International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q4 2004 Earnings Presentation
38 slides from International Paper's earnings presentation, Feb 3, 2005
Slide 1: Fourth Quarter 2004 Review
John V. Faraci Chairman & CEO Christopher P. Liddell SVP & CFO Fourth Quarter 2004 Review February 3, 2005
Slide 2: Forward Looking Statements
Forward Looking Statements tatements on these slides or in this presentation that are not historical are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including but not limited to, the strength of demand for the company
Slide 3: Statements Relating to Non-GAAP Financial Measures
Statements Relating to Non-GAAP Financial Measures D 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 Inve
Slide 4: Agenda
Agenda Fourth Quarter Review 2004 Summary Outlook
Slide 5: Fourth Quarter 2004 Summary
Fourth Quarter 2004 Summary Volumes solid but seasonally weaker in the U.S. in the fourth quarter Continued to realize IP announced price increases in paper & packaging Mill operations mixed Raw material cost increases accelerated
Slide 6: IP Net Sales Revenue
IP Net Sales Revenue 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q $B 4Q’04 net sales revenue highest in 3 years 4Q 6.5 5.5
Slide 7: Basic EPS from Continuing Operations and Before Special Items
Basic EPS from Continuing Operations and Before Special Items* 1Q 1Q 3Q 1Q 3Q .75 .49 .24 2Q .03 .59 4Q 2Q 4Q .11 .11 .11 .11 .32 2Q 3Q 4Q 1Q 2Q .32 3Q .30 4Q .14 1Q * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investor Information .20 .22 .20 .12 2Q .43 .33 3Q .43
Slide 8: 4Q'04 vs. 3Q'04 EPS from cont. ops before special items
4Q’04 vs. 3Q’04 EPS from cont. ops before special items $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 3Q'04 Price Volume Cost/Mix Raw Material Land Sales Tax Rate Other 4Q'04 $.04 EPS $ / Share $.43 $.0 ($.11) Wood Costs ($0.04) Energy ($0.03) Other ($0.04) $.08 $.43 ($.03) $.08 Corporate ($0.10) Int. E
Slide 9: Printing Papers
Printing Papers $ 1,975 Sales Earnings 4Q’04 3Q’04 $ Millions Uncoated* Coated* Pulp* Europe (uncoated) (1%) (8%) 20% 8% $30 $25 ($30) (€15) 4Q’04 Change vs 3Q’04: Volume Realizations/ton * U.S. operations only and excluding Fine Papers Average IP realization (includes the impact of mix across all g
Slide 10: Packaging
Packaging $ 1,990 Sales Earnings 4Q’04 3Q’04 $ Millions Containerboard U.S. Container Bleached Board $10 $25 $10 Volume Realizations/ton $ 2,005 4Q’04 Change vs 3Q’04: Average IP realization (includes the impact of mix across all grades) (17%) (4%) (3%)
Slide 11: U.S. Container Growing faster than the industry
U.S. Container Growing faster than the industry 0.0 1.0 2.0 3.0 IP Legacy Operations Former Box USA Operations Million tons +21% +9% Box shipments grew 9% in 2004 excluding Box USA plants volume +7%
Slide 12: Box USA Update Integration progress on schedule
Box USA Update Integration progress on schedule Closed plants in Memphis and Baltimore Customers transferred to other locations Additional rationalizations possible Box USA overhead removed Containerboard volume redirected Board margin upgrade Mix improvement will continue as integration increases S
Slide 13: Forest Products
Forest Products $ 570 Sales Earnings 4Q’04 3Q’04 $ Millions Lumber (mbf) Plywood (msf) ($25) ($20) Volume Realizations/unit Average IP realization (includes the impact of mix across all grades) $ 600 4Q’04 Change vs 3Q’04: (6%) (12%)
Slide 14: Industry Leading Positions 4Q'04 return on sales ranking
