International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q3 2010 Earnings Presentation
49 slides from International Paper's earnings presentation, Oct 27, 2010
Slide 1: Third Quarter 2010 Review
Third Quarter 2010 Review October 27, 2010 Third Quarter 2010 Review October 27, 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: Third Quarter 2010 Headlines
Third Quarter 2010 Headlines Third Quarter 2010 Headlines Outstanding Earnings All global segments More than double 2Q Strong Free Cash Flow More than double 2Q Cost-of-Capital Returns $1.2 B Pension Contribution & $200 MM Debt Reduction
Slide 4: Third Quarter 2010 Significant Earnings Improvement
Third Quarter 2010 Significant Earnings Improvement Third Quarter 2010 Significant Earnings Improvement Excellent Earnings in All Three U.S. Mill Businesses Continued Strong Earnings in EMEA Paper and Packaging Strong Contribution from Ilim Joint Venture Restructuring Benefits Incremental Price Incr
Slide 5: 3Q10 Financial Snapshot
3Q10 Financial Snapshot Strong EBITDA & Free Cash Flow 3Q09 2Q10 3Q10 3Q10 Financial Snapshot Strong EBITDA & Free Cash Flow Sales ($B) $5.9 $6.1 $6.7 EBITDA ($MM) $780 $782 $1,061 EBITDA Margin 13% 13% 16% Free Cash Flow ($MM) $605 $356 $753 Debt ($B) $9.6 $8.9 $8.7 Cash Balance ($B) $1.7 $1.9 $1.4
Slide 6: Transformation Enabling Improved Returns
Transformation Enabling Improved Returns Recovering from Global Recession Transformation Enabling Improved Returns Recovering from Global Recession Cost of Capital
Slide 7: Operating EPS Record Quarterly Earnings
Operating EPS Record Quarterly Earnings Transformation Operating EPS Record Quarterly Earnings Impact of Mineral Rights Gain Earnings from continuing operations before special items as reported at the time
Slide 8: EBITDA Momentum Accelerating
EBITDA Momentum Accelerating EBITDA Momentum Accelerating EBITDA and EBITDA Margins before special items, excluding Forest Products
Slide 9: 3Q10 vs. 2Q10 EPS
3Q10 vs. 2Q10 EPS Price Realization, Improved Volumes, Strong Operations Earnings before special items 3Q10 vs. 2Q10 EPS Price Realization, Improved Volumes, Strong Operations Reflects the delta between a $33 MM charge in 2Q and $16 MM recovered in 3Q
Slide 10: 9M10 vs. 9M09 EPS
9M10 vs. 9M09 EPS Higher Prices, Improved Volumes, Elevated Fiber Costs Earnings from continuing operations before special items 9M10 vs. 9M09 EPS Higher Prices, Improved Volumes, Elevated Fiber Costs
Slide 11: Stable Global Input Costs vs. 2Q10
Stable Global Input Costs vs. 2Q10 $1 MM Favorable, or $0.00/Shar e Stable Global Input Costs vs. 2Q10 $1 MM Favorable, or $0.00/Shar e By Business By Input Type
Slide 12: Industrial Packaging Earnings 3Q10 vs. 2Q10
Industrial Packaging Earnings 3Q10 vs. 2Q1 0 Industrial Packaging Earnings 3Q10 vs. 2Q1 0 Earnings before special items
Slide 13: Industrial Packaging Volume Recovery, Price Increase Realization
3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton Industrial Packaging Volume Recovery, Price Increase Realization N.A. Price Improvement per Ton vs. December 2009 Price Sept 2010 Price / Ton N.A. Container (1%) $38 4% $72 European Container* (4%) €36 6% €47 Industrial Packa
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: Printing Papers Earnings 3Q10 vs. 2Q10
Printing Papers Earnings 3Q10 vs. 2Q1 0 Printing Papers Earnings 3Q10 vs. 2Q1 0 Earnings before special items
Slide 16: Consumer Packaging Earnings 3Q10 vs. 2Q10
Consumer Packaging Earnings 3Q10 vs. 2Q1 0 Consumer Packaging Earnings 3Q10 vs. 2Q1 0 Earnings before special items
Slide 17: xpedx 3Q10 vs. 2Q10
$ Million 3Q09 2Q10 3Q10 xpedx 3Q10 vs. 2Q1 0 Daily Sales Change vs. 2Q10 Sales $1,665 $1,630 $1,755 Earnings $21 $26 $22 xpedx 3Q10 vs. 2Q1 0 Revenues up 8% from 2Q10 Daily sales rate best since 4Q08 Printing 8.6% Packaging 7.0% Facility Supplies 4.4%
