International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q3 2005 Earnings Presentation
36 slides from International Paper's earnings presentation, Oct 25, 2005
Slide 1: Third Quarter 2005 Review
Third Quarter 2005 Review October 25, 2005 John V. Faraci Chairman & CEO Marianne M. Parrs EVP & 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 Review Hurricane Impact Fourth Quarter Outlook Transformation Plan Update Third Quarter Review Hurricane Impact Fourth Quarter Outlook Transformation Plan Update
Slide 4: Third Quarter 2005 Summary
Third Quarter 2005 Summary Volumes mixed Pricing pressures on containerboard, corrugated boxes, uncoated papers and pulp Mill operations continued to improve Energy costs increased due to Hurricanes Katrina and Rita Favorable impact from higher land sales and lower tax rate Volumes mixed Pricing pre
Slide 5: Diluted EPS from Continuing Operations and Before Special Items
Diluted EPS from Continuing Operations and Before Special Items* * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investors .03 .11 .12 .16 .12 .32 .31 .28 .13 .20 .21 .18 .11 .40 .31 .42 .35 1Q 1Q 3Q 1Q 3Q 2Q 4Q 2Q 4Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q .29 .33 3Q
Slide 6: 3Q'05 vs. 2Q'05 EPS from cont. ops before special items
3Q’05 vs. 2Q’05 EPS from cont. ops before special items $0.00 $0.10 $0.20 $0.30 $0.40 2Q'05 Price Volume / Downtime Cost/Mix Raw Material Land Sales Real Estate Tax Other 3Q'05 $.01 EPS $ / Share $.29 ($.05) Wood Costs $.01 Energy ($.06) Packaging ($.06) Uncoated ($.02) Wood Prod. ($.01) Coated $.02
Slide 7: 9M'05 vs. 9M'04 EPS from cont. ops before special items
9M’05 vs. 9M’04 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 9M'04 Price Volume Cost/Mix Raw Material Land Sales Real Estate CorporateInterest Tax Other 9M'05 $.02 EPS $ / Share $.83 ($.30) ($.58) $.71 $.97 $.05 $.27 ($.17) ($.05) $.06 $.13 Wood Costs
Slide 8: 2006 Pension Assumptions
2006 Pension Assumptions Pension Expense • Will depend upon plan earnings and discount rate at December 31, 2005 - Currently expected to increase in 2006 by $85 million due to the change in mortality table Pension Expense • Will depend upon plan earnings and discount rate at December 31, 2005 - Curr
Slide 9: Lack of Order Downtime
Lack of Order Downtime 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Containerboard Uncoated Papers Pulp Coated Papers Bleached Board European Papers * Downtime is in thousand short tons after rationalization actions , excludes maintenance M Short Tons 2Q05 3Q05 European Papers Bleached Board Uncoate
Slide 10: Printing Papers
Printing Papers $ Millions 3Q’05 Change vs 2Q’05: U.S. operations only. Uncoated excludes Fine Paper $ 1,970 Sales Earnings 3Q’05 2Q’05 $ Millions Uncoated Coated Pulp Europe (uncoated) ($20) $25 ($10) Volume Realizations/ton $ 1,895 3Q’05 Change vs 2Q’05: 2% 15% 5% (4%) Includes special charge of $
Slide 11: Industrial Packaging
Industrial Packaging $ Millions 3Q’05 Change vs 2Q’05: Average IP realization (includes the impact of mix across all grades) $ 1,115 Sales Earnings 3Q’05 2Q’05 $ Millions Containerboard U.S. Container ($45) ($25) Volume Realizations/ton $ 1,240 3Q’05 Change vs 2Q’05: 6% (3%) Includes special charge
Slide 12: Consumer Packaging
Consumer Packaging $ Millions 3Q’05 Change vs 2Q’05: Average IP realization (includes the impact of mix across all grades) $ 685 Sales Earnings 3Q’05 2Q’05 $ Millions Bleached Board $5 Volume Realizations/ton $ 650 3Q’05 Change vs 2Q’05: (2%) Converting Businesses Sales Revenue Flat U.S. operations
Slide 13: Forest Products
Forest Products 3Q’05 Change vs 2Q’05: Average IP realization (includes the impact of mix across all grades) $700 Sales Earnings 3Q’05 2Q’05 $ Millions Lumber (mbf) Plywood (msf) ($15) ($5) Volume Realizations/unit $ 605 3Q’05 Change vs 2Q’05: 2% 21% Includes special charge of $2 million in the thir
