International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q2 2008 Earnings Presentation
54 slides from International Paper's earnings presentation, Jul 31, 2008
Slide 1: Second Quarter 2008 Review
Second Quarter 2008 Review July 31, 2008 Second Quarter 2008 Review July 31, 2008 Tim S. Nicholls Senior Vice President & Chief Financial Officer John V. Faraci Chairman & Chief Executive Officer Exhibit 99.2
Slide 2: Statements Relating to Non-GAAP Financial Measures
Statements Relating to Non-GAAP Financial Measures 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
Slide 3: Second Quarter 2008 Results Summary
Second Quarter 2008 Results Summary EPS up 8% vs. 2Q07 $0.15 $0.04 $0.06 Second Quarter 2008 Results Summary EPS up 8% vs. 2Q07 Input costs escalated EPS excluding land sales up 35% vs. 2Q07 Prices improved Reduced mill operating costs Benefited from global balance $0.37 $0.37 $0.50 2Q07 1Q08 2Q08 F
Slide 4: Diluted EPS from Continuing Operations before Special Items
Diluted EPS f rom Continuing Operations before Special Items Best nd -Quarter Results since 2000 2 Diluted EPS f rom Continuing Operations before Special Items Best nd -Quarter Results since .10 .27 .26 .11 .15 .11 .03 .02 .16 .30 .34 .27 .04 .12 .30 .47 .41 .56 .20 .17 .26 .52 .45 .57 .45 .69 A rec
Slide 5: 2Q08 vs. 2Q07 EPS Higher Costs, Higher Prices, Lower Forest Products Earnings
.06 2Q08 vs. 2Q07 EPS Higher Costs, Higher Prices, Lower Forest Products Earnings .15 (.03) .52 .50 .08 .24 .14 .08 (.02) (.34) (.02) $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 2Q07 Price Volume Cost / Mix Materials & Freight Corporate / Other Ilim Vicksburg Tax 2Q08 $ / Share $ / Share I
Slide 6: Global Sales Revenues 2Q08 vs. 2Q07
Global Sales Revenues 2Q08 vs. 2Q07 Global Sales Revenues 2Q08 vs. 2Q07 15% 11% 12% 7% 10% xpedx includes the addition of Central Lewmar revenues in 2Q08 *Includes Forest Products and inter-segment sales eliminations $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 xpedx Printing Papers Industrial Packagin
Slide 7: Increasing Global Input & Freight Costs
Increasing Global Input & Freight Costs $211MM, or $0.34/Share Impact vs. 2Q07 (43) (40) (57) (71) ($80) ($60) ($40) ($20) Energy Chemicals Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $211MM, or $0.34/Share Impact vs. 2Q07 Input costs for continuing busi
Slide 8: Recovering North American Input Cost Increases
Recovering North American Input Cost Increases Increasing Prices to Recover Costs ($200) $1,000 $1,200 $1,400 $1,600 2003 vs. 2004 vs. 2005 vs. 2006 vs. 2007 vs. 6M08 vs. 6M07 Cumulative Price Increases / Decreases Input Cost Increases Recovering North American Input Cost Increases Increasing Prices
Slide 9: Printing Papers Earnings $38 Million Increase
Printing Papers Earnings $38 Million Increase Printing Papers Earnings $38 Million Increase (119) 2Q07 Price Materials & Freight Volume Cost / Mix Outages 2Q08
Slide 10: Printing Papers Margin Expansion
Price/ton Volume 2Q08 vs. 2Q07 Price/ton 2Q08 vs. 1Q08 Volume Business 2Q08 1Q08 2Q07 $ Million Printing Papers Margin Expansion Average IP price realization (includes the impact of mix across all grades) €18 6% 5% 18% (8%) 0% 0% 22% (4%) Brazilian Uncoated Papers €3 European Uncoated Papers U.S. Pu
Slide 11: Industrial Packaging Earnings
