Q1 2009 Earning Report of International Paper Company

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Q1 2009 Earning Report of International Paper Company

  1. 1. First Quarter John V. Faraci V Chairman & 2009 Review Chief Executive Officer April 30, 2009 Tim S. Nicholls Senior Vice President & Chief Financial Officer
  2. 2. Forward-Looking Statements These slides and statements made during this presentation contain 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 expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) increases in interest rates and our ability to meet our debt service obligations; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, materials energy and transportation costs competition we face cyclicality and changes in costs, face, consumer preferences, demand and pricing for its products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit availability, credit ratings issued by recognized credit rating organizations, th amount of our f t dit ti i ti the tf future pension f di i funding obligation and bli ti d pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and to actual or potential litigation; and (v) whether we experience a material disruption at one of our manufacturing facilities and risks inherent in conducting business through a joint venture. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. These and other factors that could cause or contribute to actual results differing materially from such forward looking g y g statements are discussed in greater detail in the company's Securities and Exchange Commission filings. 2
  3. 3. Statements Relating to Non-GAAP Financial Measures During the course of this presentation, certain non-U.S. GAAP financial information will be US fi i li f ti ill b presented. A reconciliation of those numbers to U.S. ili ti f th b t US GAAP financial measures is available on the company s company’s website at internationalpaper.com under Investors. 3
  4. 4. First Quarter 2009 Results Summary Solid Results Despite Weak Economy Solid Results $0.41 $0.04 Input Cost Relief Excellent Operations E ll O i $0.21 Integration Synergies $0.37 $0.07 Reduced Overhead Expenses $0.14 $0.08 $0 08 Strong F St Free Cash Flow C h Fl 1Q08 4Q08 1Q09 Debt Refinancing & Reduction Operating Business EPS O ti B i Forest Products EPS 4 Earnings from continuing operations before special items
  5. 5. 1Q09 Financial Snapshot 1Q08 4Q08 1Q09 $ Billion Sales $5.7 $6.5 $5.7 EBITDA $0.6 $0.7 $0.6 Free Cash Flow1 $0.2 $0.4 $0.7 Cash Balance $0.9 $1.1 $1.0 Earnings from continuing operations before special items; 4Q08 & 1Q09 includes CBPR 5 1 Cash provided by continuing operations less capital expenditures
  6. 6. Industrial Packaging Integration Progress On Track Despite Economic Recession $2.0 1.7 17 0.3 03 0.1 $1.5 1.3 Billion $1.0 B $0.5 $0.0 1Q09 EBITDA Incremental Volume / Margin Original 3-Year 3 Year Annualized Synergies Improvements Target 6
  7. 7. 1Q09 vs. 4Q08 EPS Weak Volume , Input Cost Relief & Strong Operations $ / Share $0.50 .11 (.22) $0.40 .23 .48 Forest Products $0.30 Earnings (.04) ( 04) .21 $0.20 (.06) .07 (.02) .04 (.04) (.06) .08 $0.10 .14 $0.00 4Q08 Price Input Costs Cost & Mix Volume / LOO Corporate & Vicksburg Interest Tax Ilim JV 1Q09 Other Ins. Recov. 7 Earnings from continuing operations before special items
