International Paper (IP) Q4 Earnings: What's In The Offing?

Leading packaging and paper manufacturer International Paper Company (NYSE:IP) is scheduled to report fourth-quarter 2017 results before the opening bell on Feb 1. The company is likely to report higher revenues in the quarter across most of the operating segments due to healthy growth dynamics.

Whether this could result in higher earnings for the quarter remains to be seen.

Top-Line Expansion

International Paper is continuing with its restructuring initiatives to transform itself into a core packaging company. The company is investing considerably to improve its North American containerboard mill system, enhance product quality and reduce manufacturing and delivery costs. These projects are expected to have a collective internal rate of return of 20%. At the same time, International Paper is divesting its non-core businesses to focus more resources on high-return capital projects in its core businesses that can drive additional earnings growth.

Mergers and acquisitions also remain a key strategy for International Paper to strengthen its business in the long term. In North America, the company envisions a large opportunity within its Industrial Packaging business, which continues to generate the best margins in the industry. It is further taking initiatives to drive margin expansion across the business through inorganic growth.

The Zacks Consensus Estimate for revenues from the Industrial Packaging segment, which accounts for the lion’s share of total revenues, is currently pegged at $3,774 million, up from $3,559 million generated in fourth-quarter 2016. Revenues from Consumer Packaging segment are expected to be $483 million compared with $464 million in the prior-year quarter. Total corporate revenues for the quarter are likely to be $5,942 million, up from $5,381 million in the year-earlier quarter.

Other Key Factors

International Paper has huge pension obligations for substantially all U.S. salaried employees hired prior to Jul 1, 2004 and largely all hourly and union employees regardless of the hire date. Pension plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns, changes in general interest rates and in the number of retirees are likely to increase pension costs and reduce its cash flow, thereby limiting its earnings growth potential. Rising energy, chemical and old corrugated containers’ costs remain headwinds, particularly in harsh winter conditions.

Our proven model does not conclusively shows that International Paper is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% as both are currently pegged at $1.19. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

International Paper Company Price and EPS Surprise

International Paper Company Price and EPS Surprise | International Paper Company Quote

Zacks Rank: International Paper has a Zacks Rank #3. Although this increases the predictive power of ESP, we need to have a positive ESP to make us confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Apple Inc. (NASDAQ:AAPL) has an Earnings ESP of +1.56% and a Zacks Rank #3.

AmerisourceBergen Corporation (NYSE:ABC) has an Earnings ESP of +1.50% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial Group, Inc. (NYSE:AFG) has an Earnings ESP of +1.82% and a Zacks Rank #2.

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