International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q2 2011 Earnings Presentation
49 slides from International Paper's earnings presentation, Jul 28, 2011
Slide 1: Second Quarter 2011 Review
John V. Faraci Second Quarter Chairman & 2011 Review Chief Executive Officer July 28, 2011 Tim S. Nicholls Senior Vice President & Chief Financial Officer
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain statements in these slides and made during this presentation may be considered forward-looking statements. These statements reflect management’s current views and are subject to risks and uncertainties that could cause actual results to differ materially from those
Slide 3: 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 internationalpaper.com under Investors
Slide 4: Second Quarter 2011
Second Quarter 2011 Improved Earnings Despite Headwinds Earnings per Share $0.80 $0.74 $0.42 2Q10 1Q11 2Q11 Earnings from continuing operations before special items Earnings Driven by Balanced Segment & Global Portfolio Strong Contribution from Printing Papers, Coated Paperboard & Ilim JV Outstandin
Slide 5: Balanced Segment & Global Portfolio
Balanced Segment & Global Portfolio Driving Earnings Operating Earnings by Segment Distribution 2% Ilim 10% Industrial Packaging Consumer 41% Packaging 15% Printing Papers 32% Operating Earnings by Region Asia 2% Brazil 6% Europe North 12% America Russia 68% 12% Based on 1H11 earnings before special
Slide 6: 2Q11 Financial Snapshot
2Q11 Financial Snapshot Continued Strength in Free Cash Flow 2Q10 1Q11 2Q11 Sales ($B) $6.1 $6.4 $6.6 EBITDA1 ($MM) $782 $897 $912 EBITDA Margin 13% 14% 14% Free Cash Flow2 ($MM) $356 $419 $419 • 8% Revenue Growth • 100BP Margin Expansion 1 Earnings from continuing operations before special items 2
Slide 7: 2Q11 Operating Business EPS
2Q11 Operating Business EPS Step Change in Performance Transformation Impact of Mineral .91 Rights Gain Final .84 Land ..08 .80 Sale .75 .42 .83 .74 .69 .68 .60 .57 .56 .53 .52 .43 .43 .47.45 .40 .41 .42 .35 .36 .35 .37 .32 .33 .33 .31.29 .42 .28 .24.23 .21 .24 .19 .20 .13.14 .14 .12 .12.12 .12.12 .
Slide 8: 2Q11 vs. 1Q11 EPS
2Q11 vs. 1Q11 EPS $1.10 $1.00 .13 (.11) $0.90 .08 (.05) .01 $0.80 (.03) .03 .80 .74 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 1Q11 Volume Price Operations Maintenance Input Vicksburg Flood Ilim JV 2Q11 & Mix & Costs Outages Costs Earnings before special items 8
Slide 9: Global Input Costs vs. 1Q11
Global Input Costs vs. 1Q11 $31 MM Unfavorable, or $0.05/Share By Business ($9) ($3) ($19) Industrial Printing Consumer Packaging Papers Packaging OCC Freight Chemicals Energy Wood By Input Type $2 ($3) ($13) ($17) Chemicals Freight Fiber Energy Outside North America North America
Slide 10: Printing Papers
Printing Papers 2Q11 vs. 1Q11 $300 28 (11) (19) $250 17 6 (8) 209 222 $200 $150 $100 $50 $0 1Q11 Price Volume Operations Maintenance Input Other 2Q11 & Mix & Costs Outages Costs Earnings before special items 10
Slide 11: Industrial Packaging
Industrial Packaging 2Q11 vs. 1Q11 $350 27 (41) 42 $300 274 (3) (20) (10) $250 $200 $150 $100 $50 $0 1Q11 Price Volume Operations Maintenance Input Vicksburg 2Q11 & Costs Outages Costs Earnings before special items 11
Slide 12: N.A. Industrial Packaging Relative EBITDA Margins
N.A. Industrial Packaging Relative EBITDA Margins 18.5% 17.6% 17.5% 17.0% 15.8% 16.1% 12.8% 12.2% 9.7% IP Competitor A Competitor B 2Q10 1Q11 2Q11 IP EBITDA margins based on North American Industrial Packaging operating profit before special items. Competitor EBITDA margin estimates obtained from pu