Industrial Packaging Earnings Cost Inflation Exceeded Price Increases (21) (15) (57) 2Q07 Price Materials & Freight Volume* Cost / Mix Outages Vicksburg Other 2Q08 Industrial Packaging Earnings Cost Inflation Exceeded Price Increases *Excludes trade volume
Slide 12: Industrial Packaging U.S. Margins Under Pressure
Price / Ton Volume 2Q08 vs. 2Q07 2Q08 vs. 1Q08 Volume Price / Ton Business 2Q08 1Q08 2Q07 $ Million Industrial Packaging U.S. Margins Under Pressure €48 (3%) (1%) 8% €5 (3%) European Container 2% (2%) N.A. Container N.A. Containerboard $1,470 $1,445 $1,315 Earnings Sales Industrial Packaging U.S. Ma
Slide 13: Consumer Packaging Earnings
Consumer Packaging Earnings Cost Inflation Exceeded Price Increases (1) (38) 2Q07 Price Materials & Freight Volume Cost / Mix Other 2Q08* Consumer Packaging Earnings Cost Inflation Exceeded Price Increases *Excludes a special item of ($13) million related to the reorganization of Shorewood’s Canadia
Slide 14: Consumer Packaging Margins Under Pressure
Price Price/Ton Revenue Volume 2Q08 vs. 2Q07 Price Revenue Business 2Q08 vs. 1Q08 Volume Price/Ton Business 2Q08 1Q08 2Q07 $ Million Consumer Packaging Margins Under Pressure Average IP price realization (includes the impact of mix across all grades) Excludes a special item of ($5) and ($13) million
Slide 15: xpedx Focus on Cost Reduction
2Q08 1Q08 2Q07 $ Million xpedx Focus on Cost Reduction Fuel & Freight $1,970 $1,985 $1,720 Earnings Sales xpedx Focus on Cost Reduction Weak demand for commercial printing and packaging Growth from price increases and national accounts Benefiting from cost reductions Offset by fuel costs despite few
Slide 16: xpedx Product Diversity Overcoming Market Conditions
xpedx Product Diversity Overcoming Market Conditions xpedx Product Diversity Overcoming Market Conditions Revenue dollars and growth percentages are based on 6M08 vs. 6M07 results Merchant Printing National Accounts Merchant Packaging Central Lewmar Publishing Saalfeld Billions Printing Packaging Fa
Slide 17: Forest Products Focusing on Maximizing Value
Forest Products Focusing on Maximizing Value 2Q08 1Q08 2Q07 Forest Products Focusing on Maximizing Value 30,000 13,000 37,000 Acres Sold $1,872 $1,871 $2,144 Price / Acre Earnings Sales ($ Million) ($ Million)
Slide 18: Asia Building New Capabilities
6M08 6M07 $ Million Asia Building New Capabilities Earnings Sales Asia Building New Capabilities This slide includes the Asian business segments in Printing Papers, Industrial Packaging, and Consumer Packaging as well as Asian sales and operating profits reported in Foodservice and Shorewood results
Slide 19: Asia World-Class Assets, Low Capital Costs
Asia World-Class Assets, Low Capital Costs Asia World-Class Assets, Low Capital Costs Heated Belt Calender Forming Section Film Size Press Start-up of 420,000-ton Sun joint venture coated board machine Chinese cartonboard demand growing at 7% annually Box plant and folding carton plant start ups Fol
Slide 20: Ilim Joint Venture 1Q08 Results
1Q08 vs. 4Q07 Volume (000 Metric Tons) Price / Ton Business 1Q08 4Q07 $ Million Ilim Joint Venture 1Q08 Results IP’s After-Tax Share: $32MM or $0.08 EPS IP’s share of Ilim’s 1Q08 earnings include a $14 million after-tax foreign exchange gain and a $3 million after-tax charge to write off a share rep
Slide 21: Ilim Joint Venture Sale of KPK Mill
Ilim Joint Venture Sale of KPK Mill Ilim Joint Venture Sale of KPK Mill Ilim Holding S. A. signed an agreement to sell its 56% interest in the KPK recycled paperboard mill to Knauf, its joint venture partner in this mill After the transaction has been completed, Knauf will own the 220,000-TPY mill T
