International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q1 2006 Earnings Presentation
34 slides from International Paper's earnings presentation, May 4, 2006
Slide 1: First Quarter 2006 Review
John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO First Quarter 2006 Review May 4, 2006 First Quarter 2006 Review May 4, 2006 John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO Exhibit 99.2
Slide 2: Statements Relating to Non-GAAP Financial Measures
Statements Relating to Non-GAAP Financial Measures uring 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 Invest
Slide 3: Agenda
Agenda First Quarter 2006 Review Second Quarter 2006 Outlook Transformation Plan Update First Quarter 2006 Review Second Quarter 2006 Outlook Transformation Plan Update
Slide 4: First Quarter 2006 Summary
First Quarter 2006 Summary Solid first quarter – broad-based improvement from fourth quarter 2005 Volume stronger across many key grades IP pricing improving Raw material costs lower Manufacturing operations performed well Record first quarter for IP’s distribution business Lower land sales and high
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 .13 .33 .27 .29 .16 .21 .21 .16 .15 .41 .34 .39 .34 1Q 3Q 1Q 2Q 4Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q .29 .23 3Q 4Q .09 1Q .19
Slide 6: 1Q'06 vs. 4Q'05 EPS from cont. ops before special items
1Q’06 vs. 4Q’05 EPS from cont. ops before special items $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 4Q'05 Price Volume/ Downtime Cost/Mix Raw Material Land Sales Corporate Items Tax Other 1Q'06 EPS $ / Share $.09 $.08 $.02 $.00 $.19 $.02 ($.04) ($.01) $.05 ($.02) Energy $.03 Wood $.01 Other ($.02) Pac
Slide 7: 1Q'06 vs. 1Q'05 EPS from cont. ops before special items
1Q’06 vs. 1Q’05 EPS from cont. ops before special items $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 1Q'05 Price Volume/ Downtime Cost/Mix Raw Material Land Sales Corporate Items Interest Tax Other 1Q'06 EPS $ / Share $.34 $.05 ($.13) ($.01) $.19 $.02 ($.05) $.04 ($.02) ($.02) ($.03)
Slide 8: Higher Raw Material Costs
Higher Raw Material Costs EBIT impact 1Q’06 vs. 1Q’05 (100) (80) (60) (40) (20) 0 Total of $88 million or $0.13 per share negative impact in 1Q’06 versus 1Q’05 (100) (80) (60) (40) (20) Energy Wood Caustic Soda EBIT ($MM) (73) (6) (4) (5) Other
Slide 9: Printing Papers
Printing Papers $ Millions 1Q’06 Change vs 4Q’05: U.S. operations only $ 1,500 Sales Earnings 1Q’06 4Q’05 $ Millions Uncoated Pulp Europe (uncoated) Volume Realizations/ton $ 1,485 1Q’06 Change vs 4Q’05: 7% (18%) 5% Europe is average commodity cut-size price, excluding Russia Average IP realization
Slide 10: Industrial Packaging
Industrial Packaging $ Millions 1Q’06 Change vs 4Q’05: Average IP realization (includes the impact of mix across all grades) $ 1,170 Sales Earnings 1Q’06 4Q’05 $ Millions Containerboard U.S. Container $35 $35 Volume Realizations/ton $ 1,170 1Q’06 Change vs 4Q’05: (12%) 1% U.S. operations only
Slide 11: Consumer Packaging
Consumer Packaging $ Millions 1Q’06 Change vs 4Q’05: Average IP realization (includes the impact of mix across all grades) $ 775 Sales Earnings 1Q’06 4Q’05 $ Millions Coated Paperboard $5 Volume Realizations/ton $ 800 1Q’06 Change vs 4Q’05: 6% Converting Businesses Sales Revenue (3%) U.S. operations
Slide 12: Distribution
Distribution $ Millions $ 1,650 Sales Earnings 1Q’06 4Q’05 $ Millions $ 1,635 xpedx had record first quarter earnings Revenues improved 8% vs. first quarter 2005 First quarter ROI of 7% Expenses down, margins up
