International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q3 2008 Earnings Presentation
47 slides from International Paper's earnings presentation, Oct 30, 2008
Slide 1: Third Quarter 2008 Review
Third Quarter 2008 Review October 30, 2008 Third Quarter 2008 Review October 30, 2008 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: Third Quarter 2008 Results Summary
$0.16 $0.48 Third Quarter 2008 Results Summary Solid Results Despite Cost Inflation $0.41 $0.36 3Q07 3Q08 Forest Products EPS Operating Business EPS Third Quarter 2008 Results Summary Solid Results Despite Cost Inflation Input Cost Escalation Mineral Rights Earnings Selling Price Improvements Soft N
Slide 4: 3Q08 vs. 3Q07 EPS
3Q08 vs. 3Q07 EPS Higher Prices, Volume & Mix, Unfavorable Input Costs .16 .48 .57 (.11) (.02) .15 .28 .01 (.02) (.47) .13 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 3Q07 Price Volume Cost / Mix Materials & Freight Ilim Vicksburg Tax Interest 3Q08 $ / Share $ / Share IPG
Slide 5: Increasing Global Input & Freight Costs vs. 3Q07
Increasing Global Input & Freight Costs $286MM, or $0.47/Share Impact vs. 3Q07 (96) (89) (53) (48) ($120) ($100) ($80) ($60) ($40) ($20) Energy Chemicals Freight Fiber North America Outside North America Increasing Global Input & Freight Costs $286MM, or $0.47/Share Impact vs. 3Q07 Input costs for c
Slide 6: North American Input Cost Escalation
North American Input Cost Escalation Input Cost Inflation Exceeded Price Increases ($200) $1,000 $1,200 $1,400 $1,600 $1,800 2003 vs. 2004 vs. 2005 vs. 2006 vs. 2007 vs. 6M08 vs. 6M07 9M08 vs. 9M07 Cumulative Price Increases / Decreases Input Cost Increases North American Input Cost Escalation Input
Slide 7: Printing Papers Earnings 3Q08 vs. 3Q07
Printing Papers Earnings 3Q08 vs. 3Q07 Printing Papers Earnings 3Q08 vs. 3Q07 210* (13) (21) (152) 3Q07 Price Materials & Freight Volume Cost / Mix Outages Other 3Q08 * Excludes a special impairment charge of $107 million to write down the Inverurie mill assets to estimated fair market value
Slide 8: Printing Papers Price and Volume
Price / Ton Volume 3Q08 vs. 3Q07 Price / Ton 3Q08 vs. 2Q08 Volume Business Printing Papers Average IP price realization (includes the impact of mix across all grades) (€5) (4%) 1% 22% (6%) 3% (5%) 5% 0% Brazilian Paper (€8) European Paper ($6) N.A. Pulp N.A. Paper Printing Papers
Slide 9: Industrial Packaging Earnings 3Q08 vs. 3Q07
Industrial Packaging Earnings 3Q08 vs. 3Q07 Industrial Packaging Earnings 3Q08 vs. 3Q07 Excludes trade volume and includes CBPR earnings Excludes special charges of $39 million related to the write-up of inventory to fair value in connection with the CBPR acquisition and $19 million for CBPR integra
Slide 10: Industrial Packaging Price and Volume
Price / Ton Volume 3Q08 vs. 3Q07 3Q08 vs. 2Q08 Volume Price / Ton Business Industrial Packaging €42 (5%) (1%) 0% €23 (9%) European Container (1%) (6%) N.A. Container N.A. Containerboard Industrial Packaging Volume and price exclude CBPR Average IP price realization (includes the impact of mix across
Slide 11: Consumer Packaging Earnings 3Q08 vs. 3Q07
