International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q2 2010 Earnings Presentation
57 slides from International Paper's earnings presentation, Jul 28, 2010
Slide 1: Second Quarter 2010 Review
Second Quarter 2010 Review July 28, 2010 Second Quarter 2010 Review July 28, 2010 John V. Faraci Chairman & Chief Executive Officer Tim S. Nicholls Senior Vice President & Chief Financial 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 2010 Headlines
Second Quarter 2010 Headlines Second Quarter 2010 Headlines Revenue Growth Margin Expansion Strong Free Cash Flow Generation All businesses posted strong results
Slide 4: Second Quarter 2010 Significant Earnings Improvement
Second Quarter 2010 Significant Earnings Improvement Second Quarter 2010 Significant Earnings Improvement Balanced Global Results Record Earnings European Paper European Packaging Asia Strong Operations Continued Cost Reduction Declining (but Elevated) Fiber Costs Highest Maintenance Outages of Year
Slide 5: 2Q10 Financial Snapshot
2Q10 Financial Snapshot 2Q09 1Q10 2Q10 2Q10 Financial Snapshot Sales ($B) $5.8 $5.8 $6.1 EBITDA ($MM) $723 $560 $782 Free Cash Flow ($MM) $576 $39 $356 Debt ($B) $10.9 $9.0 $8.9 Cash Balance ($B) $1.7 $1.7 $1.9 Earnings from continuing operations before special items Cash provided by continuing oper
Slide 6: 2Q10 vs. 1Q10 EPS
2Q10 vs. 1Q10 EPS Price Realization, Improved Volumes Earnings before special items 2Q10 vs. 1Q10 EPS Price Realization, Improved Volumes .04 .42 (.03) (.02) (.05) .05 .29 .04 .02 .05 .01 .02 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 1Q10 Volume Price Operations & Costs Maintenance Outages Input Costs Mix
Slide 7: 1H10 vs. 1H09 EPS
1H10 vs. 1H09 EPS Improved Volumes & Operations, Higher Fiber Costs Earnings from continuing operations before special items 1H10 vs. 1H09 EPS Improved Volumes & Operations, Higher Fiber Costs .28 .46 (.10) (.05) (.45) (.04) (.05) (.04) .37 .26 .07 .05 .14 .02 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.
Slide 8: Total IP EBITDA & Margin
Total IP EBITDA & Margin Improving EBITDA Annualized Run Rate 1Q10 Run Rate (9.5% EBITDA) 2Q10 Run Rate (13% EBITDA) Total IP EBITDA & Margin Improving EBITDA Annualized Run Rate $ Billion 2009 Actual ( 12% EBITDA)
Slide 9: Global Input Costs vs. 1Q10
Global Input Costs vs. 1Q10 $12 MM, or $0.02/Share Unfavorable Global Input Costs vs. 1Q10 $12 MM, or $0.02/Share Unfavorable By Business By Input Type $5 ($6) ($11) Industrial Packaging Printing Papers Consumer Packaging Wood Energy Chemicals Freight ($13) ($9) ($4) $14 Fiber Freight Chemicals Ener
Slide 10: U.S. Mill Wood Delivered Cost Trends
U.S. Mill Wood Delivered Cost Trends 3% Decrease vs. 1Q10 Average Cost Index U.S. Mill Wood Delivered Cost Trends 3% Decrease vs. 1Q10 Average Cost Wood Costs Declining, But Still Elevated Declining Wood Demand Poor Harvesting Conditions & Higher Wood Demand Normal Harvesting Conditions
Slide 11: U.S. OCC Delivered Cost Trends
U.S. OCC Delivered Cost Trends 3% Decrease vs. 1Q10 Average Cost U.S. OCC Delivered Cost Trends 3% Decrease vs. 1Q10 Average Cost Index 2005-2007 represents WY PKG delivered costs; 2008-2010 represents delivered costs to the integrated system OCC Costs Declining, But Still Elevated
Slide 12: IP Europe, Middle East & Africa
