International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q2 2009 Earnings Presentation
52 slides from International Paper's earnings presentation, Jul 30, 2009
Slide 1: Second Quarter 2009 Review
Second Quarter 2009 Review July 30, 2009 Second Quarter 2009 Review July 30, 2009 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 Relatin g to Non-GAAP Financial Measures Statements Relatin g 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
Slide 3: Second Quarter 2009 Outstanding Results
Second Quarter 2009 Outstanding Results Second Quarter 2009 Outstanding Results 150% Earnings Increase 180 BPS EBITDA Margin Increase $1.3 Billion in Free Cash Flow $600 Million Debt Reduction Exceeded $400 Million Run Rate in WY PKG Integration Synergies Two Years Ahead of Plan Earnings from contin
Slide 4: 2Q09 Financial Snapshot
2Q09 Financial Snapshot $ Billion 2Q08 1Q09 2Q09 2Q09 Financial Snapshot Earnings from continuing operations before special items; 1Q09 & 2Q09 includes WY PKG Cash provided by continuing operations less capital expenditures Excludes $3.0B proceeds from WY PKG bond issuance Sales $5.8 $5.7 $5.8 EBITD
Slide 5: N.A. Industrial Packaging Integration Progress
N.A. Industrial Packa g in g Inte g ration Pro g ress Earnin g s Well Ahead of Plan N.A. Industrial Packa g in g Inte g ration Pro g ress Earnin g s Well Ahead of Plan North American earnings before special items
Slide 6: 2Q09 vs. 1Q09 EPS
2Q09 vs. 1Q09 EPS Volume Stabilized, Price Slippage, Input Cost Relief .08 .20 .20 .12 .12 (.01) (.01) (.19) (.05) (.06) $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 1Q09 Volume & LOO Price Input Costs Cost Reduction Mix Outages Interest Ilim JV 2Q09 Earnings before special items 2Q09 vs. 1Q09 EP
Slide 7: IP Transformation 28% Headcount Reduction
IP Transformation 28% Headcount Reduction 8 IP Transformation 28% Headcount Reduction * At January 1, 2005 Excludes Ilim joint venture employees Achieved year-end headcount goal during 2Q
Slide 8: Global Input & Freight Costs by Segment
Global Input & Frei g ht Costs by Se g ment $ 77 Million, or $0.12/Share Favorable vs. 1Q0 9 Global Input & Frei g ht Costs by Se g ment $ 77 Million, or $0.12/Share Favorable vs. 1Q0 9 By Business By Input Type
Slide 9: N.A. Lack of Order & Maintenance Downtime
N.A. Lack of Order & Maintenance Downtime 20% of Capacity in 2Q, Down from 27% in 1 Q N.A. Lack of Order & Maintenance Downtime 20% of Capacity in 2Q, Down from 27% in 1 Q Lack-of-order & maintenance downtime for North American Containerboard, Uncoated Papers, Market Pulp, & Coated Paperboard. See A
Slide 10: Industrial Packaging Earnings 2Q09 vs. 1Q09
Industrial Packa g in g Earnin g s 2Q09 vs. 1Q0 9 Industrial Packa g in g Earnin g s 2Q09 vs. 1Q0 9 Excludes trade volume Earnings before special items
Slide 11: N.A. Industrial Packaging Performance
N.A. Industrial Packa g in g Performance N.A. Industrial Packa g in g Performance Box shipments up 5.8% vs. prior quarter Domestic containerboard prices stabilized Continued strong operations combined with cost reduction Some input cost pressure – OCC increasing Lean inventories
Slide 12: N.A. Industrial Packaging Synergies
N.A. Industrial Packa g in g Syner g ies Exceeded Year-Three Run Rat e $118 MM $220 MM $490 MM $400 MM N.A. Industrial Packa g in g Syner g ies Exceeded Year-Three Run Rat e $118 MM $220 MM $490 MM $400 MM
Slide 13: N.A. Industrial Packaging Relative Performance
N.A. Industrial Packa g in g Relative Performance Outperformin g Competitors in 200 9 N.A. Industrial Packa g in g Relative Performance Outperformin g Competitors in 200 9 IP EBITDA margins based on North American Industrial Packaging operating profit before special items Competitor EBITDA margins o