Industry Leading Positions 4Q’04 return on sales ranking Uncoated Paper peer group: Domtar, G-P and Weyerhaeuser Industrial Packaging peer group: G-P, Packaging Corp, SSCC and Weyerhaeuser Wood Products peer group: Bowater, Domtar, GP and Weyerhaeuser IP IP IP Source: IP calculations exclude Temple-
Slide 15: Special Items & Discontinued Operations – 4Q'04
Special Items & Discontinued Operations – 4Q’04 (0.08) (40) Net 0.03 4Q’04 Earnings Revision to Loss on Sale Discontinued Operations (Weldwood) (0.11) (52) Special Items Total Tax & Min. Int. Impact of Above (61) Divestitures, Restructuring & Other Basic EPS $MM Special Items
Slide 16: Reconciliation to 4Q'04 Basic Earnings Per Share
Reconciliation to 4Q’04 Basic Earnings Per Share Per share $0.35 Net Earnings $0.03 Discontinued Operations (Weldwood) $0.32 Earnings from Continuing Operations (0.11) Special Items $0.43 Earnings from Continuing Operations and Before Special Items
Slide 17: 12M'04 vs. 12M'03 EPS from cont. ops before special items
12M’04 vs. 12M’03 EPS from cont. ops before special items ($.14) EPS $ / Share $.76 $.40 ($.29) Wood Costs ($0.10) Energy ($0.10) Other ($0.09) $.31 $1.31 ($.07) $.32 Int. Expense $0.15 Corporate ($0.04) Other ($0.09) 2003 Tax Rate 20% 2004 Tax Rate 26% $.02 $1.80 $1.50 $1.20 $0.90 $0.60 $0.30 $0.00
Slide 18: Impact of Higher Raw Material Costs EBIT impact 2004 vs. 2003
Impact of Higher Raw Material Costs EBIT impact 2004 vs. 2003 EBIT ($) (35) (35) (30) (70) (20) Material costs $190 million negative EBIT impact 2004 versus 2003 Wood Chemicals/ Other Oil/Coal/ Electricity Natural Gas Polyethylene (25) (50) (75) (100)
Slide 19: Non-price improvement status
Lower Costs & Create Efficiencies Improve Mix Grow Volumes Internal Initiatives Non price improvement status Manufacturing Excellence Supply Chain Lower S&A/Other Segmenting Solutions New Products Targeted Segments Market Recovery $1.6 $0.7 ($0.8) Higher Costs/Inflation $1.5 Non-Price Improvement Af
Slide 20: Paying Down Debt
Paying Down Debt Cash received on 12/31/004 Weldwood sale Maine/NH land sale Total $1.1 B 0.2 $1.3 B $(0.5) B $(0.5) B $(0.5) B (0.3) $(0.8) B $(1.3) B Repaid 12/31/04 Debt Paydown Short-term debt/ Other Trust Preferred Open Market/Other Repaid in 1Q05 Total
Slide 21: Key Financial Statistics
Key Financial Statistics Capital Spending Depreciation & Amort. Net Interest Expense 1 Corporate Items Effective Tax Rate 2 Avg. Shares Outstanding $ 1.4 B $ 1.6 B $ 700 MM $ 740 MM 33% 486 MM 2005 Est $ 1.3 B $ 1.6 B $ 745 MM $ 469 MM 26% 486 MM $ 1.2 B $ 1.5 B $ 770 MM $ 466 MM 22% 480 MM 1 Expens
Slide 22: First Quarter 2005 Outlook
First Quarter 2005 Outlook Demand Overall neutral to positive Uncoated paper – weak in December & January, but February backlogs building Coated paper – strong, particularly in coated groundwood Pulp - Strong Containerboard, boxes - stable Bleached board – strong Wood products – flat
Slide 23: First Quarter 2005 Outlook
First Quarter 2005 Outlook Costs Wood, chemicals – higher costs Energy – neutral Corporate – increased costs from higher pension expense, ramp-up in supply chain initiative spending, other compensation related spending Tax rate – 33%
Slide 24: 2005 Outlook
2005 Outlook 2-3% demand growth Good operating rates Debt repayment More non-price improvement Maintaining capital discipline Sharpening our focus on building a stronger/better IP
Slide 25: INTERNATIONAL PAPER
INTERNATIONAL (B) PAPER
Slide 26: INTERNATIONAL PAPER
