Here's Why International Paper Rose 17.5% in January

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What happened

Shares of International Paper (NYSE:IP) rose more than 17% last month, according to data from S&P Global Market Intelligence. There wasn’t any company-specific news to drive the stock higher throughout the month, but shares rose with the broader market following the sell-off at the end of 2018. That’s not to say the move higher wasn’t deserved, however.

The $18.5 billion pulp and paper company reported fourth-quarter and full-year 2018 earnings results at the end of January. International Paper beat Wall Street’s earnings estimate in every quarterly period last year, showing that analysts were unnecessarily worried about trade-war risks that never materialized. 

A child playing in a cardboard airplane.

Image source: Getty Images.

So what

For the full year 2018, International Paper delivered strong growth in operating income for each of its core segments. The year-over-year comparisons are always muddied a little bit by special items and one-time expenses for the globe-spanning operations of the company. For instance, the industrial packaging segment took a $354 million charge in 2017 related to a legal settlement, and it took a $122 million charge last year to write off certain assets in Brazil. Nonetheless, the comparison provides a solid glimpse into the health of the business. 

Operating Profit

2018

2017

Year-Over-Year Difference

Industrial packaging (cardboard)

$2.09 billion

$1.55 billion

35%

Global cellulose fibers (pulp)

$251 million

$65 million

286%

Printing papers

$533 million

$457 million

17%

Total segment operating profit

$2.88 billion

$2.07 billion

39%

Data source: press release.

The results indicate that International Paper is doing well navigating the headwinds facing the global pulp and paper industry. Wall Street worried that the ongoing trade war between China and the United States would sap the business last year, especially if tariffs cut off cardboard sales to China. The country has been one of the driving forces of rising global cardboard demand in recent years, alongside the rise of online shopping, which requires a lot of cardboard boxes. Apparently, China is still purchasing plenty of finished paper products, which isn’t surprising, considering the state of its domestic industry.

The business also reported full-year 2018 equity earnings of $290 million from its stake in Ilim, a pulp joint venture in Russia. That’s an increase from just $183 million in 2017. International Paper also reported full-year 2018 equity earnings of $46 million for its stake in a printing paper company. It didn’t report any earnings from the investment in 2017. The strong performance of the equity investments provides confidence that management is taking advantage of opportunities in the pulp and paper industry.

Now what

International Paper delivered operating income growth for each of its business segments in 2018, led by an impressive increase in its core industrial packaging unit. If that’s not enough to prove that Wall Street was wrong about the threat of tariffs on the business, then perhaps no data will be sufficient.

The steady progress of the business last year didn’t keep shares from sliding 30% in 2018. Then again, that could just create a great entry point for investors with a long-term mindset.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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