Slide 14: Printing Papers Earnings 2Q09 vs. 1Q09
Printin g Papers Earnin g s 2Q09 vs. 1Q0 9 Printin g Papers Earnin g s 2Q09 vs. 1Q0 9 Earnings Before Special Items
Slide 15: Consumer Packaging Earnings 2Q09 vs. 1Q09
Consumer Packa g in g Earnin g s 2Q09 vs. 1Q0 9 Consumer Packa g in g Earnin g s 2Q09 vs. 1Q0 9 Earnings Before Special Items
Slide 16: xpedx
$ Million 2Q08 1Q09 2Q09 xpedx Sales $1,970 $1,590 $1,595 Earnings $26 ($7) $10 xpedx Unit sales up, but offset by coated paper price deflation National accounts segment continues to outperform competition Continued cost reductions Position eliminations Warehouse space reduction Inventory reduction
Slide 17: Ilim Joint Venture
$ Million 2Q08 1Q09 2Q09 Ilim Joint Venture 2Q09 vs. 1Q09 2Q09 vs. 2Q08 Business Volume (000 Metric Tons) Price / Ton Volume (000 Metric Tons) Price / Ton Sales (100%) $555 $395 $290 Earnings (IP Share) $32 ($26) ($30) Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s 2Q08, 1Q09
Slide 18: International Operations Highlights
International Operations Highlights International Operations Highlights New Brazilian UFS machine production seven months ahead of ramp-up plan Improved mix on Svetogorsk coated paperboard +$200 per ton on 60,000 tons Strong performance at Kwidzyn Sun JV coated paperboard shipments up 75% over 2Q08
Slide 19: Free Cash Flow
Free Cash Flow $ Million 2Q08 1Q09 2Q09 Free Cash Flow Cash from Operations $576 $649 $707 Alternative Fuel Mixture Tax Credits - $145 $688 Cash Provided by Continuing Operations $576 $794 $1,395 Less Capital Investment ($267) ($128) ($131) Free Cash Flow $309 $666 $1,264
Slide 20: Debt Reduction Progress
Debt Reduction Pro g ress Projecting $3.2 Billion Minimum Reduction Debt Reduction Pro g ress Projecting $3.2 Billion Minimum Reduction
Slide 21: Debt Maturity Profile as of May 31, 2009
22 Debt maturity profile as of May 31, 2009 Debt Profile Maturities as of July Month-end $0 $200 $400 $600 $800 $1,000 Debt Maturities Monetization & Other Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt Debt Profile Matur
Slide 22: Second Quarter Summary
Second Quarter Summary Solid Results Despite Recession Second Quarter Summary Solid Results Despite Recession 180 BPS EBITDA Margin Expansion $120 Million in Integration Synergies $1.3 Billion Free Cash Flow $600 Million Debt Reduction in 2Q plus $600 Million Reduction in July
Slide 23: Third Quarter Outlook
Third Quarter Outlook Changes from 2Q0 9 North America Europe Brazil Russia - Svetogorsk Asia Increase Export Increase Decrease Increase Decrease Increase $65 Million Decrease Significant Decrease OCC Up Pulp Up Improved Equity Earnings Third Quarter Outlook Changes from 2Q0 9 Volume Paper Flat Flat
Slide 24: Priorities
Priorities Priorities Maximize Free Cash Flow Match our Supply to our Customers’ Needs Continue Cost Reductions Continue Debt Reduction
Slide 25: Special Items Net of Taxes 2Q09
Special Items Net of Taxes 2Q0 9 $ Million EPS Special Items Net of Taxes 2Q0 9 Earnings Before Special Items $86 $0.20 Special Items Net of Taxes: Alternative Fuel Mixture Credits $294 Tax Adjustments ($130) Etienne Impairment & Severance Costs ($63) Overhead Reduction Initiative ($21) Debt Extingu
Slide 26: Key Financial Statistics
$ Billion 2007 1 2008 2009 Estimate Key Financial Statistics Capital Spending $1.3 $1.0 $0.6 Depreciation & Amortization $1.1 $1.3 $1.5 Net Interest Expense $0.3 $0.5 $0.7 Corporate Items $0.2 $0.1 $0.2 Effective Tax Rate 30% 31.5% 32% - 34% Excludes discontinued operations Before special items and
Slide 27: Debt Maturity Profile