Slide 13: U.S. Box Demand
U.S. Box Demand Agriculture West Impacted by Weather 1H11 vs. 1H10 Box Shipments 1.5% 1.4% 1.2% 1.0% 0.6% 0.5% 0.0% (0.3%) -0.5% IP Industry Total Shipments Total Shipments Excluding West Region Box demand on an FBA reporting basis 13
Slide 14: Consumer Packaging
Consumer Packaging 2Q11 vs. 1Q11 $140 17 (20) $120 8 (2) 101 (9) 98 $100 3 $80 $60 $40 $20 $0 1Q11 Price Volume Operations Maintenance Input Other 2Q11 & Costs Outages Costs Earnings before special items 14
Slide 15: N.A. Coated Paperboard
N.A. Coated Paperboard 1H11 Earnings Exceed FY10 $140 $124 $120 $108 $100 IT $80 EB $60 2H10 1H11 $40 $20 1H10 $0 2010 2011 Earnings before special items 15
Slide 16: xpedx
xpedx 2Q11 vs. 1Q11 $ Million 2Q10 1Q11 2Q11 Sales $1,630 $1,640 $1,655 Earnings $26 $12 $14 Daily Sales Change vs. 2Q10 vs. 1Q11 Printing (9%) (3%) Packaging 9% 5% Facility Solutions (3%) 2% Margin compression due to higher fuel and transportation costs Solid growth in Packaging segment Closure of
Slide 17: Ilim Joint Venture
Ilim Joint Venture 2Q11 vs. 1Q11 $ Million 2Q10 1Q11 2Q11 Sales (100%) $435 $515 $580 Earnings (IP Share) $5 $44 $57 2Q11 vs. 1Q11 2Q11 vs. 2Q10 Price / Price / Business Volume Volume Ton Ton Pulp 5% $39 5% $116 Containerboard 4% $68 1% $243 Ilim’s results are reported on a one-quarter lag. IP’s sha
Slide 18: Significantly Improved EBITDA Margins
Significantly Improved EBITDA Margins 1H11 Margins 28% 22% 21% 21% 17% 19% N.A. N.A. N.A. Brazil European U.S. Industrial Printing Pulp Papers Coated Packaging Papers Paperboard 1H10 12% 17% 14% 24% 22% 11% Margin Earnings before special items 18
Slide 19: Improving Returns on Invested Capital
Improving Returns on Invested Capital Transformation Driving ROI 8% 8% 7% 6% 6% 6% ROI 5% 4% 4% 4% 2% Global Economic Recession 0% 2000—2006 2007 3Q08 2009 2010 1H11 2005 Avg Run Rate Earnings before special items 19
Slide 20: 2Q11 Summary
2Q11 Summary Strong Operations Good Cost Management Good Outage Execution Seasonal Demand Increase Strong Ilim JV Earnings Input Cost Escalation Strong EPS, FCF & ROI
Slide 21: Third Quarter Outlook
Third Quarter Outlook Changes from 2Q11 North America Europe Brazil Asia Seasonal Paper Stable Stable Decrease Volume Seasonal Packaging Stable Decrease Slight Increase, Paper Stable Slight Increase Pulp Decrease Pricing Packaging Stable Slight Increase Stable Maintenance Outages Decrease Increase I
Slide 22: Other Information
Other Information Additional Information This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. The offer and solicitation to purchase shares of common stock, par value $1.00 per share (and the associated preferred stock purchase rights), of Temple
Slide 23: Other Information
Other Information Certain Information Regarding Participants The Company and certain of its respective directors and executive officers may be deemed to be participants in the proposed transaction under the rules of the SEC. Security holders may obtain information regarding the names, affiliations a
Slide 24: Appendix: Investor Relations Contacts
Appendix Investor Relations Contacts Glenn R. Landau 901-419-1731 Emily Nix 901-419-4987 Media Contact Tom Ryan 901-419-4333
Slide 25: Key Financial Statistics
Key Financial Statistics $ Million 2011 2009 2010 (Except as noted) Estimate Capital Spending $534 $775 $1.2 - $1.3 B Depreciation & $1,472 $1,456 $1.4 B Amortization Net Interest Expense $669 $608 $575 Corporate Items $181 $226 $175 - $200 Effective Tax Rate 30% 30% 32 - 34% Before special items an
Slide 26: Free Cash Flow