Slide 14: Special Items 3Q'05
Special Items • Divestitures (3) • Restructuring & Other (46) • Insurance Recoveries 109 • Tax Audit Finalization - Settlements 517 - Interest 26 543 Special Items Total 603 $1.19 Special Items 3Q’05 Special Items • Divestitures (3) • Restructuring & Other (46) • Insurance Recoveries • Tax Audit Fin
Slide 15: Carter Holt Harvey Discontinued Operations 3Q'05
Carter Holt Harvey • Tax Reserve Adjustment for Audit Settlement (83) (0.16) • Pre-Tax Gain on Sale 29 0.06 • Tax Benefit on Sale 332 0.65 Total 278 $0.55 Discontinued Operations 3Q’05 Carter Holt Harvey • Tax Reserve Adjustment for Audit Settlement (83) (0.16) • Pre-Tax Gain on Sale 0.06 • Tax Bene
Slide 16: Reconciliation to 3Q'05 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $0.33 Special Items 1.19 Earnings from Continuing Operations 1.52 Discontinued Operations 0.55 Net Earnings $2.07 Reconciliation to 3Q’05 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $0.33 Special
Slide 17: Hurricane Impact: People, Facilities, Forestlands
Hurricane Impact People • No injuries Facilities • No direct damage • Temporary outages at some facilities Forestlands • No material damage to our forestlands • Logging / transportation costs significantly higher People • No injuries Facilities • No direct damage • Temporary outages at some faciliti
Slide 18: Hurricane Impact: Energy, Chemicals, Transportation
Hurricane Impact Energy • Slow recovery causing skyrocketing prices for natural gas and fuel oil, squeezing margins Chemicals • Shortages of optical brighteners, sulfuric acid, caustic soda, wax Transportation • Truck and rail availability an issue • Facing fuel adjustment surcharges Energy • Slow r
Slide 19: Fourth Quarter 2005 Outlook
Fourth Quarter 2005 Outlook Much higher raw material costs • $0.15 - $0.20 per share higher than 3Q’05 Lower land / real estate sales Volume flat - seasonal weakness around holidays Average price realizations flat to down • Implementing IP’s announced increases in bleached board, containerboard, box
Slide 20: Transformation Plan Update
Transformation Plan Update Completed sale of Carter Holt Harvey equity stake to Rank Group on September 21 • US$1.14 billion in cash proceeds • After-tax gain of US$361 million Targeting cash proceeds from initial asset sales for debt reduction Maintaining focus on improving N. American operations R
Slide 21: Earnings by Industry Segment
Earnings by Industry Segment Earnings by Industry Segment Printing Papers $141 $166 $160 $490 $385 Industrial Packaging 37 85 133 227 249 Consumer Packaging 38 41 50 102 126 Distribution 23 18 27 59 65 Forest Products 274 205 191 686 617 Other Businesses 5 7 7 22 31 Operating Profit 518 522 568 1,58
Slide 22: Forest Resources Earnings Sources
Forest Resources Earnings Sources – Gross Margin • Sales of Forestlands $125 $67 $77 • Harvest & Recreational Income 63 62 69 Forestland Expenses (43) (39) (43) Land Utilization (real estate), Net of Expenses 65 39 22 Total EBIT $210 $129 $125 2Q’05 3Q’04 3Q’05 Earnings Sources – Gross Margin • Sale
Slide 23: Average Sales Realizations
Average Sales Realizations * U.S. only. Uncoated excludes Fine Papers Average IP realization (includes the impact of mix across all grades) Forest Products $/ton Packaging $/ton Printing Papers* Segments 2Q’05 Average Sales Realizations 3Q’04 Sep 05 Plywood, $/MSF Lumber, $/MBF Corrugated boxes* Con
Slide 24: 2005 Earnings from Continuing Operations
2005 Earnings from Continuing Operations Before Special Items Q1 (53) (2) 24% 488.9 0.35 Q2 (79) (3) 35% 487.4 0.29 Q3 (48) (3) 23% 507.1 0.33 Special Items Q1 (103) - (67) 35% 488.9 (0.14) Q2 (107) - (73) - 487.4 (0.15) Q3 - - 507.1 1.19 Earnings from Continuing Operations Q1 (17) (2) 14% 488.9 0.2