Slide 18: Forest Products: Substantial Completion of Land Sales
Forest Products Substantial Completion of Land Sales Rock Creek Transaction Closed $ Million 3Q09 2Q10 3Q10 Forest Products Substantial Completion of Land Sales Sales Price $199MM Retained Profit Interest in Partnership 20% Cash Received at Closing $160MM To Be Received within 3 Years $39MM (plus In
Slide 19: Ilim Joint Venture 3Q10 vs. 2Q10
$ Million 3Q09 2Q10 3Q10 Ilim Joint Venture 3Q10 vs. 2Q1 0 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton Sales (100%) $305 $435 $465 Earnings (IP Share) $0 $5 $22 Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s reported earnings for 3Q09 & 3Q10 inc
Slide 20: IP Europe, Middle East & Africa
IP Europe, Middle East & Africa 9M10: 10% of IP Sales & 15% of IP EBITDA Return on Investment 9M10 IP Europe, Middle East & Africa 9M10: 10% of IP Sales & 15% of IP EBITDA On Pace for Record Annual Earnings Continued Demand Recovery Price Increases Realized Solid Operations European Papers, excl. Ru
Slide 21: Cellulosic Biofuel Tax Credit
Cellulosic Biofuel Tax Credit Analyzing the Potential Benefit to I P Cellulosic Biofuel Tax Credit Analyzing the Potential Benefit to I P CBTC is $1.01/gallon credit against taxable income (excess may be carried forward until 2015) OCT 5 th – IRS rules companies may qualify for AFMTC and CBTC within
Slide 22: Balanced Capital Allocation to Increase Shareowner Value
Balanced Capital Allocation to Increase Shareowner Value Balanced Capital Allocation to Increase Shareowner Value
Slide 23: Fourth Quarter Outlook
Fourth Quarter Outlook Changes from 3Q1 0 North America Europe Brazil Asia Seasonal Decrease ~$37MM Increase ~$6MM Decrease Higher OCC & Chemicals Seasonal Decrease $50MM Decrease Fourth Quarter Outlook Changes from 3Q1 0 Volume Paper Seasonal Decrease Stable Stable Packaging Seasonal Increase Stabl
Slide 24: 3Q Summary & 4Q Outlook
3Q Summary & 4Q Outlook Strong, but Seasonally Lower, 4Q EPS & FCF Strong 3Q Earnings & Free Cash Flow Strong, but Seasonally Lower, 4Q EPS & FCF 3Q Summary & 4Q Outlook Strong, but Seasonally Lower, 4Q EPS & FCF 3Q10 Summary Volume ended strong as quarter progressed Incremental price increase reali
Slide 25: 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 26: Free Cash Flow
Free Cash Flow $ Million 3Q09 2Q10 3Q10 Free Cash Flow Excluding AFMTC $605 $356 $753 Free Cash Flow Cash from Operations $713 $509 $937 Cash Received from Alternative Fuel Mixture Tax Credits (AFMTC) $463 $132 $0 Cash Provided by Operations, as Adjusted $1,381 $641 $937 Less Capital Investment ($10
Slide 27: Balance Sheet Debt Reduction Progress
Balance Sheet Debt Reduction Progress $4 Billion Reduction since Acquisition Balance Sheet Debt Reduction Progress $4 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 fro
Slide 28: 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 29: Maintenance Outages Expenses
$ Million 1Q10 2Q10 3Q10 4Q10E 2010E Maintenance Outages Expenses Industrial Packaging $70 $41 $3 $26 $140 Printing Papers Total $27 $60 $52 $44 $183 North America $27 $45 $30 $28 $130 Europe $38 Brazil $15 Consumer Packaging $6 $19 $0 $16 $41 Total Impact $103 $120 $55 $86 $364 Dollar impact of pla
Slide 30: Printing Papers Volume and Price
3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton Printing Papers Average IP price realization (includes the impact of mix across all grades) N.A. Paper 3% $21 (9%) $72 N.A. Pulp 30% $19 (7%) $244 European Paper 0% €34 2% €53 Printing Papers
Slide 31: Consumer Packaging Volume and Price
3Q10 vs. 2Q10 3Q10 vs. 3Q09 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 3% $37 12% $53 Converting Businesses 5% NA (1%) NA Consumer Packaging
Slide 32: 3Q10 EBITDA
