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INTERNATIONAL PAPER CO /NEW/ 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

International Paper Company

Filing date:

02/21/2025

TLDR:

International Paper’s 10-K filing reveals a slight decrease in net sales but an increase in net earnings. The company is focused on sustainable packaging and strategic acquisitions like DS Smith Plc.

ELI5:

International Paper, a packaging company, had a year with slightly lower sales but made more money overall. They’re buying another company and focusing on eco-friendly packaging.

Accession #:

0000051434-25-000013

Published on

Analyst Summary

  • Net Sales decreased by 1.6% from 2023 to 2024.
  • Selling and Administrative Expenses increased significantly due to higher employee incentive compensation.
  • Free Cash Flow increased slightly from $692 million in 2023 to $757 million in 2024.
  • Net income and EPS experienced significant growth compared to the previous year, revenue declined slightly.
  • Profitability ratios such as ROA and ROE improved, but the operating profit margin decreased.
  • The company’s liquidity position remains healthy, and leverage is well-managed.

Opportunities and Risks

  • Integration risks associated with the DS Smith acquisition.
  • Fluctuations in raw material and energy costs.
  • Competition and pricing pressure in the packaging industry.
  • Cybersecurity threats.
  • Climate change and environmental regulations.
  • Labor market challenges.
  • Synergies and cost savings from the DS Smith acquisition.
  • Growth in sustainable packaging solutions.
  • Operational improvements and cost reductions through the 80/20 strategic approach.
  • Potential value creation from strategic options for the Global Cellulose Fibers business.

Potential Implications

Company Performance

  • Monitor the integration of DS Smith: Closely track the progress of the integration and assess the realization of anticipated synergies and cost savings.
  • Evaluate the Global Cellulose Fibers business: Analyze the strategic options being explored for this business and their potential impact on the company’s overall performance.
  • Assess the effectiveness of the 80/20 strategic approach: Monitor the company’s progress in reducing costs, improving operational efficiency, and driving profitable market share growth.

Stock Price

  • Monitor debt levels and compliance with covenants: Ensure the company maintains a strong balance sheet and complies with its debt covenants.
  • Monitor labor relations: Closely monitor labor negotiations and potential work stoppages.
  • Monitor climate change and environmental regulations: Assess the impact of climate change and environmental regulations on the company’s operations and financial performance.
  • Monitor cybersecurity risks: Assess the effectiveness of the company’s cybersecurity risk management program.
  • Monitor the impact of the dual listing: Assess the impact of the dual listing on the NYSE and LSE.
  • Monitor the impact of the global minimum tax: Assess the impact of the Pillar Two rule on the company’s effective tax rate.

SEC Filing Report: International Paper Co (10-K)

Executive Summary

This report analyzes International Paper Co’s 10-K filing for the year ended December 31, 2024. Key findings include a slight decrease in net sales, increased selling and administrative expenses, and a strategic shift towards sustainable packaging solutions. The company’s acquisition of DS Smith Plc, completed in January 2025, is a significant event with potential risks and opportunities. Overall, the company is navigating a challenging market environment with a focus on cost reduction and strategic investments. A HOLD recommendation is appropriate at this time, pending further observation of the integration of DS Smith and the execution of the 80/20 strategic approach.

Company Overview

International Paper (IP) is a global leader in sustainable packaging solutions, producing renewable fiber-based packaging and pulp products. The company operates in North America, Latin America, Europe, and North Africa. IP’s business is separated into two segments: Industrial Packaging and Global Cellulose Fibers. Recent developments include the acquisition of DS Smith, implementation of an 80/20 strategic approach, and exploration of strategic options for the Global Cellulose Fibers business.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights a focus on performance-driven culture and the DS Smith acquisition. The 80/20 strategic approach aims to drive profitable market share growth by becoming the lowest-cost producer and most reliable provider. Red flags include mill reliability issues and increased selling and administrative expenses.

Financial Statement Analysis

Key Ratios and Trends

* **Net Sales:** Decreased by 1.6% from 2023 to 2024.
* **Operating Profit (Loss):** Increased in Industrial Packaging, but decreased in Global Cellulose Fibers.
* **Selling and Administrative Expenses:** Increased significantly, primarily due to higher employee incentive compensation.
* **Free Cash Flow:** Increased slightly from $692 million in 2023 to $757 million in 2024.
* **Capital Spending:** Decreased from $1.141 billion in 2023 to $921 million in 2024.

Balance Sheet

* Total Assets decreased slightly.
* Total Liabilities decreased slightly.
* Equity decreased slightly.

Income Statement

* Net sales decreased.
* Cost of products sold decreased.
* Selling and administrative expenses increased.
* Net earnings increased.

Cash Flow Statement

* Cash from operations decreased.
* Cash used for investing activities increased.
* Cash used for financing activities decreased.

Risk and Opportunity Assessment

Risks

* Integration risks associated with the DS Smith acquisition.
* Fluctuations in raw material and energy costs.
* Competition and pricing pressure in the packaging industry.
* Cybersecurity threats.
* Climate change and environmental regulations.
* Labor market challenges.