IP Europe, Middle East & Africa 1H10: 11% of IP Sales & 18% of IP EBITDA IP Europe, Middle East & Africa 1H10: 11% of IP Sales & 18% of IP EBITDA EBITDA margins increased from 12% to 19% Record Paper Earnings Record Container Earnings Cost-of-Capital Returns in Paper & Packaging Inverurie & Etienne
Slide 13: Industrial Packaging Earnings 2Q10 vs. 1Q10
Industrial Packaging Earnings 2Q10 vs. 1Q10 (2) (6) $0 $25 $50 $75 $100 $125 $150 $175 $200 $225 1Q10 Volume Price & Mix Input Costs Operations & Costs Maintenance Outages Other 2Q10 Industrial Packaging Earnings 2Q10 vs. 1Q10 Earnings before special items Operations LIFO, Other Costs (33)
Slide 14: N.A. Industrial Packaging Relative EBITDA Margins
N.A. Industrial Packaging Relative EBITDA Margins N.A. Industrial Packaging Relative EBITDA Margins IP EBITDA margins based on North American Industrial Packaging operating profit before special items Competitor EBITDA margin estimates obtained from public filings and IP analysis
Slide 15: Progress on Industrial Packaging Integration
$1.0 $1.5 Progress on Industrial Packaging Integration Approaching Cost-of-Capital Returns $0.5 $0.8 $1.3 1H10 Run Rate June 2010 Run Rate Progress on Industrial Packaging Integration Approaching Cost-of-Capital Returns June Run Rate of $1.5 Billion EBITDA and 8% ROI Earnings before special items
Slide 16: Printing Papers Earnings 2Q10 vs. 1Q10
Printing Papers Earnings 2Q10 vs. 1Q10 Printing Papers Earnings 2Q10 vs. 1Q10 Earnings before special items (2) (6) (32) (33) $0 $50 $100 $150 $200 $250 1Q10 Volume Price & Mix Input Costs Operations & Costs Maintenance Outages Bad Debt Other 2Q10
Slide 17: Consumer Packaging Earnings 2Q10 vs. 1Q10
Consumer Packaging Earnings 2Q10 vs. 1Q10 Consumer Packaging Earnings 2Q10 vs. 1Q10 Earnings before special items (10) (14) $0 $15 $30 $45 $60 $75 1Q10 Volume Price & Mix Input Costs Operations & Costs Maintenance Outages Other 2Q10
Slide 18: Progress on Fixed Cost Reductions
Progress on Fixed Cost Reductions All Fixed Cost Reductions Achieved by 2Q $ Million Mill 2 nd -Quarter Annualized Run-Rate Fixed Cost Savings Progress on Fixed Cost Reductions All Fixed Cost Reductions Achieved by 2Q Industrial Packaging Albany, Pineville $60 Printing & Communications Papers Frankl
Slide 19: xpedx
$ Million 2Q09 1Q10 2Q10 xpedx Improvement from 1Q10 Daily Sales Change vs. 1Q10 Sales $1,595 $1,580 $1,630 Earnings $10 $21 $26 xpedx Improvement from 1Q10 Revenues up 3% from 1Q10 Strong year-over-year earnings growth driven by aggressive operating cost management * Facility supplies daily sales c
Slide 20: Forest Products Mineral Rights Sale; Land Sale Agreement
Forest Products Mineral Rights Sale; Land Sale Agreement Forest Products Mineral Rights Sale; Land Sale Agreement Mineral rights sale to Natural Resource Partners in June $43 MM revenue $39 MM operating profit Agreement to sell 163,000 acres to Rock Creek Capital $200 MM sales price plus ongoing pro
Slide 21: Sun Joint Venture
Sun Joint Venture Record EBIT in 2Q10 Sun Joint Venture Record EBIT in 2Q10 2009: 4 MM tons of coated paperboard demand in China Projected 2010 – 2013 Demand CAGR: 8% - 9% 3 existing board machines 915,000 tons of capacity Sold out since March 2009 New 4 th board machine approved by Sun & IP boards
Slide 22: Ilim Joint Venture
$ Million 2Q09 1Q10 2Q10 Ilim Joint Venture 2Q10 vs. 1Q10 2Q10 vs. 2Q09 Business Volume Price / Ton Volume Price / Ton Sales (100%) $290 $395 $435 Earnings (IP Share) ($30) ($3) $5 Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s 2Q09 & 1Q10 earnings includes an after-tax forei