Slide 22: Free Cash Flow Improvement
Free Cash Flow Improvement 2Q08 6M08 2Q07 1Q08 Free Cash Flow ($ Million) Free Cash Flow Improvement ($267) ($482) $1,010 ($299) Free Cash Flow ($215) Less Capital Investment Cash Provided by Continuing Operations
Slide 23: Increasing Global Input & Freight Costs vs. 6M07
Increasing Global Input & Freight Costs $378MM, or $0.60/Share Impact vs. 6M07 (132) (103) (80) (63) ($150) ($125) ($100) ($75) ($50) ($25) Energy Chemicals Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $378MM, or $0.60/Share Impact vs. 6M07 Input costs fo
Slide 24: 6M08 vs. 6M07 EPS
6M08 vs. 6M07 EPS Higher Costs, Higher Prices, Lower Forest Products Earnings .07 .31 .11 $ / Share $ / Share 6M08 vs. 6M07 EPS Higher Costs, Higher Prices, Lower Forest Products Earnings Earnings from continuing operations before special items IPG .10 CPG .05 P&C .22 Europe .08 Fiber (.13) Chemical
Slide 25: Weyerhaeuser CBPR Acquisition Update
Weyerhaeuser CBPR Acquisition Update Weyerhaeuser CBPR Acquisition Update On schedule for August close Management team in place Expecting more merger benefits at faster pace Expect acquisition to be cash positive in 2008
Slide 26: Weyerhaeuser CBPR Acquisition Financing in Place
Weyerhaeuser CBPR Acquisition Update Financing in Place Weyerhaeuser CBPR Acquisition Update Financing in Place Original Financing Plan $2 Billion 5-Year Term Loan $2.5 Billion 5-Year Term Loan $4 Billion 18-Month Bridge Loan $3.0 Billion Bond Offering $0.5 Billion Cash & Short-Term Debt Current Fin
Slide 27: Weyerhaeuser CBPR Acquisition Key Financial Statistics
Weyerhaeuser CBPR Acquisition Key Financial Statistics Weyerhaeuser CBPR Acquisition Key Financial Statistics $50 million in 2008 merger benefits $80 million one-time costs in 2008 – Establish data center and IT systems – Severance and relocation expenses – Transition costs $35 million one-time, non
Slide 28: 3Q08 Outlook
3Q08 Outlook Changes from 2Q08 Increase Increase Ex-North America North America Improving Improving Decrease Improving 3Q08 Outlook Changes from 2Q08 Input & Freight Costs Steady Slight Increase Flat Slight Increase Under Pressure Steady Operations Volume Pricing Flat Packaging Paper Maintenance Out
Slide 29: 2008 Forest Products Earnings
2008 Forest Products Earnings 2008 Forest Products Earnings Signed agreement to sell mineral rights in northwest Louisiana for $263 million Expect transaction to close in 3Q08 At end of 2Q08, portfolio includes 270,000 acres of land and mineral rights with an NPV of $675 million to $775 million Expe
Slide 30: Special Items & Discontinued Operations
Special Items & Discontinued Operations 2Q08 Earnings per Share $ Million Special Items & Discontinued Operations 2Q08 $0.00 ($1) Total Discontinued Operations $0.54 Net Earnings $0.56 Earnings from Continuing Operations & Before Special Items Special Items ($9) Shorewood Canadian Reorganization Adj
Slide 31: Planned Maintenance Outages
3Q08E 2Q08 4Q08E $ Millions 1Q08 Planned Maintenance Outages Europe North America Total Impact Consumer Packaging Industrial Packaging Printing Papers Total Dollar impact of planned maintenance outages are estimates and subject to change Planned Maintenance Outages
Slide 32: Operating Profits by Industry Segment