Free Cash Flow $ Million 2Q10 1Q11 2Q11 Cash from Operations $509 $6001 $648 Cash Received from Alternative $132 $0 $0 Fuel Mixture Tax Credits (AFMTC) Cash Provided by Continuing $641 $600 $648 Operations Less Capital Investment ($153) ($181) ($229) Free Cash Flow $488 $419 $419 Free Cash Flow $356
Slide 27: Maintenance Outages Expenses
Maintenance Outages Expenses $ Million 1Q11 2Q11 3Q11E 4Q11E 2011E Industrial Packaging $31 $72 $15 $29 $147 Printing Papers Total $39 $53 $62 $41 $195 North America $39 $29 $21 $41 $130 Europe 0 17 25 0 42 Brazil 0 7 16 0 23 Consumer Packaging $0 $17 $0 $27 $44 Total Impact $70 $142 $77 $97 $386 Do
Slide 28: Industrial Packaging
Industrial Packaging 2Q11 vs. 1Q11 2Q11 vs. 2Q10 Price / Price / Business Volume Volume Ton Ton N.A. Container1 6% ($5) (2%) $43 European Container2 (1%) €21 9% €78 1 Volumes reflect FBA reporting basis, which excludes Display and Bulk products and shipments from facilities in Mexico and Latin Ameri
Slide 29: Printing Papers
Printing Papers 2Q11 vs. 1Q11 2Q11 vs. 2Q10 Business Volume Price / Ton Volume Price / Ton N.A. Paper (1%) $13 (1%) $34 N.A. Pulp 10% ($1) 18% $30 European Paper (2%) €10 (1%) €77 Average IP price realization (includes the impact of mix across all grades) 29
Slide 30: Consumer Packaging
Consumer Packaging 2Q11 vs. 1Q11 2Q11 vs. 2Q10 Volume Price/Ton Volume Price/Ton N.A. Coated Paperboard 0% $9 4% $72 Revenue Price Revenue Price Converting Businesses 2% NA 4% NA Average IP price realization (includes the impact of mix across all grades) 30
Slide 31: Special Items Pre-Tax
Special Items Pre-Tax from Continuing Operations Special Items Pre-Tax ($Million) 2Q10 1Q11 2Q11 Industrial Facility & Machine Closure Costs ($1) ($2) Packaging Other $7 Printing Facility Closure Costs ($111) $21 Papers Other ($8) Consumer Fixed Asset Impairment ($129) Packaging Reorganization ($1)
Slide 32: Special Items Net of Taxes
Special Items Net of Taxes from Continuing Operations 2Q11 $ Million EPS Earnings Before Special Items $343 $0.80 Special Items Net of Taxes: Fixed Asset Impairment ($104) Environmental Reserve ($17) Reorganization ($6) Tax Items ($5) Mill & Machine Shutdowns $13 Total Special Items Net of Taxes ($1
Slide 33: 2Q11 EBITDA
2Q11 EBITDA Operating D & A Tons EBITDA EBITDA Profit $ Million Thousand per Ton Margin $ Million Industrial Packaging North America1 $250 $120 2,578 $144 17.9% Europe $16 $7 266 $86 7.8% Printing Papers North America2 $101 $50 681 $222 21.7% Europe3 $45 $20 306 $212 19.7% Brazil $39 $38 270 $285 26
Slide 34: Operating Profits by Industry Segment
Operating Profits by Industry Segment $ Million 2Q10 1Q11 2Q11 Industrial Packaging $193 $274 $269 Printing Papers $158 $209 $222 Consumer Packaging $49 $101 $98 Distribution $26 $12 $14 Forest Products $40 $0 $0 Operating Profit $466 $596 $603 Net Interest Expense ($157) ($136) ($137) Noncontrollin
Slide 35: Geographic Business Segment Operating Results
Geographic Business Segment Operating Results Before Special Items Sales Operating Profit $ Million 2Q10 1Q11 2Q11 2Q10 1Q11 2Q11 Industrial Packaging North American $2,120 $2,115 $2,220 $172 $256 $253 European $235 $280 $295 $19 $17 $16 Asian $85 $160 $190 $2 $1 $0 Printing Papers North American $6
Slide 36: 2011 Earnings from Continuing Operations
2011 Earnings from Continuing Operations Non- Net Average Pre-Tax Tax controlling Equity Estimated 1 Diluted Income Shares 2 $MM $MM Interest Earnings Tax Rate EPS $MM MM $MM Before Special Items 2Q11 $439 ($145) ($8) $57 $343 33% 431 $0.80 Special Items 2Q11 ($146) $27 $0 $0 ($119) 18% 431 ($0.28)