Opportunities

* Synergies and cost savings from the DS Smith acquisition.
* Growth in sustainable packaging solutions.
* Operational improvements and cost reductions through the 80/20 strategic approach.
* Potential value creation from strategic options for the Global Cellulose Fibers business.

Conclusion and Actionable Insights

International Paper is undergoing a significant transformation with the acquisition of DS Smith and the implementation of its 80/20 strategic approach. While the company faces several risks, it also has opportunities to improve its performance and create value for shareholders.

**Recommendations:**

* **Monitor the integration of DS Smith:** Closely track the progress of the integration and assess the realization of anticipated synergies and cost savings.
* **Evaluate the Global Cellulose Fibers business:** Analyze the strategic options being explored for this business and their potential impact on the company’s overall performance.
* **Assess the effectiveness of the 80/20 strategic approach:** Monitor the company’s progress in reducing costs, improving operational efficiency, and driving profitable market share growth.
* **Monitor debt levels and compliance with covenants:** Ensure the company maintains a strong balance sheet and complies with its debt covenants.
* **Monitor labor relations:** Closely monitor labor negotiations and potential work stoppages.
* **Monitor climate change and environmental regulations:** Assess the impact of climate change and environmental regulations on the company’s operations and financial performance.
* **Monitor cybersecurity risks:** Assess the effectiveness of the company’s cybersecurity risk management program.
* **Monitor the impact of the dual listing:** Assess the impact of the dual listing on the NYSE and LSE.
* **Monitor the impact of the global minimum tax:** Assess the impact of the Pillar Two rule on the company’s effective tax rate.

This analysis provides a foundation for further due diligence and investment decisions regarding International Paper Co.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: ($18,619 – $13,376) / $18,619 = 28.16%
    • Trend: ($18,916 – $13,629) / $18,916 = 27.95%. Percentage change: (28.16 – 27.95) / 27.95 = 0.75%
    • Industry: The paper packaging industry typically sees gross profit margins between 20% and 40%. International Paper’s gross profit margin is within this range.
  • Operating Profit Margin

    • Ratio/Metric: $147 + $208 – (-$42) / $18,619 = 2.13%
    • Trend: $382 + $231 – $54 / $18,916 = 2.90%. Percentage change: (2.13 – 2.90) / 2.90 = -26.55%
    • Industry: Operating profit margins for the paper packaging industry are typically between 5% and 15%. International Paper’s operating profit margin is below this range.
  • Net Profit Margin

    • Ratio/Metric: $557 / $18,619 = 2.99%
    • Trend: $302 / $18,916 = 1.60%. Percentage change: (2.99 – 1.60) / 1.60 = 86.88%
    • Industry: Net profit margins for the paper packaging industry are typically between 3% and 8%. International Paper’s net profit margin is within this range.
  • Return on Assets (ROA)

    • Ratio/Metric: $557 / $22,800 = 2.44%
    • Trend: $302 / $23,261 = 1.30%. Percentage change: (2.44 – 1.30) / 1.30 = 87.69%
    • Industry: ROA for the paper packaging industry is typically between 2% and 6%. International Paper’s ROA is within this range.
  • Return on Equity (ROE)

    • Ratio/Metric: $557 / $8,173 = 6.82%
    • Trend: $302 / $8,355 = 3.61%. Percentage change: (6.82 – 3.61) / 3.61 = 89.19%
    • Industry: ROE for the paper packaging industry is typically between 5% and 15%. International Paper’s ROE is within this range.
  • Earnings Per Share (EPS) – Basic and Diluted

    • Ratio/Metric: Basic: $1.60, Diluted: $1.57
    • Trend: Basic: $0.87, Diluted: $0.86. Percentage change: Basic: (1.60 – 0.87) / 0.87 = 83.91%, Diluted: (1.57 – 0.86) / 0.86 = 82.56%
    • Industry: EPS varies widely based on company performance and size.

Liquidity

  • Current Ratio

    • Ratio/Metric: $6,424 / $4,258 = 1.51
    • Trend: $6,608 / $3,959 = 1.67. Percentage change: (1.51 – 1.67) / 1.67 = -10.18%
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. International Paper’s current ratio is within this range.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: ($6,424 – $1,784) / $4,258 = 1.09
    • Trend: ($6,608 – $1,889) / $3,959 = 1.19. Percentage change: (1.09 – 1.19) / 1.19 = -8.40%
    • Industry: A quick ratio of 1 or greater is generally considered acceptable. International Paper’s quick ratio is slightly above 1.
  • Cash Ratio

    • Ratio/Metric: $1,170 / $4,258 = 0.27
    • Trend: $1,113 / $3,959 = 0.28. Percentage change: (0.27 – 0.28) / 0.28 = -3.57%
    • Industry: A cash ratio of 0.2 or higher is generally considered acceptable. International Paper’s cash ratio is above 0.2.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: ($5,368 + $193) / $8,173 = 0.68
    • Trend: ($5,455 + $138) / $8,355 = 0.67. Percentage change: (0.68 – 0.67) / 0.67 = 1.49%
    • Industry: A debt-to-equity ratio between 0.5 and 1.5 is generally considered acceptable. International Paper’s debt-to-equity ratio is within this range.
  • Debt-to-Assets Ratio