3Q10 EBITDA Operating Profit $ Million D & A $ Million Tons Thousand EBITDA per Ton EBITDA Margin 3Q10 EBITDA Industrial Packaging North America $319 $138 2,607 $175 21.9% Europe $14 $7 $84 8.9% Printing Papers North America $125 $49 $246 24.4% Western Europe $6 $5 $177 15.3% Eastern Europe & Russia
Slide 33: Operating Profits by Industry Segment
Operating Profits by Industry Segment $ Million 3Q09 2Q10 3Q10 Operating Profits by Industry Segment Industrial Packaging $214 $193 $332 Printing Papers $138 $158 $278 Consumer Packaging $68 $49 $71 Distribution $21 $26 $22 Forest Products $2 $40 $49 Operating Profit $443 $466 $752 Net Interest Expe
Slide 34: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results Before Special Items $ Million Sales Operating Profit 3Q09 2Q10 3Q10 3Q09 2Q10 3Q10 Geographic Business Segment Operating Results Before Special Items Industrial Packaging North American $1,890 $2,120 $2,210 $201 $172 $320 European $240 $235 $235 $13 $18
Slide 35: 2010 Earnings from Continuing Operations
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 1 2 1Q10 $40 ($13) ($9) ($2) $16 32% $0.04 2Q10 $262 ($81) ($7) $7 $181 31% $0.42 3Q1
Slide 36: 3Q10 vs. 3Q09 EPS
3Q10 vs. 3Q09 EPS Earnings from continuing operations before special items 3Q10 vs. 3Q09 EPS
Slide 37: Industrial Packaging Earnings 3Q10 vs. 3Q09
Industrial Packaging Earnings 3Q10 vs. 3Q0 9 Industrial Packaging Earnings 3Q10 vs. 3Q0 9 Earnings before special items
Slide 38: Printing Papers Earnings 3Q10 vs. 3Q09
Printing Papers Earnings 3Q10 vs. 3Q0 9 Printing Papers Earnings 3Q10 vs. 3Q0 9 Earnings before special items
Slide 39: IP Brazil
$ Million 3Q09 2Q10 3Q10 IP Brazil 3Q10 vs. 2Q10 3Q10 vs. 3Q09 Business Volume Price / Ton Volume Price / Ton Sales $275 $275 $275 Earnings $36 $39 $46 EBITDA Margin 25% 27% 29% IP Brazil results are reported in the Printing Papers segment IP Brazil Uncoated Freesheet (7%) $58 (7%) $80 Domestic 17%
Slide 40: Consumer Packaging Earnings 3Q10 vs. 3Q09
Consumer Packaging Earnings 3Q10 vs. 3Q0 9 Consumer Packaging Earnings 3Q10 vs. 3Q0 9 Earnings before special items
Slide 41: Total Cash Cost Components 3Q10 YTD
Total Cash Cost Components 3Q10 YT D Total Cash Cost Components 3Q10 YT D North American Mills Only
Slide 42: Global Input & Freight Costs vs. 9M09
Global Input & Freight Costs vs. 9M09 $476 MM Unfavorable, or $0.76/Shar e Global Input & Freight Costs vs. 9M09 $476 MM Unfavorable, or $0.76/Shar e Input costs for continuing businesses
Slide 43: Global Input & Freight Costs vs. 3Q09
Global Input & Freight Costs vs. 3Q09 $189 MM Unfavorable, or $0.31/Shar e Global Input & Freight Costs vs. 3Q09 $189 MM Unfavorable, or $0.31/Shar e Input costs for continuing businesses
Slide 44: U.S. Mill Wood Delivered Cost Trends
U.S. Mill Wood Delivered Cost Trends 7% Decrease vs. 2Q10 Average Cost U.S. Mill Wood Delivered Cost Trends 7% Decrease vs. 2Q10 Average Cost Declining Wood Demand Poor Harvesting Conditions & Higher Wood Demand Normal Harvesting Conditions
Slide 45: U.S. OCC Delivered Cost Trends
U.S. OCC Delivered Cost Trends 9% Decrease vs. 2Q10 Average Cost U.S. OCC Delivered Cost Trends 9% Decrease vs. 2Q10 Average Cost 2005-2007 represents WY PKG delivered costs; 2008-2010 represents delivered costs to the integrated system Reduced OCC Demand Reduced China Demand Increasing Demand in Ch
Slide 46: Natural Gas Costs
Natural Gas Costs 7% Increase vs. 2Q10 Average Cost NYMEX Natural Gas closing prices Natural Gas Costs 7% Increase vs. 2Q10 Average Cost
Slide 47: U.S. Fuel Oil
U.S. Fuel Oil 3% Decrease vs. 2Q10 Average Cost U.S. Fuel Oil 3% Decrease vs. 2Q10 Average Cost WTI Crude prices
Slide 48: U.S. Chemical Composite Index
U.S. Chemical Composite Index 5% Increase vs. 2Q10 Average Cost U.S. Chemical Composite Index 5% Increase vs. 2Q10 Average Cost Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 2005 - 2008 excludes WY PKG
Slide 49: 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/ — Q3 2010 Earnings Presentation on 6ix