Slide 25: Committed to Reducing Debt
0 4 8 12 16 20 Committed to Reducing Debt June Dec Dec Dec Dec Sep 17.9 15.2 14.8 15.5 14.6 11.6 $ Billions Reduced total debt by over $6 billion since June 2000 Includes Carter Holt Harvey debt on IP’s balance sheet for all periods excluding September
Slide 26: Impact of Higher Raw Material Costs: 3Q'05 vs. 2Q'05
Impact of Higher Raw Material Costs EBIT impact 3Q’05 vs. 2Q’05 (50) (40) (30) (20) (10) 0 10 Total of $30 million or $0.05 per share negative impact in 3Q’05 versus 2Q’05 (50) (40) (30) (20) (10) Energy Wood - Paper Mills Wood - Wood Prods. Plants Other EBIT ($) (38)
Slide 27: Impact of Higher Raw Material Costs: 3Q'05 vs. 3Q'04
Impact of Higher Raw Material Costs EBIT impact 3Q’05 vs. 3Q’04 (80) (60) (40) (20) 0 Total of $156 million or $0.25 per share negative impact in 3Q’05 versus 3Q’04 (80) (60) (40) (20) Energy Wood - Paper Wood Prods. Mills Wood - Plants Caustic EBIT ($) (69) (38) (14) (20) (15) Other Soda
Slide 28: Impact of Higher Raw Material Costs: 9M'05 vs. 9M'04
Impact of Higher Raw Material Costs EBIT impact 9M’05 vs. 9M’04 (150) (125) (100) (75) (50) (25) 0 (150) (125) (100) (75) (50) (25) Caustic Soda Energy Other EBIT ($) (46) (130) (100) (40) (71) Wood - Paper Wood Prods. Mills Wood - Plants Total of $387 million or $0.58 per share negative impact in 9
Slide 29: Natural Gas Costs
Natural Gas Costs Trended significantly higher in 3Q’05 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May July Sep Index: Jan 2003 Natural Gas Costs = 100 Hurricanes drove natural gas costs higher in September
Slide 30: U.S. Mills Wood Costs
U.S. Mills Wood Costs Trended lower in 3Q’05 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May July Sep Index: Jan 2003 Wood Costs = 100 * Delivered cost to U.S. pulp & paper mills Wood costs began rising again in September
Slide 31: Caustic Soda Costs
Caustic Soda Costs Trended lower in 3Q’05 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Jan Mar May July Sep Index: Jan 2003 Caustic Soda Costs = 100 Caustic soda costs are up 127% versus 1Q’03
Slide 32: Energy: U.S. mills natural gas consumption
Energy U.S. mills natural gas consumption $9.50 $3.45 $5.80 $6.47 2005 Forecast Trillion BTUs $/MMBTU Natural Gas Consumed Natural Gas Cost per unit Natural gas consumption at current U.S. pulp & paper mills has decreased 45% since 2002 Total US Mill Energy Purchases before Natural Gas Hedges - $MM
Slide 33: Energy: Substitute lower cost energy
Energy Substitute lower cost energy 0% 100% Natural gas as a % of total U.S. mills MMBTU purchases is decreasing % of Total Natural Gas Coal Wood Waste Fuel Oil Other* Electricity $7.53 $2.89 $1.80 $6.15 $13.78 $4.92 2005 Sept. YTD Avg Cost per mmbtu *Other includes shredded tires, recycled oil, pur
Slide 34: Reducing U.S. mill energy consumption per ton
Reducing U.S. mill consumption per ton Energy 2005 Sept YTD Gas Coal Oil Electricity Steam Other* MM BTU/Ton Natural gas consumed per ton of paper produced in 2005 fell 55% and total energy consumed per ton fell about 13% since 2000 * Other fuel category includes purchased bark, shredded tires & rec
Slide 35: Domestic Facilities Key input indicative purchase levels
Domestic Facilities Key input indicative purchase levels Energy Fiber Chemicals Units Annual Purchases Natural Gas MMbtus 38,000,000 # 6 Fuel Oil BBLs 5,200,000 Coal Tons 1,500,000 Wood Tons 65,000,000 OCC Tons 600,000 Caustic Soda Tons 400,000 Sodium Chlorate Tons 300,000 LD Polyethylene Tons 100,0
Slide 36: International Paper
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International Paper Co /New/ — Q3 2005 Earnings Presentation on 6ix