International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — Q2 2006 Earnings Presentation
30 slides from International Paper's earnings presentation, Aug 1, 2006
Slide 1: Second Quarter 2006 Review
John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO Second Quarter 2006 Review August 1, 2006 Second Quarter 2006 Review August 1, 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 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 Second Quarter 2006 Review Third Quarter 2006 Outlook Transformation Plan Update Second Quarter 2006 Review Third Quarter 2006 Outlook Transformation Plan Update
Slide 4: Second Quarter 2006 Summary
Second Quarter 2006 Summary Solid second quarter, strong revenue Improving IP paper and packaging pricing Comparable volume to first quarter 2006 Strong manufacturing operations Lower raw material costs / higher freight costs Lower land sales / higher tax rate Coated Papers included in continuing op
Slide 5: Diluted EPS from Continuing Operations and Before Special Items
0.00 0.10 0.20 0.30 0.40 0.50 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q Diluted EPS from Continuing Operations and Before Special Items 0.00 0.10 0.20 0.30 0.40 0.50 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q .13 .33 .27 .29 .14 .20 .21 .14 .12 .41 .32 .42 .35 .31 .28 .11 .20
Slide 6: 2Q'06 vs. 1Q'06 EPS from cont. ops before special items
2Q’06 vs. 1Q’06 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 $0.50 1Q'06 Price Volume / Downtime Cost / Mix Materials / Freight Land Sales Corporate Items Tax Other 2Q'06 EPS $ / Share Energy $0.04 Wood Cost $0.02 Freight ($0.01) Packaging $0.05
Slide 7: 6M'06 vs. 6M'05 EPS from cont. ops before special items
6M’06 vs. 6M’05 EPS from cont. ops before special items $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 6M'05 Price Volume / Downtime Cost / Mix Materials / Freight Land Sales Corporate Items Interest Tax Other 6M'06 EPS $ / Share Packaging $0.03 Papers $0.10 Wood Products ($0.05)
Slide 8: Raw Material & Freight Costs EBIT impact 6M'06 vs. 6M'05
Raw Material & Freight Costs EBIT impact 6M’06 vs. 6M’05 (120) (100) (80) (60) (40) (20) 0 Total of $220 million or $0.30 per share negative impact in 6M’06 versus 6M’05 (120) (100) (80) (60) (40) (20) Energy Wood Chemicals EBIT ($MM) (94) (13) (36) (57) Non- U.S. Freight (20)
Slide 9: Printing Papers
Printing Papers $ Millions 2Q’06 Change vs 1Q’06: $1,915 Sales Earnings 2Q’06 1Q’06 $ Millions $ 1,895 U.S. operations only Europe is average commodity cut-size price, excluding Russia Average IP realization (includes the impact of mix across all grades) Uncoated Pulp Europe (uncoated) Volume Realiz
Slide 10: Industrial Packaging
Industrial Packaging $ Millions 2Q’06 Change vs 1Q’06: Average IP realization (includes the impact of mix across all grades) $ 1,240 Sales Earnings 2Q’06 1Q’06 $ Millions $ 1,170 Containerboard U.S. Container $50 $35 Volume Realizations/ton 2Q’06 Change vs 1Q’06: (12%) 3% U .S. operations only
Slide 11: Consumer Packaging
Consumer Packaging $ Millions 2Q’06 Change vs 1Q’06: Average IP realization (includes the impact of mix across all grades) $ 795 Sales Earnings 2Q’06 1Q’06 $ Millions $ 775 Coated Paperboard Flat Volume Realizations/ton 2Q’06 Change vs 1Q’06: 3% Converting Businesses Sales Revenue 4% U.S. operations
Slide 12: Distribution
Distribution $ Millions $ 1,690 Sales Earnings 2Q’06 1Q’06 $ Millions $ 1,650 xpedx reported record earnings for month, quarter and six-month period Revenues improved 8% vs. second quarter Expenses down, margins up
Slide 13: Forest Products
Forest Products 2Q’06 Change vs 1Q’06: Average IP realization (includes the impact of mix across all grades) $ 595 Sales Earnings 2Q’06 1Q’06 $ Millions Lumber (mbf) Plywood (msf) ($15) ($5) Volume Realizations/unit $ 630 2Q’06 Change vs 1Q’06: 6% 3% U.S. operations only
Slide 14: Special Items & Discontinued Operations – 2Q'06
Special Items – After Tax • Transformation Plan Costs & Other (70) • Divestitures Gain on Conservation Tracts 39 Estimated Loss on Coated Paper Sale (53) Special Items Total (84) ($0.17) Discontinued Operations (Kraft Papers) • Earnings 9 • Estimated Loss on Sale (10) Discontinued Operations Total (
Slide 15: Reconciliation to 2Q'06 Diluted Earnings Per Share
Earnings from Continuing Operations and Before Special Items $0.41 Special Items (0.17) Earnings from Continuing Operations 0.24 Discontinued Operations 0.00 Net Earnings $0.24 Reconciliation to 2Q’06 Diluted Earnings Per Share Earnings from Continuing Operations and Before Special Items $0.41 Speci
Slide 16: Third Quarter 2006 Outlook
Third Quarter 2006 Outlook Volume – Continued solid, inventories in good shape Implementing IP’s previously announced price increases in paper and packaging Continued progress in improving operations Costs remain high, outlook mixed Volume – Continued solid, inventories in good shape Implementing IP
Slide 17: Transformation Plan Update
Transformation Plan Update Continued focus on improving our key platform operations Communicated details on returning value to shareholders on July 13, 2006 • Board authorized up to $3 billion share repurchase • Plan to spend $6-7 billion to strengthen balance sheet • Disciplined approach to strateg
Slide 18: Transformation Plan Update: Divestments status
Transformation Plan Update Divestments status as of August 1, 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 complete
Slide 19: Key Financial Statistics
Capital Spending Depreciation & Amort. Net Interest Expense Corporate Items Effective Tax Rate Key Financial Statistics Updated as of August 1, 2006 Capital Spending Depreciation & Amort. Net Interest Expense Corporate Items Effective Tax Rate $ 1.2 B $ 1.2-1.3 B $ 600 MM $ 700-750 MM 33% 2006 Est.