Slide 37: 2Q11 vs. 2Q10 EPS
2Q11 vs. 2Q10 EPS $1.00 .12 (.03) $0.90 (.15) .33 .11 .80 $0.80 ( .06) .03 ( .02) $0.70 (.03) .05 $0.60 $0.50 .03 .42 $0.40 $0.30 $0.20 $0.10 $0.00 2Q10 Volume Price Operations Maintenance Input Forest Vicksburg Bad Debt Interest Tax Ilim JV 2Q11 & Mix & Costs Outages Costs Products Flood Earnings b
Slide 38: Industrial Packaging
Industrial Packaging 2Q11 vs. 2Q10 $400 $350 40 (30) (24) 105 5 $300 (20) $250 $200 $150 $100 $50 $0 2Q10 Price Volume Operations Maintenance Input Vicksburg 2Q11 & Mix & Costs Outages Costs Earnings before special items 38
Slide 39: IP Brazil
IP Brazil $ Million 2Q10 1Q11 2Q11 Sales $275 $285 $295 Earnings $39 $48 $39 EBITDA Margin 27% 30% 26% 2Q11 vs. 1Q11 2Q11 vs. 2Q10 Price / Price / Business Volume Volume Ton Ton Uncoated Freesheet (1%) $29 (4%) $99 Domestic (4%) $2 4% $5 Export 1% $46 (9%) $158 IP Brazil results are reported in the
Slide 40: Printing Papers
Printing Papers 2Q11 vs. 2Q10 $300 9 (47) $250 12 33 (19) 9 67 222 $200 $150 $100 $50 $0 2Q10 Price Volume Operations Maintenance Input Bad Debt Other 2Q11 & Mix & Costs Outages Costs Earnings before special items 40
Slide 41: Consumer Packaging
Consumer Packaging 2Q11 vs. 2Q10 $140 24 1 (22) $120 $100 3 $80 $60 49 $40 $20 $0 2Q10 Price Volume Operations Maintenance Input 2Q11 & Mix & Costs Outages Costs Earnings before special items 41
Slide 42: 2Q11 YTD Total North American Mills Cash Cost Components
2Q11 YTD Total North American Mills Cash Cost Components Overhead Fiber 8% 32% Energy 10% Freight 14% Materials 14% Chemicals Labor 11% 11%
Slide 43: Global Input & Freight Costs vs. 2Q10
Global Input & Freight Costs vs. 2Q10 $94 MM Unfavorable, or $0.15/Share $60 $40 17 $20 $0 Million ($20) (20) ($40) (30) ($60) (61) ($80) Chemicals Freight Energy Fiber Outside North America North America Input costs for continuing businesses 43
Slide 44: U.S. Mill Wood Delivered Cost Trends
U.S. Mill Wood Delivered Cost Trends 2% Decrease vs. 1Q11 Average Cost 130 125 120 115 110 105 100 2005 2006 2007 2008 2009 2010 2011 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Cost Indexed to January 2005 values 44
Slide 45: U.S. OCC Delivered Cost Trends
U.S. OCC Delivered Cost Trends Flat vs. 1Q11 Average Cost 180 160 140 120 100 80 2005 2006 2007 2008 2009 2010 2011 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Cost Indexed to January 2005 values 2005-2007 represents WY PKG delivered costs;
Slide 46: Natural Gas Costs
Natural Gas Costs 5% Increase vs. 1Q11 Average Cost 250 200 150 100 2005 2006 2007 2008 2009 2010 2011 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Cost Indexed to January 2005 values NYMEX Natural Gas closing prices 46
Slide 47: U.S. Fuel Oil
U.S. Fuel Oil 17% Increase vs. 1Q11 Average Cost 220 200 180 160 140 120 100 80 2006 2007 2008 2009 2010 2011 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Cost Indexed to January 2006 values WTI Crude prices 47
Slide 48: U.S. Chemical Composite Index
U.S. Chemical Composite Index 8% Increase vs. 1Q11 Average Cost 225 200 175 150 125 2005 2006 2007 2008 2009 2010 2011 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Cost Indexed to January 2005 values Delivered cost to U.S. facilities; includ
Slide 49: 2011 Global Consumption
2011 Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. Natural Gas (MM BTUs) 52,000,000 13,000,000 Energy Fuel Oil (Barrels) 1,100,000 380,000 Coal (Tons) 755,000 410,000 Fiber Wood (Tons) 44,200,000 9,300,000 Old Corrugated Containers (Tons) 3,300,000 100,000 C
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