29 Debt Maturity Profile Maturities as of July Month-end Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt Preferred Annual Debt Ceiling Debt Maturity Profile Maturities as of July Month-end
Slide 28: Cash & Committed Facilities
Cash & Committed Facilities $4.2 Billion $ Billion Maturity Facility Cost Cash & Committed Facilities $4.2 Billion Quarter-End Cash - $1.7 - $1.0B Accounts Receivables Program JAN 2010 Zero Drawn CP Rate + 150 bps $1.5B Corporate Revolver MAR 2011 Zero Drawn LIBOR + 50 to 60 bps Total Cash & Committ
Slide 29: Debt Covenants & Credit Ratings
Debt Covenants & Credit Ratin g s Covenant 2Q09 Rating Outlook Debt Covenants & Credit Ratin g s Maximum Debt-to-Total Capital 60% 48.6% Minimum Consolidated Net Worth $9B $11.5B Standard & Poor’s BBB Negative Moody’s Baa3 Negative
Slide 30: N.A. Lack of Order & Maintenance Downtime
N.A. Lack of Order & Maintenance Downtime 20% of Capacity in 2Q, Down from 27% in 1 Q • 3 27 9 34 N.A. Lack of Order & Maintenance Downtime 20% of Capacity in 2Q, Down from 27% in 1 Q LOO downtime excludes capacity from mills or machines that have been permanently shutdown (Franklin #3 - 32,000 tons
Slide 31: Maintenance Outages Expenses
$ Millions 1Q09 2Q09 3Q09E 4Q09E Maintenance Outa g es Expenses Industrial Packaging $44 $46 $6 $43 North America Europe Brazil Printing Papers Total $31 $52 $33 $44 Consumer Packaging $4 $20 $11 $9 Total Impact $79 $118 $50 $96 Dollar impact of planned maintenance outages are estimates and subject
Slide 32: Forest Products
Forest Products 2Q08 1Q09 2Q09 Forest Products Sales ($ Million) $55 $5 $10 Earnings ($ Million) $41 $2 $3 Acres Sold 30,000 2,000 2,900 Price / Acre $1,872 $2,108 $2,649 Pending sale of 143,000 acres now expected to close in 4Q09, at the earliest. When that transaction closes, remaining NPV of land
Slide 33: Business Segment Price Realization
Business Se g ment Price Realization Average Selling Price Realizations Industrial Packaging ($/ton) 2Q08 1Q09 2Q09 Printing Papers ($/ton) 2Q08 1Q09 2Q09 Business Se g ment Price Realization Containerboard $551 $551 $494 Corrugated Boxes $794 $846 $818 Uncoated Freesheet $988 $996 $959 Pulp $651 $5
Slide 34: Industrial Packaging Volume and Price
2Q09 vs. 1Q09 2Q09 vs. 2Q08 Business Volume Price / Ton Volume Price / Ton Industrial Packa g in g N.A. Containerboard 13% ($57) (37%) ($57) N.A. Container 7% ($28) (16%) $24 European Container (1%) (€24) (7%) (€55) Industrial Packa g in g Estimate based on IP legacy plus WY PKG history Average IP p
Slide 35: Printing Papers Volume and Price
2Q09 vs. 1Q09 2Q09 vs. 2Q08 Business Volume Price / Ton Volume Price / Ton Printin g Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper 2% ($37) (19%) ($30) N.A. Pulp 13% ($27) (16%) ($140) European Paper (10%) (€16) (11%) (€91) Brazilian Paper 31% ($50) 11
Slide 36: Consumer Packaging Volume and Price
2Q09 vs. 1Q09 2Q09 vs. 2Q08 Volume Price/Ton Volume Price/Ton Revenue Price Revenue Price Consumer Packa g in g Average IP price realization (includes the impact of mix across all grades) U.S. Coated Paperboard 11% ($9) (20%) $84 Converting Businesses 5% NA (5%) NA Consumer Packa g in g
Slide 37: Special Items Pre-Tax
Special Items Special Items Pre-Tax: 2Q08 1Q09 2Q09 Special Items Industrial Packaging Alternative Fuel Mixture Credits $208 $208 Integration Costs ($36) ($18) Facility Closure Costs ($63) Printing Papers Alternative Fuel Mixture Credits $240 $197 Facility Closure Costs ($29) ($4) Consumer Packaging
Slide 38: 2Q09 EBITDA before Special Items
2Q09 EBITDA before Special Items Operating Profit $ Million D & A $ Million Tons Thousand EBITDA $ per Ton EBITDA Margin % 2Q09 EBITDA before Special Items Industrial Packaging North American $241 $164 3,056 $133 20.7% European $14 $9 $86 9.6% Printing Papers North American $61 $53 $159 16.5% Europe