Consumer Packaging Earnings 3Q08 vs. 3Q07 6* (53) 3Q07 Cost / Mix Price Materials & Freight 3Q08 Consumer Packaging Earnings 3Q08 vs. 3Q07 *Excludes a special charge of $8 million related to the reorganization of Shorewood’s Canadian operations
Slide 12: Consumer Packaging Price and Volume
Price Price/Ton Revenue Volume 3Q08 vs. 3Q07 Price Revenue Business 3Q08 vs. 2Q08 Volume Price/Ton Business Consumer Packaging Average IP price realization (includes the impact of mix across all grades) NA 4% 2% 5% 2% NA Converting Businesses U.S. Coated Paperboard Consumer Packaging
Slide 13: xpedx
3Q08 2Q08 3Q07 $ Million xpedx ($20) ($21) ($16) Fuel & Freight $2,075 $1,970 $1,880 Earnings Sales xpedx Record operating profit Solid volumes in paper, packaging and facility supplies Benefiting from operating cost reductions that reflect on going business redesign
Slide 14: Forest Products
Forest Products 3Q08 2Q08 3Q07 Forest Products 33,000 30,000 36,000 Acres Sold $1,564 $1,872 $2,991 Price / Acre $55* Earnings ($ Million) Sales ($ Million) Mineral rights sold for $260 million Remaining land portfolio of 237,000 acres * Mineral rights sale is not reflected in sales but in Other Inc
Slide 15: Ilim Joint Venture 3Q08 Results
3Q08 vs. 2Q08 Volume (000 Metric Tons) Price / Ton Business 3Q08 2Q08 $ Million Ilim Joint Venture 3Q08 Results IP’s After-Tax Share: $5MM or $0.01 EPS Ilim’s results are reported on a one-quarter lag IP’s share of Ilim’s 2Q08 earnings include a $14 million favorable after-tax foreign exchange impac
Slide 16: Special Items 3Q08
Special Items 3Q08 Earnings per Share $ Million Special Items 3Q08 ($22) Legal Reserves ($29) U.S. Taxes on non-U.S. Gain ($69) CBPR Acquisition Costs & Supply Chain Write-off $0.35 Net Earnings $0.84 Earnings from Continuing Operations & Before Special Items Special Items: ($84) Inverurie Mill Asse
Slide 17: 9M08 vs. 9M07 EPS
9M08 vs. 9M07 EPS Higher Prices, Volume & Mix, Higher Input Costs .46 .59 (.04) 1.54 (.14) 1.80 .02 .73 .34 .09 1.21 .11 (1.07) .13 (.04) $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 9M07 Price Materials & Freight Cost / Mix Volume Corporate / Other Ilim Vicksburg Tax Interest S
Slide 18: Free Cash Flow Improvement
Free Cash Flow Improvement 9M07 9M08 Free Cash Flow ($ Million) Free Cash Flow Improvement ($804) $1,407 $1,224* ($732) $1,956* Free Cash Flow Less Capital Investment Cash Provided by Continuing Operations * Includes $260 million from mineral rights sale
Slide 19: The World Has Changed: Weak Market Conditions in 4Q08
The World Has Changed Weak Market Conditions in 4Q08 Sharp Demand Declines Weak Economic Activity Significant Currency Volatility Capacity Curtailments The World Has Changed Weak Market Conditions in 4Q08
Slide 20: 4Q08 Outlook
4Q08 Outlook Changes from 3Q08 Ex-North America North America Seasonal Improvement Decreasing Declining Decreasing Declining Improving Realization 4Q08 Outlook Changes from 3Q08 Brazil Improving Europe Under Pressure Steady Paper Steady Steady Volume Pricing Packaging Market Pulp Paper Packaging
Slide 21: No Significant Input Cost Relief in 4Q
Commodity 4Q Cost Trend Input and Freight Costs No Significant Input Cost Relief in 4Q Transportation Freight Electricity Energy Starch Chemicals Fiber Sodium Chlorate Coal Wood Caustic Soda Old Corrugated Containers Fuel Oil Natural Gas Input and Freight Costs No Significant Input Cost Relief in 4Q