Operating Profits by Industry Segment from Continuing Operations before Special Items 2Q07 2Q08 1Q08 $ Million Operating Profits by Industry Segment from Continuing Operations before Special Items Earnings from continuing operations before income taxes, equity earnings & minority interest Equity Ear
Slide 33: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results from Continuing Operations before Special Items Operating Profit Sales $ Million 1Q08 2Q07 2Q08 2Q08 1Q08 2Q07 Geographic Business Segment Operating Results from Continuing Operations before Special Items Asian $1,970 $1,060 $1,985 $1,050 $1,720 Asian In
Slide 34: 2008 Earnings from Continuing Operations
2008 Earnings from Continuing Operations Equity Earnings Diluted EPS Earnings from Continuing Operations Net Income $MM Estimated Tax Rate Minority Interest $MM Special Items Pre-Tax $MM Before Special Items Average Shares MM Tax $MM 2 1 2008 Earnings from Continuing Operations Assuming dilution A r
Slide 35: Business Segment Price Realization
Business Segment Price Realization 2Q08 2Q08 1Q08 1Q08 2Q07 2Q07 Average Selling Price Realizations Industrial Packaging ($/ton) Printing Papers ($/ton) Business Segment Price Realization Containerboard Corrugated Boxes Market Pulp Uncoated Freesheet Average IP U.S. selling price realizations (inclu
Slide 36: Printing Papers Earnings 2Q08 vs. 2Q07
Printing Papers Earnings 2Q08 vs. 2Q07 (4) (8) 2Q07 North America Paper North America Pulp Europe Brazil 2Q08 Printing Papers Earnings 2Q08 vs. 2Q07 Brazilian earnings include a one-time, $6 million gain from the sale of government credits
Slide 37: Industrial Packaging Earnings 2Q08 vs. 2Q07
Industrial Packaging Earnings 2Q08 vs. 2Q07 (3) (19) 2Q07 North America Europe Asia 2Q08 Industrial Packaging Earnings 2Q08 vs. 2Q07 Average IP U.S. selling price realizations (includes the impact of mix across all grades)
Slide 38: Consumer Packaging Earnings 2Q08 vs. 2Q07
Consumer Packaging Earnings 2Q08 vs. 2Q07 (2) (8) 2Q07 US Coated Paperboard Shorewood Food Service Europe Asia 2Q08* Consumer Packaging Earnings 2Q08 vs. 2Q07 *Excludes a special item of ($13) million related to the reorganization of Shorewood’s Canadian operations
Slide 39: 2Q08 vs. 1Q08 EPS
2Q08 vs. 1Q08 EPS Higher Costs, Higher Prices, Higher Maintenance Outages .04 .06 .50 .37 .16 .03 .06 .05 .03 (.08) (.01) (.02) (.09) $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 1Q08 Price Volume Cost / Mix Materials / Freight Corporate / Other Ilim Outages Vicksburg Tax 2Q08 $ / Share $ / Share
Slide 40: Printing Papers Earnings 2Q08 vs. 1Q08
Printing Papers Earnings 2Q08 vs. 1Q08 Printing Papers Earnings 2Q08 vs. 1Q08 (38) (20) 1Q08 Price Volume Cost / Mix Materials & Freight Outages Other 2Q08
Slide 41: Industrial Packaging Earnings 2Q08 vs. 1Q08
Industrial Packaging Earnings 2Q08 vs. 1Q08 (15) (16) (6) 1Q08 Volume* Cost / Mix Materials & Freight Outages Vicksburg 2Q08 Industrial Packaging Earnings 2Q08 vs. 1Q08 *Excludes trade volume
Slide 42: Consumer Packaging Earnings 2Q08 vs. 1Q08
Consumer Packaging Earnings 2Q08 vs. 1Q08 (11) (13) 1Q08* Price Volume Cost / Mix Materials & Freight Outages Other 2Q08* Consumer Packaging Earnings 2Q08 vs. 1Q08 * Excludes a special item of ($5) and ($13) million in 1Q08 and 2Q08, respectively, related to the reorganization of Shorewood’s Canadia
Slide 43: North American Industry Capacity Closures Uncoated Freesheet