Slide 23: International Paper
INTERNATIONAL (A) PAPER
Slide 24: International Paper
INTERNATIONAL (A) PAPER
Slide 25: Balanced Capital Allocation to Increase Shareowner Value
Balanced Capital Allocation to Increase Shareowner Value Balanced Capital Allocation to Increase Shareowner Value
Slide 26: Current Macroeconomic Conditions
Current Macroeconomic Conditions Current Macroeconomic Conditions
Slide 27: Third Quarter Outlook
Third Quarter Outlook Changes from 2Q10 North America Europe Brazil Asia Significant Increase ~$77 MM Decrease Significant Increase Third Quarter Outlook Changes from 2Q10 Volume Paper Growth at Slower Rate Stable Stable Packaging Growth at Slower Rate Seasonal Decrease Stable Pricing Paper Continue
Slide 28: Summary
Summary Significant Earnings & Cash Flow Summary Significant Earnings & Cash Flow 2Q10 Summary Volume recovery Significant price increase realization Strong operations Declining fiber costs 3Q10 Outlook N.A. demand growing at slower rate Further realization of announced price increases Moderating wo
Slide 29: Key Financial Statistics
$ Million 2008 2009 2010 Estimate Key Financial Statistics Capital Spending $1,002 $534 $800 Depreciation & Amortization $1,347 $1,472 $1,450 Net Interest Expense $492 $669 $600 - $625 Corporate Items $103 $181 $200 - $225 Effective Tax Rate 31.5% 30% 30-32% Before special items and excluding Ilim K
Slide 30: Free Cash Flow
Free Cash Flow $ Million 2Q09 1Q10 2Q10 Free Cash Flow Excluding AFMTC $576 $39 $356 Free Cash Flow Cash from Operations $707 $159 $509 Cash Received from Alternative Fuel Mixture Tax Credits (AFMTC) $688 $0 $132 Cash Provided by Continuing Operations $1,395 $159 $641 Less Capital Investment ($131)
Slide 31: Debt Reduction Progress
Debt Reduction Progress $3.8 Billion Reduction since Acquisition $0.6 $0.6 $0.6 $1.3 $0.6 Debt Reduction Progress $3.8 Billion Reduction since Acquisition Excludes the debt repayment of $1 B from the proceeds of our May bond issuance: $1 B 9.375% notes due 2019 Excludes the debt repayment of $1 B fr
Slide 32: Debt Maturity Profile
Debt Maturity Profile Maturities as of Quarter-End Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt Debt Maturity Profile Maturities as of Quarter-End
Slide 33: North American Downtime
North American Downtime 5% of Capacity in 2Q • North American Downtime 5% of Capacity in 2Q Lack-of-order & maintenance downtime for North American Containerboard, Uncoated Papers, Market Pulp, & Coated Paperboard. See the following slide for detail by business. Lack of order downtime excludes capac
Slide 34: North American Downtime
133 77 North American Downtime • 16 35 1Q10 2Q10 Capacity Reductions and Mix Changes North American Downtime Lack of order downtime excludes capacity from mills or machines that have been permanently shutdown 1Q10 2Q10 Maintenance Containerboard Uncoated Papers Market Pulp Coated Paperboard
Slide 35: Maintenance Outages Expenses
$ Million 1Q10 2Q10 3Q10E 4Q10E 2010E Maintenance Outages Expenses Industrial Packaging $70 $41 $4 $24 $139 North America $27 $45 $24 $21 $117 Europe $40 Brazil $10 Printing Papers Total $27 $60 $43 $37 $167 Consumer Packaging $6 $19 $0 $17 $42 Total Impact $103 $120 $47 $78 $348 Dollar impact of pl
