International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q3 2006 Earnings Presentation
42 slides from International Paper's earnings presentation, Nov 2, 2006
Slide 1: Third Quarter 2006 Review
John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO Third Quarter 2006 Review November 2, 2006 Third Quarter 2006 Review November 2, 2006 John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO
Slide 2: 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 website at www.internationalpaper.com under Inves
Slide 3: Agenda
Agenda Third Quarter 2006 Review Fourth Quarter 2006 Outlook Transformation Plan Update Third Quarter 2006 Review Fourth Quarter 2006 Outlook Transformation Plan Update
Slide 4: Third Quarter 2006 Summary
Third Quarter 2006 Summary Solid third quarter results from North American Paper and Packaging • Record Quarter for North American Paper • Operating earnings improved $80 million • Margin expansion in NA Paper and Packaging Improved IP paper and packaging pricing Continued outstanding mill operation
Slide 5: Diluted EPS from Continuing Operations and Before Special Items
0.00 0.10 0.20 0.30 0.40 0.50 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Diluted EPS from Continuing Operations and Before Special Items 0.00 0.10 0.20 0.30 0.40 0.50 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q .11 .31 .26 .27 .12 .17 .17 .12 .11 .40 .29 .40 .35 .29 .27 .0
Slide 6: 3Q'06 vs. 2Q'06 EPS from cont. ops before special items
3Q’06 vs. 2Q’06 EPS from cont. ops before special items $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 2Q'06 Price Volume / Downtime Cost/Mix Materials / Distrib. Corporate Items Wood Products Coated Tax 3Q'06 EPS $ / Share EPS $ / Share Packaging $0.05 Papers $0.04 2Q06 Tax rate 34% 3Q06 Tax rate 27% Pr
Slide 7: 9M'06 vs. 9M'05 EPS from cont. ops before special items
9M’06 vs. 9M’05 EPS from cont. ops before special items $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 $1.80 $2.00 9M'05 Price Volume / Downtime Cost/Mix Materials / Distrib. Land Sales Corporate Items Interest Other Wood Products Tax 9M'06 EPS $ / Share EPS $ / Share 2006 Tax rate 31% 2005 T
Slide 8: Raw Material & Distribution Costs EBIT impact 9M'06 vs. 9M'05
Raw Material & Distribution Costs EBIT impact 9M’06 vs. 9M’05 (120) (100) (80) (60) (40) (20) 0 Total of $250 million or $0.38 per share negative impact in 9M’06 versus 9M’05 (120) (100) (80) (60) (40) (20) Energy Distribution Chemicals EBIT ($MM) (8) (23) (63) (65) Non-U.S. Wood (91) All cost exclu
Slide 9: Printing Papers
Printing Papers $ Millions 3Q’06 Change vs 2Q’06: Earnings from the U.S. Coated and Supercalendered Papers business, sold in the third quarter, were $18 million in the quarter and $49 million in the quarter. $1,670 Sales Earnings 3Q’06 2Q’06 $ Millions $ 1,860 U.S. operations only Europe is average
Slide 10: Industrial Packaging
Industrial Packaging $ Millions 3Q’06 Change vs 2Q’06: Average IP realization (includes the impact of mix across all grades) $ 1,250 Sales Earnings 3Q’06 2Q’06 $ Millions $ 1,240 Containerboard U.S. Container $12 $36 Volume Realizations/ton 3Q’06 Change vs 2Q’06: 3% (3%) U .S. operations only Includ
Slide 11: North American Return on Sales
North American Return on Sales Source: IP analysis for 3Q’06 15% 11% 10% 8% Printing Papers Industrial Packaging 13% 12% 10% 10% 8% 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 Comp. A IP Comp. B Comp. C Comp D 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 IP Comp. A Comp. B Comp.