Slide 20: 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 2Q Containerboard Uncoated Papers Pulp Coated Paperboard European Papers Coated Papers *Includes indefinitely closed uncoated papers capacity at Pensacola, FL, Bastrop, LA and Jay, ME in 2Q05 (72,000 tons), 3Q05 (108,000 tons)
Slide 21: Earnings by Industry Segment
Earnings by Industry Segment Earnings by Industry Segment Printing Papers $215 $128 $156 Industrial Packaging 100 38 84 Consumer Packaging 49 35 53 Distribution 36 27 18 Forest Products 184 226 205 Other Businesses 16 10 7 Operating Profit 600 464 523 Interest Expense (148) (148) (166) Minority Inte
Slide 22: 2006 Earnings from Continuing Operations
2006 Earnings from Continuing Operations Before Special Items Q1 (44) (4) 30% 486.3 0.20 Q2 (106) (5) 34% 487.2 0.41 Special Items Q1 (1,310) - (1,274) 3% 486.3 (2.62) Q2 (129) - (84) 35% 487.2 (0.17) Earnings from Continuing Operations Q1 (1,167) (8) (4) (1,179) (1%) 486.3 (2.42) Q2 (61) (5) 34% 48
Slide 23: Average Sales Realizations (Preliminary)
Average Sales Realizations (Preliminary) * U.S. only Average IP realization (includes the impact of mix across all grades) Forest Products $/ton Packaging $/ton Printing Papers Segments* 1Q’06 Average Sales Realizations 2Q’05 Jun 06 Plywood, $/MSF Lumber, $/MBF Corrugated boxes Containerboard Pulp U
Slide 24: Forest Resources Earnings Sources
Forest Resources Earnings Sources – Gross Margin • Forestland Sales $101 $103 $67 • Harvest & Recreational Income 61 72 62 Forestland Expenses (31) (30) (39) Land Utilization (real estate), Net of Expenses 29 45 39 Total EBIT $160 $190 $129 1Q’06 2Q’05 2Q’06 Earnings Sources – Gross Margin • Forestl
Slide 25: Raw Material & Freight Costs EBIT impact 2Q'06 vs. 1Q'06
Raw Material & Freight Costs EBIT impact 2Q’06 vs. 1Q’06 (10) (5) 0 5 10 15 20 25 30 Total of $37 million or $0.05 per share positive impact in 2Q’06 versus 1Q’06 (10) (5) Energy Wood Other EBIT ($MM) (4) Freight
Slide 26: Natural Gas Costs Trended lower in 2Q'06
Natural Gas Costs Trended lower in 2Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Index: Jan 2003 Natural Gas Costs = 100 Natural gas costs peaked in October * U.S. pulp & paper mills average
Slide 27: U.S. Mill Wood Costs Trended lower in 2Q'06
U.S. Mill Wood Costs Trended lower in 2Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Index: Jan 2003 Wood Costs = 100 * Delivered cost to U.S. pulp & paper mills U.S. mill wood costs decreased in 2Q’06
Slide 28: Caustic Soda Costs Trended lower in 2Q'06
Caustic Soda Costs Trended lower in 2Q’06 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Index: Jan 2003 Caustic Soda Costs = 100 Caustic soda costs remain historically high * Delivered cost to U.S. facilities
Slide 29: Global Consumption
Global Consumption Key input indicative annual purchase levels Energy Fiber Chemicals Units U.S. Non- U.S. 1 Natural Gas MMbtu 37,000,000 16,000,000 # 6 Fuel Oil BBL 5,000,000 440,000 Coal Tons 1,600,000 230,000 Wood Tons 65,000,000 5,700,000 OCC Tons 600,000 310,000 Caustic Soda Tons 315,000 60,000
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International Paper Co /New/ — Q2 2006 Earnings Presentation on 6ix