INTERNATIONAL (B) PAPER
Slide 27: 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 3Q04 Average Sales Realizations Dec04 Plywood, $/MSF Lumber, $/MBF Corrugated boxes* Containerbo
Slide 28: Energy U.S. mills natural gas consumption
Energy U.S. mills natural gas consumption $3.45 $5.80 $6.47 Trillion BTUs $/MMBTU Natural Gas Consumed Natural Gas Cost per unit Natural gas consumption at U.S. pulp & paper mills has decreased 33% since 2002 Total US Mill Energy Purchases before Natural Gas Hedges - $MM $680 $815 $845
Slide 29: Energy Substitute lower cost energy
Energy Substitute lower cost energy 0% 100% % of total U.S. mills MMBTU purchases % of Total Natural Gas Coal Wood Waste Fuel Oil Other* Electricity $6.47 $2.24 $1.65 $4.63 $12.41 $5.03 2004 avg cost per mmbtu *Other includes shredded tires, recycled oil, purchased steam and any other fossil fuels %
Slide 30: Forest Resources
Forest Resources Earnings Sources – Gross Margin Sale of Forestlands/Standing timber Harvest & Recreational Income Forestland Expenses Land Utilization (real estate), Net of Expenses Total EBIT $ Millions $461 (190) (178) (157) $315 $462 $670 $644 $542
Slide 31: Forest Resources
Forest Resources * Excludes sales of Champion forestlands over last 3 years which generated $550+ million of cash and the 12/31/04 sale of 1.1 million acres of forestland in Maine and New Hampshire Average sales price/acre Number of acres sold (M) % of appraised value $823 110% $967 130% Forestland
Slide 32: Pension Returns
Pension Returns Average annualized returns 2004 14.1% Past 5 years 5.3% Past 10 years 10.6% Portfolio asset allocation (at 12/31/04) 62% Equity 27% Debt 11% Real estate & other
Slide 33: Pension Expense
Pension Expense (60) (110) (210) (350) (300) (250) (200) (150) (100) (50) 5.75 6.00 6.50 Discount Rate (%) 8.50 8.75 8.75 Rate of Return (%) 2005E $ Millions 2005E Annual Pension Expense * Key Variables *U.S. plans only. Pension expense reflects discount rate, service cost, amortization of previous
Slide 34: Rising U.S. Mills Wood Costs Impacted by wet weather in 2H'04
Rising U.S. Mills Wood Costs Impacted by wet weather in 2H’04 Jan Mar May July Sep Nov Jan Mar May July Sep Nov Index: Jan 2003 Wood Costs = 100 * delivered cost to U.S. pulp & paper mills 4Q’04 wood costs up $23 MM over 3Q’04 1Q’05 Forecast = 115
Slide 35: 2004 Earnings from Continuing Operations
2004 Earnings from Continuing Operations $ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority Interest; Net – Net Income; ETR – Effective Tax Rate; EPS – Earnings per Share * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investor Information Before Special Items Specia
Slide 36: Diluted EPS from Continuing Operations and Before Special Items
Diluted EPS from Continuing Operations and Before Special Items* 1Q 1Q 3Q 1Q 3Q .75 .49 .24 2Q .03 .59 4Q 2Q 4Q .11 .11 .11 .11 .32 2Q 3Q 4Q 1Q 2Q .32 3Q .29 4Q .14 1Q * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investor Information .19 .22 .19 .12 2Q .42 .33 3Q .
Slide 37: Impact of Higher Raw Material Cost EBIT impact 2004 vs. 2002
Impact of Higher Raw Material Cost EBIT impact 2004 vs. 2002 EBIT ($) (140) (50) (50) (205) (30) Material costs $475 million negative EBIT impact 2004 full year estimate versus 2002 Wood Chemicals/ Other Oil/Coal/ Electricity Natural Gas Polyethylene (50) (100) (150) (200) (200)
Slide 38: INTERNATIONAL PAPER
INTERNATIONAL ((\) PAPER
International Paper Co /New/ — Q4 2004 Earnings Presentation on 6ix