Slide 22: 4Q08 Outlook
4Q08 Outlook Changes from 3Q08 Ex-North America North America Decrease 4Q08 Outlook Changes from 3Q08 Remain High Remain High Input & Freight Costs Steady Steady Operations Flat Maintenance Outages
Slide 23: 3Q08 Summary
3Q08 Summary 3Q08 Summary Solid Quarter Continued Input Cost Inflation Selling Price Improvement Good Operations Strong Start on CBPR Integration Strong Cash Flow
Slide 24: Key Financial Statistics
2007 1 2008 Estimate 2006 1 Key Financial Statistics 30% $1.1 $1.3 32 - 33% $140 - $475 - $1.4 $1.1 29% $1.2 $1.1 Effective Tax Rate Corporate Items ($ Million) Net Interest Expense ($ Million) Depreciation & Amortization ($ Billion) Capital Spending ($ Billion) Excludes discontinued operations and
Slide 25: Cash & Committed Liquidity
Cash & Committed Liquidity Capacity ($MM) Facility Maturity Cost Cash & Committed Liquidity - - Cash $3,300 $1,500 $1,000 Receivables Facility (Zero Drawn ) OCT 2009 CP Rate + 30 bps Corporate Revolver (Zero Drawn ) MAR 2011 LIBOR + 40 - 50 bps Total Cash & Committed Liquidity 1 – As of September 30
Slide 26: Debt Maturity Profile
Debt Maturity Profile $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 US Non-US Debt Maturity Profile
Slide 27: Planned Maintenance Outages
3Q08 2Q08 4Q08E $ Millions 1Q08 Planned Maintenance Outages Brazil 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 28: Operating Profits by Industry Segment
Operating Profits by Industry Segment from Continuing Operations before Special Items 3Q07 3Q08 2Q08 $ Million Operating Profits by Industry Segment from Continuing Operations before Special Items Earnings from continuing operations before income taxes, equity earnings & minority interest NA Equity
Slide 29: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results from Continuing Operations before Special Items Operating Profit Sales $ Million 2Q08 3Q07 3Q08 3Q08 2Q08 3Q07 Geographic Business Segment Operating Results from Continuing Operations before Special Items (1) Asian (9) $2,075 $1,935 $1,970 $1,060 $1,880
Slide 30: 2008 Earnings from Continuing Operations
2008 Earnings from Continuing Operations Equity Earnings Diluted EPS 2 Earnings from Continuing Operations Net Income $MM Estimated Tax Rate Minority Interest $MM Special Items Pre-Tax $MM Before Special Items Average Shares 1 MM Tax $MM 2008 Earnings from Continuing Operations Assuming dilution A r
Slide 31: Business Segment Price Realization
Business Segment Price Realization 3Q08 3Q08 2Q08 2Q08 3Q07 3Q07 Average Selling Price Realizations Industrial Packaging ($/ton) Printing Papers ($/ton) Business Segment Price Realization $1,013 Containerboard Corrugated Boxes Market Pulp Uncoated Freesheet Average IP U.S. selling price realizations
Slide 32: 3Q08 vs. 2Q08 EPS
3Q08 vs. 2Q08 EPS Higher Prices, Volume & Mix, Higher Input Costs .07 .48 .36 .49 .02 .56 .10 (.03) .84 .10 (.16) (.10) (.06) $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 2Q08 Price Materials & Freight Cost / Mix Volume Interest Ilim Corporate / Other 3Q08 $ / Share $ / Share 3Q08 vs.