Slide 13: Forest Products
Forest Products 1Q’06 Change vs 4Q’05: Average IP realization (includes the impact of mix across all grades) $ 630 Sales Earnings 1Q’06 4Q’05 $ Millions Lumber (mbf) Plywood (msf) $15 ($24) Volume Realizations/unit $ 665 1Q’06 Change vs 4Q’05: (3%) 2% U.S. operations only
Slide 14: Special Items & Discontinued Operations – 1Q'06
Special Items - After Tax • Insurance Recoveries 12 • Legal Reserves (11) • Restructuring & Other (17) • Divestitures (2) • Tax Adjustments (6) Special Items Total (24) ($0.05) Discontinued Operations (Coated and Kraft Paper) • Writedown to Estimated Sales Value and Other (1,311) • 1Q’06 Earnings 7
Slide 15: Reconciliation to 1Q'06 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $0.19 Special Items (0.05) Earnings from Continuing Operations 0.14 Discontinued Operations (2.66) Net Loss ($2.52) Reconciliation to 1Q’06 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $0.19 Speci
Slide 16: Second Quarter 2006 Outlook
Second Quarter 2006 Outlook Volume remains solid Implementing IP’s announced price increases in paper and packaging Continued progress in improving operations Input costs mixed • Natural gas and wood costs down • Fuel oil and transportation costs up Tax rate – 33% Volume remains solid Implementing I
Slide 17: Transformation Plan Update: Divestments status
Transformation Plan Update Divestments status as of May 4, 2006 Carter Holt Harvey Forestlands Coated Papers Beverage Packaging Kraft Papers Wood Products Arizona Chemical Consider Strategic Options Distribute Sales Book Evaluate Final Bids Sales Agreement Announced Close on Sale - Phase completed S
Slide 18: Transformation Plan Update
Transformation Plan Update Announced sales of 5.7 million acres for $6.6 billion • Cash to IP in 4Q’06 • Retained 830,000 acres in U.S. South (700,000 acres for future sale) Total after-tax proceeds could exceed $11 billion Industrial asset sales process on track Details on returning value to shareh
Slide 19: Transformation Plan Update: U.S. Forestlands Acreage
Transformation Plan Update U.S. Forestlands Acreage Retained 0.8 MM acres South Total IP Forestlands* 6.5 MM acres IP has announced agreements to sell 5.7 million acres for approximately $6.6 billion as of May 4, 2006 * U.S. forestlands owned or managed as of December 31, 2005 Targeted sale of 5.7 m
Slide 20: Transformation Plan Update: Forestland sales summary
Transformation Plan Update Forestland sales summary 6,620 5,672 Total Sales Lyme Timber Sale (NY) 1,100 TimberStar Sale (LA, TX, AR) Michigan 3,770 Southern U.S. 5,000 4,210 RMS Sale The Nature Conservancy (WI) The Nature Conservancy & The Conservation Fund Southern U.S. Conservation Sales Timber No
Slide 21: 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 Containerboard Uncoated Papers Pulp Coated Paperboard European Papers *Includes indefinitely closed uncoated papers capacity at Pensacola, FL, Bastrop, LA and Jay, ME in 2Q05 (72,000 tons), 3Q05 (108,000 tons) and 4Q’05 (108,0
Slide 22: Earnings by Industry Segment
Earnings by Industry Segment Earnings by Industry Segment Printing Papers $120 $60 $157 Industrial Packaging 38 5 102 Consumer Packaging 35 29 32 Distribution 27 25 18 Forest Resources 226 257 207 Other Businesses 10 (5) 10 Operating Profit 456 371 526 Interest Expense (148) (151) (168) Minority Int