Slide 39: Operating Profits by Industry Segment
Operatin g Profits by Industry Se g ment $ Million 2Q08 1Q09 2Q09 Operatin g Profits by Industry Se g ment Industrial Packaging $87 $188 $255 Printing Papers $226 $101 $86 Consumer Packaging $26 $22 $38 Distribution $26 ($7) $10 Forest Products $41 $2 $3 Operating Profit $406 $306 $392 Net Interest
Slide 40: Geographic Business Segment Operating Results
Geographic Business Se g ment Operatin g Results from Continuing Operations before Special Items $ Million Sales Operating Profit 2Q08 1Q09 2Q09 2Q08 1Q09 2Q09 Geographic Business Se g ment Operatin g Results from Continuing Operations before Special Items Industrial Packaging North American $1,060
Slide 41: 2009 Earnings
Pre-Tax $MM Tax $MM Minority Interest $MM Equity Earnings Net Income $MM Estimated Tax Rate Average Shares MM Diluted EPS Before Special Items Special Items Earnings 2009 Earnin g s 1 2 Assuming dilution A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab
Slide 42: Total Cash Cost Components 2Q09
Total Cash Cost Components 2Q0 9 Total Cash Cost Components 2Q0 9 North American Mills Only
Slide 43: Global Input & Freight Costs by Input
Global Input & Frei g ht Costs by Input $129MM, or $0.21/Share Favorable Impact vs. 2Q0 8 Global Input & Frei g ht Costs by Input $129MM, or $0.21/Share Favorable Impact vs. 2Q0 8 Input costs for continuing businesses; does not include WY PKG
Slide 44: 2Q09 vs. 2Q08 EPS
.06 .48 2Q09 vs. 2Q08 EPS .20 .50 .18 .21 (.15) (.06) (.15) (.04) (.05) (.24) $0.00 $0.20 $0.40 $0.60 $0.80 2Q08 Volume & LOO Price Input Costs Cost Reduction Mix Interest Corporate & Other Ilim JV 2Q09 .56 Earnings from continuing operations before special items; volume includes earnings from WY PK
Slide 45: Industrial Packaging Earnings 2Q09 vs. 2Q08
Industrial Packa g in g Earnin g s 2Q09 vs. 2Q0 8 Industrial Packa g in g Earnin g s 2Q09 vs. 2Q0 8 Excludes trade volume and includes WY PKG earnings Earnings Before Special Items
Slide 46: Printing Papers Earnings 2Q09 vs. 2Q08
Printin g Papers Earnin g s 2Q09 vs. 2Q0 8 Printin g Papers Earnin g s 2Q09 vs. 2Q0 8 Earnings Before Special Items
Slide 47: Consumer Packaging Earnings 2Q09 vs. 2Q08
Consumer Packa g in g Earnin g s 2Q09 vs. 2Q0 8 Consumer Packa g in g Earnin g s 2Q09 vs. 2Q0 8 Earnings Before Special Items
Slide 48: Natural Gas Costs
Natural Gas Costs 28% Decrease vs. 1Q09 Average Cost NYMEX Natural Gas closing prices Index: Jan 2005 Natural Gas Costs = 100 Natural Gas Costs 28% Decrease vs. 1Q09 Average Cost
Slide 49: U.S. Mill Wood Costs
U.S. Mill Wood Costs 6% Decrease vs. 1Q09 Avera g e Cost U.S. Mill Wood Costs 6% Decrease vs. 1Q09 Avera g e Cost Index: Jan 2005 Wood Costs = 100 Delivered cost to U.S. facilities
Slide 50: U.S. Fuel Oil
U.S. Fuel Oil 32% Increase vs. 1Q09 Average Cost Index: Jan 2006 Fuel Oil Costs = 100 U.S. Fuel Oil 32% Increase vs. 1Q09 Average Cost Delivered cost to U.S. facilities
Slide 51: U.S. Chemical Composite Index
U.S. Chemical Composite Index 20% Decrease vs. 1Q09 Average Cost Index: Q1’05 Chemical Composite= 100 Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG U.S. Chemical Composite Index 20% Decrease vs. 1Q09 Average Cost
Slide 52: Global Consumption Annual Purchase Estimates for Key Inputs
Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. Global Consumption Annual Purchase Estimates for Key Inputs Does not include Asian or Ilim consumption; excludes consumption by permanent & indefinite machine shutdowns Estimates are based on normal operations an
International Paper Co /New/ — Q2 2009 Earnings Presentation on 6ix