Slide 33: Printing Papers Earnings 3Q08 vs. 2Q08
Printing Papers Earnings 3Q08 vs. 2Q08 Printing Papers Earnings 3Q08 vs. 2Q08 210* (50) (11) 2Q08 Price Materials & Freight Volume Cost / Mix Other 3Q08 * Excludes a special impairment charge of $107 million to write down the Inverurie mill assets to estimated fair market value
Slide 34: Industrial Packaging Earnings 3Q08 vs. 2Q08
Industrial Packaging Earnings 3Q08 vs. 2Q08 Industrial Packaging Earnings 3Q08 vs. 2Q08 Excludes trade volume and includes CBPR earnings Excludes special charges of $39 million related to the write-up of inventory to fair value in connection with the CBPR acquisition and $19 million for CBPR integra
Slide 35: Consumer Packaging Earnings 3Q08 vs. 2Q08
Consumer Packaging Earnings 3Q08 vs. 2Q08 (4) 26* 6* (5) (24) (5) 2Q08 Price Materials & Freight Volume Cost / Mix Outages Other 3Q08 Consumer Packaging Earnings 3Q08 vs. 2Q08 * Excludes special charges of and million in 2Q08 and 3Q08, respectively, related to the reorganization of Shorewood’s Canad
Slide 36: Improving Logistics Efficiency
Improving Logistics Efficiency Progress in Consumption Reduction Improving Logistics Efficiency Progress in Consumption Reduction Distribution Costs/Ton U.S. Paper & Packaging 1H07 1H08 Fuel & Rates 1H08 Net of Inflation
Slide 37: IP Wood Cost per Ton
IP Wood Cost per Ton E xpecting Continuing Escalation Impact on 4Q08 Wood Cost Factors $28 $29 $30 $31 $32 $33 $34 $35 $36 $37 $38 IP Wood Cost per Ton E xpecting Continuing Escalation Reduced Harvest Volume Total Impact Decreasing Diesel Fuel Cost Insufficient Logging Capacity Paper & Packaging Ind
Slide 38: Total Cash Cost Components 9M08
Total Cash Cost Components 9M08 Total Cash Cost Components 9M08 North American Mills Only Does not include CBPR Energy 13% Materials 13% Labor 13% Fiber 27% Freight 13% Overhead 8% Chemicals 13%
Slide 39: Global Input & Freight Costs by Segment
Global Input & Freight Costs by Segment $286 Million Global Impact vs. 3Q07 ($160) ($140) ($120) ($100) ($80) ($60) ($40) ($20) Wood Energy Chemicals Freight OCC Global Input & Freight Costs by Segment $286 Million Global Impact vs. 3Q07 Consumer Packaging ($53) Industrial Packaging ($80) Printing P
Slide 40: Increasing Global Input & Freight Costs vs. 2Q08
Increasing Global Input & Freight Costs $99MM, or $0.16/Share Impact vs. 2Q08 (45) (24) (19) (11) ($50) ($40) ($30) ($20) ($10) Chemicals Energy Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $99MM, or $0.16/Share Impact vs. 2Q08 Input costs for continuing
Slide 41: Increasing Global Input & Freight Costs vs. 9M07
Increasing Global Input & Freight Costs $657MM, or $1.07/Share Impact vs. 9M07 (228) (191) (129) (109) ($250) ($200) ($150) ($100) ($50) Energy Chemicals Fiber Freight North America Outside North America Increasing Global Input & Freight Costs $657MM, or $1.07/Share Impact vs. 9M07 Input costs for c
Slide 42: Natural Gas Costs
Natural Gas Costs 66% Increase vs. 3Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 66% Increase vs. 3Q07 Average Cost
Slide 43: U.S. Fuel Oil
U.S. Fuel Oil 79% Increase vs. 3Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 79% Increase vs. 3Q07 Average Cost Delivered cost to U.S. facilities Does not include CBPR
Slide 44: U.S. Mill Wood Costs
U.S. Mill Wood Costs 13% Increase vs. 3Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul U.S. Mill Wood Costs 13% Increase vs. 3Q07 Average Cost Index: Jan 2005 Wood Costs = 100 Delivered cost to U.S. facilities Does not include CBPR
Slide 45: U.S. Caustic Soda Costs
U.S. Caustic Soda Costs 75% Increase vs. 3Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Index: Jan 2005 Caustic Soda Costs = 100 U.S. Caustic Soda Costs 75% Increase vs. 3Q07 Average Cost Delivered cost to U.S. facilities Does not include CBPR
Slide 46: U.S. Starch Costs
U.S. Starch Costs 19% Increase vs. 3Q07 Average Cost Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Index: Jan 2006 Starch Costs = 100 Delivered cost to U.S. facilities Does not include CBPR U.S. Starch Costs 19% Increase vs. 3Q07 Average Cost
Slide 47: Global Consumption: Annual Purchase Estimates for Key Inputs
Global Consumption Annual Purchase Estimates for Key Inputs Commodity Non – U. S. U. S. Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption; includes consumption by Valliant #3 and Albany #2 machines 110,000 500,000 Starch (Tons) Chemicals Fiber Ene
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