International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q2 2005 Earnings Presentation
34 slides from International Paper's earnings presentation, Jul 26, 2005
Slide 1: Second Quarter 2005 Review
Second Quarter 2005 Review July 26, 2005 John V. Faraci Chairman & CEO Marianne M. Parrs EVP & CFO
Slide 2: Forward-Looking Statements
Forward-Looking Statements These slides contain forward-looking statements. Such statements reflect management’s current views and are subject to risks and uncertainties that could cause actual results to differ materially, including but not limited to, the ability of the company to accomplish its t
Slide 3: Statements Relating to Non-GAAP Financial Measures
During the course of this presentation, certain non- U.S. GAAP financial information will be presented. A reconciliation of those numbers to U.S. GAAP financial measures is available on the company’s website at www.internationalpaper.com under Investors. Statements Relating to Non-GAAP Financial Mea
Slide 4: Agenda
Agenda Second Quarter Review Third Quarter Outlook Transformation Plan Summary
Slide 5: Second Quarter 2005 Summary
Second Quarter 2005 Summary Volumes down from first quarter Balanced our supply with customer demand by taking downtime Continued to realize our announced price increases in coated and printing papers, and bleached board. Benefited from higher lumber prices Mill operations improved Raw material cost
Slide 6: Diluted EPS from Continuing Operations and Before Special Items
Diluted EPS from Continuing Operations and Before Special Items* .03 .11 .11 .11 .11 .32 .29 .32 .14 .19 .22 .19 .12 .33 .42 .42 .34 .31 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2001 2002 2003 2004 2005 * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Inve
Slide 7: 2Q'05 vs. 1Q'05 EPS bridge
2Q’05 vs. 1Q’05 EPS from cont. ops before special items EPS $ / Share $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Downtime ($0.07) 1Q05 Tax rate 24% 2Q05 Tax rate 31% $.34 $.04 ($.07) $.05 ($.04) ($.02) $.03 ($.03) $.01 $.31 Energy ($0.02) Wood Costs ($0.01) Chemicals ($0.01) Overhead $0.03 Paper $0.03 Wood
Slide 8: 6M'05 vs. 6M'04 EPS bridge
6M’05 vs. 6M’04 EPS from cont. ops before special items EPS $ / Share $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Downtime ($0.12) Volume ($0.06) LIFO/Other ($0.04) Pension ($0.07) $.45 $.62 ($.18) $.17 ($.35) 2004 Tax rate 31% 2005 Tax rate 28% $.01 ($.11) $.04 $.03 ($.03) $.65 Paper $0.38 Packaging
Slide 9: Lack of Order Downtime
Lack of Order Downtime M Short Tons 65 50 70 90 Europe 15 Uncoated 120 Containerboard 140 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2002 2003 2004 2005 Containerboard Coated Papers Uncoated Papers Bleached Board Pulp European Papers *Downtime is in thousand short tons after rationalization actions,
Slide 10: Printing Papers
Printing Papers $ Millions 2Q’05 1Q’05 Sales $1,895 $1,985 Earnings 149** 183 2Q’05 Change vs 1Q’05: Volume Realizations/ton Uncoated* (9%) $15 Coated* ( 2%) $30 Pulp* 5% $5 Europe (uncoated) Flat ( $5) * US operations only, excluding Fine Paper Average IP realizations include the effect of mix acro
Slide 11: Industrial Packaging
Industrial Packaging $ Millions 2Q’05 1Q’05 Sales $1,240 $1,295 Earnings 85 105 2Q’05 Change vs 1Q’05: Volume Realizations/ton Containerboard (7%) $(5) U.S. Container 2% $(15) Average IP realization (includes the impact of mix across all grades)
Slide 12: Consumer Packaging
Consumer Packaging $ Millions 2Q’05 1Q’05 Sales $650 $630 Earnings 41 23 2Q’05 Change vs 1Q’05: Volume Realizations/ton Bleached Board* (4%) $ 10 Sales Revenue Converting Businesses 5% * U.S. operations only Average IP realization (includes the impact of mix across all grades)
Slide 13: Forest Products
Forest Products $ Millions 2Q’05 1Q’05 Sales $605 $610 Earnings 191* 207 2Q’05 Change vs 1Q’05: Lumber (mbf) 8% $40 Plywood (msf) (9%) Flat Average IP realization (includes the impact of mix across all grades) * Includes special charge of $14 million for costs associated with relocations of Forest P
Slide 14: Special Items
Special Items 2Q’05 $MM Diluted EPS Special Items Insurance Recoveries 35 Restructuring Charges (31) Adjustments to Divestitures 19 Interest 11 Tax Impact of Above (13) Deferred Tax (94) Special Items Total (73) $(0.15)
Slide 15: Reconciliation to 2Q'05 Diluted Earnings Per Share
Reconciliation to 2Q’05 Diluted Earnings Per Share Diluted EPS Earnings from Continuing Operations and Before Special Items $0.31 Special Items (0.15) Earnings from Continuing Operations $0.16 Net Earnings $0.16
Slide 16: Third Quarter 2005 Outlook
Third Quarter 2005 Outlook Volumes mixed Some pricing pressures in uncoated papers and industrial packaging offset our announced increases in coated paper Operational improvements should continue to be realized Raw material costs expected to be flat versus second quarter