Slide 12: Consumer Packaging
Consumer Packaging $ Millions 3Q’06 Change vs 2Q’06: Average IP realization (includes the impact of mix across all grades) $ 855 Sales Earnings 3Q’06 2Q’06 $ Millions $ 795 Coated Paperboard $2 Volume Realizations/ton 3Q’06 Change vs 2Q’06: Flat Converting Businesses Sales Revenue 2% U.S. operations
Slide 13: Distribution
Distribution $ Millions $ 1,730 Sales Earnings 3Q’06 2Q’06 $ Millions $ 1,690 Record third quarter earnings; up 50% compared to 2005 Revenues improved 5% vs. third quarter 2005
Slide 14: Forest Products
Forest Products 3Q’06 Change vs 2Q’06: Average IP realization (includes the impact of mix across all grades) $ 445 Sales Earnings 3Q’06 2Q’06 $ Millions Lumber (mbf) Plywood (msf) ($64) ($33) Volume Realizations/unit $ 595 3Q’06 Change vs 2Q’06: (8%) (3%) U.S. operations only
Slide 15: Special Items & Discontinued Operations – 3Q'06
Special Items – After Tax • Transformation Plan and Legal Costs $(56) • Divestitures (19) Special Items Total $(75) $(0.16) Discontinued Operations (net of tax) • Brazil Coated Papers $80 • Kraft Papers 8 Discontinued Operations Total $88 $0.19 Special Items & Discontinued Operations – 3Q’06 Special
Slide 16: Reconciliation to 3Q'06 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $ 0.39 Special Items (0.16) Earnings from Continuing Operations 0.23 Discontinued Operations 0.19 Net Earnings $0.42 Reconciliation to 3Q’06 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $ 0.39 Spe
Slide 17: Fourth Quarter 2006 Outlook
Fourth Quarter 2006 Outlook Volumes seasonally slower towards end of year Prices: • Q3 : Paper and Packaging increases largely implemented, Wood Products prices are near bottom • Q4 : On Nov 1 st , IP communicated to its customers a $40/ton linerboard increase effective 1/1/07 Continued progress in
Slide 18: Transformation Plan Update
Transformation Plan Update Strengthen existing businesses Divestment program on track Return value to shareholders Strengthen balance sheet Selective reinvestments • Announced IP/VCP asset exchange transaction • Announced IP & Ilim potential joint venture Third Quarter 2006 Strengthen existing busin
Slide 19: Selective Reinvestment - Russia
Selective Reinvestment - Russia Selective Reinvestments 50:50 JV with Ilim Pulp Ilim Pulp • Ilim Pulp is the leading Russian integrated pulp and paper producer with 2.5 million tonnes • Produces uncoated free sheet, coated board, containerboard, and pulp • Leading supplier to Russia and China custom
Slide 20: Selective Reinvestment - Russia: Repeat the Kwidzyn/Svetogorsk Success Models
Selective Reinvestment - Russia IP has enjoyed excellent results in its Eastern European business Kwidzyn and Svetogorsk platforms are fully developed and sold out Russian JV creates additional growth opportunities by repeating the Kwidzyn and Svetogorsk models Capacity will be among lowest cost del
Slide 21: Economics
Economics Selective Reinvestments Attractive option for IP in Russia and China Selective Reinvestments $1.3 Billion JV Enterprise value $400 million in cash from IP for 50% equity in JV $520 per ton of capacity acquired is less than replacement cost $1.2 billion of capex over 6 years expected to be
Slide 22: Ilim Additional Points of Interest
Ilim Additional Points of Interest Russia Partners Assets • Mills • Forest Products Value Creation Selective Reinvestments JV Value Creation Russia Partners Assets • Mills • Forest Products Value Creation Selective Reinvestments Pulp Volume Cost & Mix Paper & Packaging
Slide 23: Transformation Plan Update: Divestments Status
Transformation Plan Update Divestments status as of November 2, 2006 Carter Holt Harvey Brazil Coated Papers US Coated Papers Kraft Papers Forestlands Wood Products Arizona Chemical Consider Strategic Options Distribute Sales Book Evaluate Bids Sales Agreement Announced Close on Sale - Phase complet
Slide 24: Key Financial Statistics
Capital Spending Depreciation & Amort. Net Interest Expense 3 Corporate Items Effective Tax Rate 3 Key Financial Statistics Updated as of November 2, 2006 Capital Spending Depreciation & Amort. Net Interest Expense Corporate Items Effective Tax Rate $ 1.2 B $ 1.2 – 1.3 B $ 560 MM $ 700 - 750 MM 31%
Slide 25: Lack of Order Downtime
Lack of Order Downtime 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Containerboard Uncoated Papers Pulp Coated Paperboard European Papers Coated Papers *Includes indefinitely closed uncoated papers capacity at Pensacola, FL, Bastrop, LA and Jay, ME in 2Q05 (72,000 tons), 3Q05 (108,000 to
Slide 26: Earnings by Industry Segment
Earnings by Industry Segment Earnings by Industry Segment Printing Papers $249 $247 $126 Industrial Packaging 125 100 33 Consumer Packaging 64 41 44 Distribution 34 36 23 Forest Products 129 184 273 Other Businesses 22 16 5 Operating Profit 623 624 504 Interest Expense, net (144) (147) (164) Minorit