North American Industry Capacity Closures Uncoated Freesheet North American Industry Capacity Closures Uncoated Freesheet 12,000 13,000 14,000 15,000 16,000 2008E 2000 – Demand CAGR = (2.4%) Capacity closures = (18%) Source: AF&PA, RISI, IP Analysis
Slide 44: North American Industry Capacity Closures Containerboard
North American Industry Capacity Closures Containerboard North American Industry Capacity Closures Containerboard 38,000 39,000 40,000 41,000 42,000 2008E Source: AF&PA, RISI, IP Analysis 2008E includes Pratt’s new machine in Shreveport, LA: 360 M Tons 2000 – Demand CAGR = (0.4%) Capacity closures =
Slide 45: Total Cash Cost Components 6M08
Total Cash Cost Components 6M08 Total Cash Cost Components 6M08 North American Mills Only Energy 11% Materials 13% Labor 14% Fiber 27% Freight 13% Overhead 9% Chemicals 12%
Slide 46: Energy Substituting Lower-Cost Energy
Energy Substituting Lower-Cost Energy Energy Substituting Lower-Cost Energy 0% 20% 40% 60% 80% 100% 2008P Coal Gas Wood Waste Fuel Oil Power Other *Other includes shredded tires, recycled oil, and any other fossil fuels
Slide 47: Global Input & Freight Costs by Segment
Global Input & Freight Costs by Segment $211 Million Global Impact vs. 2Q07 ($120) ($100) ($80) ($60) ($40) ($20) Wood Energy Chemicals Freight OCC Global Input & Freight Costs by Segment $211 Million Global Impact vs. 2Q07 Consumer Packaging ($37) Industrial Packaging ($56) Printing Papers ($118)
Slide 48: Increasing Global Input & Freight Costs vs. 1Q08
Increasing Global Input & Freight Costs $62MM, or $0.10/Share Impact vs. 1Q08 (24) (17) (2) (19) ($35) ($25) ($15) ($5) Energy Chemicals Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $62MM, or $0.10/Share Impact vs. 1Q08 Input costs for continuing business
Slide 49: Natural Gas Costs
Natural Gas Costs 45% increase vs. 2Q07 average cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 45% increase vs. 2Q07 average cost
Slide 50: U.S. #6 Fuel Oil
U.S. #6 Fuel Oil 75% increase vs. 2Q07 average cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Index: Jan 2006 #6 Fuel Costs = 100 Delivered cost to U.S. facilities U.S. #6 Fuel Oil 75% increase vs. 2Q07 average cost
Slide 51: U.S. Mill Wood Costs
U.S. Mill Wood Costs 9% increase vs. 2Q07 average cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr U.S. Mill Wood Costs 9% increase vs. 2Q07 average cost Index: Jan 2005 Wood Costs = 100 Delivered cost to U.S. facilities
Slide 52: U.S. Caustic Soda Costs
U.S. Caustic Soda Costs 52% increase vs. 2Q07 average cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Index: Jan 2005 Caustic Soda Costs = 100 Delivered cost to U.S. facilities U.S. Caustic Soda Costs 52% increase vs. 2Q07 average cost
Slide 53: U.S. Corn Starch Costs
U.S. Corn Starch Costs 10% increase vs. 2Q07 average cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Index: Jan 2006 Corn Starch Costs = 100 Delivered cost to U.S. facilities U.S. Corn Starch Costs 10% increase vs. 2Q07 average cost
Slide 54: Global Consumption 2008 Purchase Estimates for Key Inputs
Commodity Non – U. S. U. S. Global Consumption 2008 Purchase Estimates for Key Inputs 110,000 350,000 Corn Starch (Tons) Chemicals Fiber Energy 50,000 240,000 Sodium Chlorate (Tons) - 40,000 LD Polyethylene (Tons) 4,000 24,000 Latex (Tons) 230,000 1,300,000 Coal (Tons) 8,200,000 43,000,000 Wood (Ton
International Paper Co /New/ — Q2 2008 Earnings Presentation on 6ix