Slide 17: Transformation Plan Summary
Transformation Plan Summary Focusing on 2 key platform businesses Uncoated Papers Packaging Evaluating strategic options for 7 businesses Carter Holt Harvey Coated Papers Beverage Packaging Kraft Papers Arizona Chemical U.S. Forestlands (selected acreage) Wood Products
Slide 18: Strategic options for IP's forestlands
Transformation Plan Strategic options for IP’s forestlands As part of the transformation plan, IP is pursuing strategic options for part or all of its U.S. forestlands Total IP Forestlands 6.8 MM acres Core Holdings 5.3 MM acres Southeast Timber* 1.1 MM acres Long-Term Leases 0.4 MM acres Sell 3.0 M
Slide 19: Transformation Plan Summary (cont'd)
Transformation Plan Summary (cont’d) Use of after-tax proceeds ($8-10 billion) 40-50% - Debt repayment (maintain investment grade credit rating) 25-30% - Return value to shareowners 20-25% - Selective reinvestments Improve profitability of key platform businesses Targeting $400 million of profit imp
Slide 20: Profit improvement initiatives
Transformation Plan Profit improvement initiatives Targeting $400 million of annual profit improvement through three initiatives Lower costs to manufacture 50% Higher sales volumes/Mix 30% Streamlining the organization 20%
Slide 21: Transforming to a Stronger IP
Transforming to a Stronger IP INTERNATIONAL » Market conditions continue to be challenging » Managing factors we can control > Transforming IP to * Improve profitability » Better serve customers » Increase shareholder return a
Slide 22: Q & A
Q & A
Slide 23: Appendix
Appendix
Slide 24: Basic EPS from Continuing Operations and Before Special Items
Basic EPS from Continuing Operations and Before Special Items* .03 .11 .11 .11 .11 .32 .32 .30 .14 .20 .22 .20 .12 .33 .43 .43 .34 .31 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2001 2002 2003 2004 2005 * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Invest
Slide 25: Capacity Closures
Capacity Closures Second quarter 2005 Shutting high-cost manufacturing capacity to match IP supply with customer demand Capacity Mill Location Grade TPY Date Shut Pensacola, FL UFS 150,000 4/1/05 Androscoggin, ME UFS 100,000 4/1/05 Bastrop, LA UFS 180,000 6/9/05 TOTAL 430,000 UFS – uncoated free she
Slide 26: Forest Resources
Forest Resources $ Millions 2Q’05 1Q’05 2Q’04 Earnings Sources – Gross Margin Sales of Forestlands $67 $69 $78 Harvest & Recreational Income 62 69 61 Forestland Expenses (39) (34) (38) Land Utilization (real estate), Net of Expenses 39 54 20 Total EBIT $129 $158 $121
Slide 27: Average Sales Realizations
Average Sales Realizations Average Sales Realizations Segments Grades June 05 June 04 2Q’05 1Q’05 2Q’04 Printing Uncoated 827 762 831 815 749 Papers* Coated 840 723 836 806 715 $/ton Pulp 478 489 495 488 473 Packaging Containerboard 442 416 450 454 406 $/ton Corrugated boxes* 681 638 687 702 630 For
Slide 28: Earnings from Continuing Operations
Earnings from Continuing Operations Pre-Tax Tax MI Net ETR Average Diluted Shares** EPS $MM $MM $MM $MM MM Shares $/Share Before Special Items Q1 223 (54) (4) 165 24% 488.9 0.34 Q2 235 (73) (12) 150 31% 0.31 Special Items Q1 (145) 36 21 (88) 25% 488.9 (0.18) Q2 34 (107) - (73) - (0.15) Earnings from
Slide 29: Impact of Higher Raw Material Costs 2Q'05 vs 1Q'05
Impact of Higher Raw Material Costs EBIT impact 2Q’05 vs. 1Q’05 Material costs $25 million negative EBIT impact in 2Q’05 versus 1Q’05 EBIT ($) 5 0 (5) (10) (15) (5) (3) (8) (5) (4) Wood Caustic Soda Oil/Coal/Electricity Natural Gas Other
Slide 30: Impact of Higher Raw Material Costs 6M'05 vs 6M'04
Impact of Higher Raw Material Costs EBIT impact 6M’05 vs. 6M’04 Material costs $235 million negative EBIT impact in 6M’05 versus 6M’04 EBIT ($) (20) (40) (60) (80) (100) (120) (95) (50) (50) (15) (25) Wood Caustic Soda Oil/Coal/Electricity Natural Gas Other
Slide 31: High U.S. Mills Wood Costs
High U.S. Mills Wood Costs Trended downward in 2Q’05 Index: Jan 2003 Wood Costs = 100 Wood costs decreased in 2Q’05 and should trend lower in 3Q’05 120 110 100 90 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May * Delivered cost to U.S. pulp & paper mills
Slide 32: Rising Caustic Soda Costs
Rising Caustic Soda Costs Continued upward pressure in 2Q’05 Index: Jan 2003 Caustic Soda Costs = 100 Caustic soda costs have increased 150% since 1Q’03 300 200 100 0 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May
Slide 33: Natural Gas Costs
Natural Gas Costs Costs averaged higher in 2Q’05 Index: Jan 2003 Natural Gas Costs = 100 Natural gas costs projected to trend upward in 3Q’05 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May
Slide 34: International Paper
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