Slide 36: Rock Creek Capital Agreement
Rock Creek Capital Agreement $ Millions Acres Cash Value Potential Value of Partnership Interest Total Value Rock Creek Capital Agreement Original 2009 Sale Agreement 143,000 $220 $55 $275 Rock Creek Capital Agreement 163,000 $200 $35 $235 • 10,000 acres of the land in the Original Sale Agreement wa
Slide 37: Industrial Packaging Price and Volume
2Q10 vs. 1Q10 2Q10 vs. 2Q09 Business Volume Price / Ton Volume Price / Ton Industrial Packaging N.A. Price Improvement per Ton vs. December 2009 Price June 2010 Price N.A. Container 8% $43 3% ($6) European Container* 1% €26 9% (€3) Industrial Packaging Corrugated Boxes $70 * European Container volum
Slide 38: Printing Papers Price and Volume
2Q10 vs. 1Q10 2Q10 vs. 2Q09 Business Volume Price / Ton Volume Price / Ton Printing Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper (5%) $39 (4%) $27 N.A. Pulp (13%) $106 (18%) $228 European Paper 1% €28 (7%) €0 Printing Papers
Slide 39: Consumer Packaging Price and Volume
2Q10 vs. 1Q10 2Q10 vs. 2Q09 Volume Price/Ton Volume Price/Ton Revenue Price Revenue Price Consumer Packaging Average IP price realization (includes the impact of mix across all grades) U.S. Coated Paperboard 4% $28 12% ($7) Converting Businesses 4% NA (6%) NA Consumer Packaging
Slide 40: Special Items Pre-Tax from Continuing Operations
Special Items Pre-Tax from Continuing Operations Special Items Pre-Tax ($Million) 2Q09 1Q10 2Q10 Special Items Pre-Tax from Continuing Operations Industrial Packaging Alternative Fuel Mixture Credits $208 Facility & Machine Closure Costs ($18) ($5) ($1) Integration Costs ($63) Printing Papers Altern
Slide 41: Special Items Net of Taxes from Continuing Operations
Special Items Net of Taxes from Continuing Operations 2Q10 $ Million EPS Special Items Net of Taxes from Continuing Operations Earnings Before Special Items $181 $0.42 Special Items Net of Taxes: Franklin Mill Shutdown ($68) Debt Extinguishment ($11) Tax Adjustment ($7) Other ($2) Total Special Item
Slide 42: 2Q10 EBITDA before Special Items
2Q10 EBITDA before Special Items Operating Profit $ Million D & A $ Million Tons Thousand EBITDA per Ton EBITDA Margin 2Q10 EBITDA before Special Items Industrial Packaging North America $171 $143 2,608 $120 15.8% Europe $19 $7 $100 11.2% Printing Papers North America $46 $51 $141 14.3% Western Euro
Slide 43: Operating Profits by Industry Segment
Operating Profits by Industry Segment $ Million 2Q09 1Q10 2Q10 Operating Profits by Industry Segment Industrial Packaging $255 $46 $193 Printing Papers $86 $126 $158 Consumer Packaging $38 $31 $49 Distribution $10 $21 $26 Forest Products $3 $8 $40 Operating Profit $392 $232 $466 Net Interest Expense
Slide 44: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results Before Special Items $ Million Sales Operating Profit 2Q09 1Q10 2Q10 2Q09 1Q10 2Q10 Geographic Business Segment Operating Results Before Special Items Industrial Packaging North American $1,955 $1,890 $2,120 $241 $23 $172 European $240 $245 $235 $14 $24
Slide 45: Earnings from Continuing Operations Reconciliation
Pre-Tax $MM Tax $MM Non- controlling Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares MM Diluted EPS Before Special Items Special Items Earnings 2010 Earnings from Continuing Operations 2 1 Assuming dilution A reconciliation to GAAP EPS is available at www.internationalp