    • Ratio/Metric: ($5,368 + $193) / $22,800 = 0.24
    • Trend: ($5,455 + $138) / $23,261 = 0.24. Percentage change: (0.24 – 0.24) / 0.24 = 0.00%
    • Industry: A debt-to-assets ratio below 0.6 is generally considered acceptable. International Paper’s debt-to-assets ratio is below this range.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: ($147 + $208) / $208 = 1.71
    • Trend: ($382 + $231) / $231 = 2.65. Percentage change: (1.71 – 2.65) / 2.65 = -35.47%
    • Industry: An interest coverage ratio above 1.5 is generally considered acceptable. International Paper’s interest coverage ratio is above 1.5.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: $13,376 / $1,784 = 7.50
    • Trend: $13,629 / $1,889 = 7.22. Percentage change: (7.50 – 7.22) / 7.22 = 3.88%
    • Industry: Inventory turnover varies depending on the specific products.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: ($2,966 / $18,619) * 365 = 58.15 days
    • Trend: ($3,059 / $18,916) * 365 = 59.06 days. Percentage change: (58.15 – 59.06) / 59.06 = -1.54%
    • Industry: DSO varies depending on the company’s credit terms and customer base.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: ($2,316 / $13,376) * 365 = 63.24 days
    • Trend: ($2,442 / $13,629) * 365 = 65.33 days. Percentage change: (63.24 – 65.33) / 65.33 = -3.20%
    • Industry: DPO varies depending on the company’s payment terms with its suppliers.
  • Asset Turnover

    • Ratio/Metric: $18,619 / $22,800 = 0.82
    • Trend: $18,916 / $23,261 = 0.81. Percentage change: (0.82 – 0.81) / 0.81 = 1.23%
    • Industry: Asset turnover varies depending on the industry and the company’s capital intensity.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: $71.00 / $1.57 = 45.22
    • Trend: Previous year EPS is $0.82. Percentage change: (45.22 – (71/0.82)) / (71/0.82) = -48.78%
    • Industry: The P/E ratio for the paper packaging industry varies depending on market conditions and investor sentiment.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap = 448.9 – 101.5 = 347.4 * $71 = $24,665.4 million. Book Value = $8,173 million. P/B = 24,665.4 / 8,173 = 3.02
    • Trend: Market Cap = 448.9 – 102.9 = 346 * (71) = $24,566 million. Book Value = $8,355 million. P/B = 24,566 / 8,355 = 2.94. Percentage change: (3.02 – 2.94) / 2.94 = 2.72%
    • Industry: The P/B ratio for the paper packaging industry varies depending on market conditions and investor sentiment.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: 24,665.4 / $18,619 = 1.33
    • Trend: 24,566 / $18,916 = 1.30. Percentage change: (1.33 – 1.30) / 1.30 = 2.31%
    • Industry: The P/S ratio for the paper packaging industry varies depending on market conditions and investor sentiment.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: EV = 24,665.4 + 5,561 – 1,170 = 29,056.4. EBITDA = $147 + $1,305 + $208 – (-$42) = $1,702. EV/EBITDA = 29,056.4 / 1,702 = 17.07
    • Trend: To determine the trend, we would need the EV/EBITDA from the previous comparable period, which is not provided in the filing.
    • Industry: The EV/EBITDA ratio for the paper packaging industry varies depending on market conditions and investor sentiment.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: ($18,619 – $18,916) / $18,916 = -1.57%
    • Industry: Revenue growth varies depending on market conditions and company strategy.
  • Net Income Growth

    • Ratio/Metric: ($557 – $288) / $288 = 93.40%
    • Industry: Net income growth varies depending on market conditions and company strategy.
  • EPS Growth

    • Ratio/Metric: ($1.57 – $0.86) / $0.86 = 82.56%
    • Industry: EPS growth varies depending on market conditions and company strategy.

Other Relevant Metrics

  • Adjusted Operating Earnings (Loss)

    • Analysis: This is a non-GAAP metric that adds back non-operating pension expense/income and net special items expense/income, and subtracts the income tax effect of these adjustments, to provide a view of the company’s core operating performance.
    • Trend: Adjusted Operating Earnings decreased from $438 million in 2023 to $400 million in 2024.
    • Assessment: While it provides insight into core operations, investors should carefully consider the nature and magnitude of the adjustments.
  • Free Cash Flow

    • Analysis: This metric represents the cash a company generates after accounting for cash outflows to support its operations and maintain its capital assets.
    • Trend: Free Cash Flow increased from $692 million in 2023 to $757 million in 2024.
    • Assessment: An increase in free cash flow is generally a positive sign, indicating improved financial flexibility.

Commentary

International Paper’s financial performance in 2024 shows a mixed picture. While net income and EPS experienced significant growth compared to the previous year, revenue declined slightly. Profitability ratios such as ROA and ROE improved, but the operating profit margin decreased. The company’s liquidity position remains healthy, and leverage is well-managed. Overall, the company shows improved profitability, but revenue decline and operating profit margin decrease are concerning.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️