate revenues in the to-be-reported quarter are expected to decline to $5,430 million from $5,511 million generated in first-quarter 2017.      

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> International Paper Co

IP

▼ 52.76
-0.95 -1.77%

Whether such a juxtaposition could result in higher earnings for the quarter remains to be seen.

Factors to Consider

International Paper is continuing with its restructuring initiatives to transform itself into a core packaging company. The company is investing considerably to improve its North American containerboard mill system, enhance product quality, and reduce manufacturing and delivery costs. At the same time, International Paper is divesting its non-core businesses to focus more on high-return capital projects in its core businesses that can drive additional earnings growth.  

Mergers and acquisitions also remain a key strategy for International Paper to strengthen its scale of operations in the long term. In North America, the company envisions a large opportunity within its Industrial Packaging business, which continues to generate the best margins in the industry. It is further taking initiatives to drive margin expansion across the business through inorganic growth.

The Zacks Consensus Estimate for revenues from the Industrial Packaging segment, which accounts for the lion’s share of total revenues, is currently pegged at $3,759 million, up from $3,499 million generated in first-quarter 2017. Revenues from Printing Papers segment are expected to be $1,025 million compared with $995 million reported in the prior-year quarter.

Industrial Packaging segment’s operating profit for the quarter is expected to improve to $455 million from $365 million recorded in the year-ago quarter, while the same for Printing Papers segment is likely to decrease to $83 million from $100 million.

Other Key Factors

International Paper has huge pension obligations for substantially all U.S. salaried employees hired prior to Jul 1, 2004 and largely all hourly and union employees regardless of the hire date. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and in the number of retirees are likely to increase pension costs and reduce its cash flow, thereby limiting its earnings growth potential. Rising energy, chemical and old corrugated containers’ costs remain headwinds, particularly in harsh winter conditions.

Our proven model does not conclusively show that International Paper is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:   

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.34%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

International Paper Company Price and EPS Surprise

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International Paper Company Price and EPS Surprise | International Paper Company Quote

Zacks Rank: International Paper has a Zacks Rank #2. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Twitter, Inc. TWTR has an Earnings ESP of +12.50% and a Zacks Rank #1. You can see

the complete list of today’s Zacks #1 Rank stocks here.

The Brink's Company BCO has an Earnings ESP of +5.25% and a Zacks Rank #2.

Merit Medical Systems, Inc. MMSI has an Earnings ESP of +4.05% and a Zacks Rank #2.

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