Slide 46: 2Q10 vs. 2Q09 EPS
2Q10 vs. 2Q09 EPS Earnings from continuing operations before special items 2Q10 vs. 2Q09 EPS .20 .42 (.31) (.05) .13 .19 .09 .01 .06 .01 .08 .01 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 2Q09 Volume / LOO Price Operations & Costs Input Costs Mix Forest Products Bad Debt Corporate & Other Ilim
Slide 47: Industrial Packaging Earnings 2Q10 vs. 2Q09
Industrial Packaging Earnings 2Q10 vs. 2Q09 (130) (2) $0 $50 $100 $150 $200 $250 $300 2Q09 Input Costs Volume LOO Price & Mix Operations & Costs Maintenance Outages 2Q10 Industrial Packaging Earnings 2Q10 vs. 2Q09 Earnings before special items Operations LIFO, Other Costs (34)
Slide 48: Printing Papers Earnings 2Q10 vs. 2Q09
Printing Papers Earnings 2Q10 vs. 2Q09 Printing Papers Earnings 2Q10 vs. 2Q09 Earnings before special items (25) (6) (33) $0 $25 $50 $75 $100 $125 $150 $175 $200 2Q09 Input Costs Price & Mix Volume Maintenance Outages Operations & Costs Bad Debt 2Q10
Slide 49: IP Brazil
$ Million 2Q09 1Q10 2Q10 IP Brazil 2Q10 vs. 1Q10 2Q10 vs. 2Q09 Business Volume Price / Ton Volume Price / Ton Sales $215 $225 $275 Earnings $23 $11 $39 EBITDA Margin 24% 20% 27% IP Brazil results are reported in the Printing Papers segment IP Brazil Uncoated Freesheet 14% $43 20% ($9) Domestic 3% $5
Slide 50: Consumer Packaging Earnings 2Q10 vs. 2Q09
Consumer Packaging Earnings 2Q10 vs. 2Q09 Consumer Packaging Earnings 2Q10 vs. 2Q09 Earnings before special items (45) $0 $20 $40 $60 $80 $100 2Q09 Price & Mix Volume / LOO Input Costs Operations & Costs Maintenance Outages Other 2Q10
Slide 51: Total Cash Cost Components
Total Cash Cost Components 2Q10 YTD Total Cash Cost Components 2Q10 YTD North American Mills Only
Slide 52: Global Input & Freight Costs vs. 1H09
Global Input & Freight Costs vs. 1H09 $287 MM, or $0.45/Share Unfavorable Global Input & Freight Costs vs. 1H09 $287 MM, or $0.45/Share Unfavorable Input costs for continuing businesses (17) (36) (310) ($350) ($250) ($150) ($50) $50 Fiber Freight Energy Chemicals Outside North America North America
Slide 53: Global Input & Freight Costs vs. 2Q09
Global Input & Freight Costs vs. 2Q09 $200 MM, or $0.32/Share Unfavorable Global Input & Freight Costs vs. 2Q09 $200 MM, or $0.32/Share Unfavorable Input costs for continuing businesses (179) (26) (14) ($200) ($150) ($100) ($50) $0 $50 Fiber Freight Energy Chemicals North America Outside North Ameri
Slide 54: Natural Gas Costs
Natural Gas Costs 23% Decrease vs. 1Q10 Average Cost NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 23% Decrease vs. 1Q10 Average Cost
Slide 55: U.S. Fuel Oil
U.S. Fuel Oil 2% Increase vs. 1Q10 Average Cost U.S. Fuel Oil 2% Increase vs. 1Q10 Average Cost Index: Jan 2006 Fuel Oil Costs = 100 WTI Crude prices
Slide 56: U.S. Chemical Composite Index
U.S. Chemical Composite Index 4% Increase vs. 1Q10 Average Cost U.S. Chemical Composite Index 4% Increase vs. 1Q10 Average Cost Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG Index: 1Q05 Chemical Composite= 100
Slide 57: 2010 Global Consumption Annual Purchase Estimates for Key Inputs
2010 Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. 2010 Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption Estimates are based on normal operations and may be impacted by downtime Energy Natural Gas (MM BTU
International Paper Co /New/ — Q2 2010 Earnings Presentation on 6ix