Slide 27: 2006 Earnings from Continuing Operations
2006 Earnings from Continuing Operations Pre-Tax Tax MI Net ETR Average Diluted Shares EPS $ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority Interest; Net – Net Income; ETR – Effective Tax Rate; EPS – Earnings per Share; NM – Not Meaningful A reconciliation to GAAP EPS is available at www.internat
Slide 28: Average Sales Realizations
Average Sales Realizations * U.S. only Average IP realization (includes the impact of mix across all grades) Forest Products Packaging Printing Papers Segments* 2Q’06 Average Sales Realizations 3Q’05 Sept 06 Plywood, $/MSF Lumber, $/MBF Corrugated boxes, $/ton Containerboard, $/ton Pulp, $/ton Uncoa
Slide 29: Forest Resources Earnings Sources
Forest Resources Earnings Sources – Gross Margin • Forestland Sales 1 $125 $101 $125 • Harvest & Recreational Income 63 61 63 Forestland Expenses (27) (31) (43) Land Utilization (real estate), Net of Expenses 5 29 65 Total EBIT $166 $160 $210 2Q’06 3Q’05 3Q’06 Earnings Sources – Gross Margin • Fores
Slide 30: Raw Material & Distribution Costs EBIT impact 3Q'06 vs. 2Q'06
Raw Material & Distribution Costs EBIT impact 3Q’06 vs. 2Q’06 (16) (14) (12) (10) (8) (6) (4) (2) 0 2 4 Total of $21 million or $0.03 per share negative impact in 3Q’06 versus 2Q’06 (16) (14) (12) (10) (8) (6) (4) (2) Energy Wood Non-US EBIT ($MM) (2) (2) (5) (14) Distribution Chemicals All cots exc
Slide 31: Natural Gas Costs Trended higher in 3Q'06
Natural Gas Costs Trended higher in 3Q’06 2006 YTD Average Index: Jan 2003 Natural Gas Costs = 100 * NYMEX Natural Gas closing prices Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Natural Gas costs below YTD average cost 2005 Average
Slide 32: U.S. Mill Wood Costs Trended lower in 3Q'06
U.S. Mill Wood Costs Trended lower in 3Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Index: Jan 2003 Wood Costs = 100 * Delivered cost to U.S. pulp & paper mills U.S. mill wood costs below YTD average cost 2006 YTD Average 2005 Average
Slide 33: Caustic Soda Costs Trended lower in 3Q'06
Caustic Soda Costs Trended lower in 3Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Index: Jan 2003 Caustic Soda Costs = 100 Caustic soda costs below YTD average cost * Delivered cost to U.S. facilities 2006 YTD Average 2005 Average
Slide 34: Global Consumption
Global Consumption Key input indicative annual purchase levels Fiber Chemicals Units U.S. Non- U.S. 1 Natural Gas MMbtu 36,000,000 16,000,000 # 6 Fuel Oil BBL 4,400,000 440,000 Coal Tons 1,400,000 230,000 Wood Tons 61,000,000 5,700,000 OCC Tons 600,000 310,000 Caustic Soda Tons 315,000 60,000 Sodium
Slide 35: Ilim Mills in Russia
Ilim Mills in Russia Beijing Ust Ilimsk Bratsk Kotlas KPK
Slide 36: Global Cost Curve – Softwood Pulp, Moscow
Global Cost Curve 0 200 400 600 800 1000 1200 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 Cummulative Annual Capacity (000 Metric Tonnes) Cash Costs Delivered to Moscow + Import Duty Bleached Softwood Kraft Market Pulp 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,00
Slide 37: Global Cost Curve – Softwood Pulp, Shanghai
Global Cost Curve 0 200 400 600 800 1000 1200 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 Cummulative Annual Capacity (000 Metric Tonnes) Cash Costs Delivered to Shanghai + Import Duty Bleached Softwood Kraft Market Pulp 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,
Slide 38: Global Cost Curve – Hardwood Pulp, Moscow
Global Cost Curve 0 200 400 600 800 1000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 Cummulative Capacity (000 Annual Metric Tonnes) Cash Costs Delivered to Moscow + Import Duty Bleached Hardwood Kraft Market Pulp 2,000 4,000 6,000 8,000 10,000 12,000 14,
Slide 39: Global Cost Curve – Linerboard, Moscow
Global Cost Curve 0 100 200 300 400 500 600 700 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 Cummulative Annual Capacity (000 Metric Tonnes) Cash Costs Delivered to Moscow + Import Duty 42# Linerboard 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 Cummulative Annual Cap
Slide 40: Global Cost Curve – Linerboard, Shanghai
Global Cost Curve 0 100 200 300 400 500 600 700 800 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 Cummulative Annual Capacity (000 Metric Tonnes) Cash Costs Delivered to Shanghai + Import Duty . 42# Linerboard 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 Cummulative An
Slide 41: Global Cost Curve – Uncoated Freesheet, Moscow
Global Cost Curve 0 200 400 600 800 1000 1200 1400 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 Cummulative Annual Capacity (000 Metric Tonnes) Cash Costs Delivered to Moscow + Import Duty Uncoated Freesheet - Rolls (20#) 2,000 4,000 6,000 8,000 10,
Slide 42: International Paper
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International Paper Co /New/ — Q3 2006 Earnings Presentation on 6ix