Slide 23: 2006 Earnings from Continuing Operations
2006 Earnings from Continuing Operations Before Special Items Q1 (41) (5) 30% 491.7 0.19 Special Items Q1 (30) - (24) 19% 491.7 (0.05) Earnings from Continuing Operations Q1 (35) (5) 33% 491.7 0.14 Pre-Tax Tax MI Net ETR Average Diluted Shares EPS $ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority
Slide 24: 2005 Earnings from Continuing Operations
2005 Earnings from Continuing Operations Before Special Items Q1 (39) (2) 19% 488.9 0.34 Q2 (62) (3) 30% 487.4 0.29 Q3 (54) (4) 112 ³ 32% 487.1 0.23 Q4 (8) (4) 14% 486.0 0.09 Full Year Total (163) (12) 26% 509.7 0.96 Special Items Q1 (103) - (67) 35% 488.9 (0.14) Q2 (95) - (61) NM 487.4 (0.13) Q3 -
Slide 25: Average Sales Realizations
Average Sales Realizations * U.S. only Average IP realization (includes the impact of mix across all grades) Forest Products $/ton Packaging $/ton Printing Papers Segments* 4Q’05 Average Sales Realizations 1Q’05 Mar 06 Plywood, $/MSF Lumber, $/MBF Corrugated boxes Containerboard Pulp Uncoated Grades
Slide 26: Forest Resources Earnings Sources
Forest Resources Earnings Sources – Gross Margin • Forestland Sales 1 $106 $142 $71 • Harvest & Recreational Income 72 75 69 Forestland Expenses (30) (30) (34) Land Utilization (real estate), Net of Expenses 45 40 54 Total EBIT $193 $227 $160 4Q’05 1Q’05 1Q’06 Earnings Sources – Gross Margin • Fores
Slide 27: Lower Raw Material Costs
Lower Raw Material Costs EBIT impact 1Q’06 vs. 4Q’05 (30) (20) (10) 0 10 20 30 Total of $16 million or $0.02 per share positive impact in 1Q’06 versus 4Q’05 (30) (20) (10) Energy Wood Other EBIT ($MM) (12)
Slide 28: Natural Gas Costs
Natural Gas Costs Trended lower in 1Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apri July Oct Jan Index: Jan 2003 Natural Gas Costs = 100 Natural gas costs peaked in October
Slide 29: U.S. Mill Wood Costs
U.S. Mill Wood Costs Trended lower in 1Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Index: Jan 2003 Wood Costs = 100 * Delivered cost to U.S. pulp & paper mills U.S. mill wood costs decreased in 1Q’06
Slide 30: Caustic Soda Costs
Caustic Soda Costs Trended slightly lower in 1Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Index: Jan 2003 Caustic Soda Costs = 100 Caustic soda costs remain historically high
Slide 31: Domestic Facilities Key input indicative purchase levels
Domestic Facilities Key input indicative purchase levels Energy Fiber Chemicals Units Annual Purchases Old corrugated containers Run Rate Natural Gas MMbtus 37,000,000 # 6 Fuel Oil BBLs 5,000,000 Coal Tons 1,600,000 Wood Tons 65,000,000 OCC Tons 600,000 Caustic Soda Tons 315,000 Sodium Chlorate Tons
Slide 32: Minor Reclassifications
Minor Reclassifications By industry segments Coated Papers and Kraft Papers moved to Discontinued Operations Coated Bristols to Consumer Packaging from Printing Papers Bleached Kraft to Printing Papers from Industrial Packaging
Slide 33: Minor Reclassifications: Sales & earnings by industry segments
Minor Reclassifications Sales & earnings by industry segments $6,011 (314) 1,530 1,295 $1,985 1Q’05 As Reported in 4Q’05 $526 $157 1Q’05 As Restated in 1Q’06 $546 $5,593 (287) Less: Intersegment Sales Other Businesses Forest Products 1,530 Distribution 1,215 Industrial Packaging Consumer Packaging $
Slide 34: _wvrenwarionaL@) aren @ PAPER
_wvrenwarionaL@) aren @ PAPER INTERNATIONAL (AA) PAPER
International Paper Co /New/ — Q1 2006 Earnings Presentation on 6ix