  8. 8. Global Input & Freight Costs by Segment $124MM, or $0.23/Share Favorable vs. 4Q08 $90 81 $75 $60 Million n $45 $30 23 20 $15 $0 Industrial Consumer Printing Packaging Packaging Papers Fiber Energy Chemicals Freight OCC 8 Input costs for continuing businesses
  9. 9. Lack of Order Downtime 1.1 Million Tons in 1Q09 (Thousand Tons) 1,100 1074 800 729 702 1,050 1 050 700 998 1,000 600 500 950 IP Total 400 300 200 152 127 127 120 100 48 35 18 14 0 Containerboard Uncoated NA Pulp Coated European Papers Paperboard Papers 4Q08 1Q09 None of the businesses recorded LOO downtime in 1Q08. 1Q09 LOO downtime excludes capacity from mills or machines that have been permanently or indefinitely shut down: 9 Valliant #3 (97,000 tons), Franklin #3 (32,000 tons) and Louisiana mill (120,000 tons)
  10. 10. Industrial Packaging Earnings 1Q09 vs. 4Q08 (3) Vicksburg $200 41 188 1 (32) 81 Insurance Settlement 145 $150 33 (11) Million $100 112 $ $50 $0 4Q08 Price Input Costs Volume & LOO Cost & Mix Other 1Q09 1 Excludestrade volume Earnings before special items 10
  11. 11. Industrial Packaging Synergies Achieved Three-Year Run Rate after 8 Months $405 MM $400 MM $220 MM $96 MM 1Q09 Original 2009 March Run Rate Original 3-Yr Target Annualized Target Box Plants Mix Mills Overhead 11
  12. 12. Industrial Packaging Merger Benefits Achieving Higher Savings at a Faster Rate Total Commercial Total IPG # of Box Synergies S i Improvements I t Employees Plants per CBPR Ton $MM 23,700 120 -- -- Base 21,900 21 900 109 +$23 $400 Planned Pl d 20,700 20 700 108 +$19 $405 Current Run Rate 20,100 , <108 +$23 $ $ $500* New 2010 Target g * Excludes $80 million of procurement savings 12
  13. 13. Industrial Packaging Relative Performance Outperforming Competitors in 1Q09 20% 17.4% 17.2% 17.5% 18% 16.2% 15.3% 16% 14.3% 13.0% 14% 12.8% 12% 9.1% 10% 8% 6% 4% 2% 0% IP Competitor A Competitor B 1Q08 4Q08 1Q09 IP EBITDA margins based on North American Industrial Packaging operating profit before special items 13 Competitor EBITDA margins obtained from public filings and IP analysis
  14. 14. Printing Papers Earnings 1Q09 vs. 4Q08 $125 (27) 113 22 (8) 18 (17) 101 $100 $75 Million $50 $25 $0 4Q08 Price Input Costs Volume & LOO Cost & Mix Other 1Q09 Earnings Before Special Items 14
  15. 15. Consumer Packaging Earnings 1Q09 vs. 4Q08 $70 17 $60 (48) $50 26 $40 Million $30 22 13 $20 13 $10 1 $0 4Q08 Price Input Costs Cost & Mix Volume & LOO Asian Inventory 1Q09 Adjustment Earnings Before Special Items 15
  16. 16. xpedx $ Million 1Q08 4Q08 1Q09 Sales $1,985 $1,940 $1,590 Earnings E i $16 $26 ($7) Weak paper and packaging demand Declining prices & gross margin dollars for coated freesheet & coated groundwood (>60% of total g ( paper sales) Reduced headcount by 4%, or 270 positions Solid free cash flow 16
  17. 17. Forest Products 1Q08 4Q08 1Q09 Sales ($ Million) $25 $65 $5 Earnings ($ Million) $25 $38 $2 Acres Sold 13,000 30,000 2,000 Price / Acre $, $1,871 $, $2,106 $, $2,108 Pending sale of 143,000 acres now expected to close in 3Q09. When that transaction closes, remaining NPV of land g portfolio will be $60 - $80 million 17
  18. 18. Ilim Joint Venture 1Q09 $ Million 1Q08 4Q08 1Q09 Sales (100%) $530 $530 $395 Earnings (IP Share) g( ) $17 $0 ( ($26) ) 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Volume Volume Price / Price / Business (000 Metric (000 Metric Ton Ton Tons) Tons) Pulp (9%) ($139) (12%) ($103) Containerboard 2% ($58) 3% ($5) Ilim’s results are reported on a one-quarter lag IP’s shares of Ilim’s 1Q08, 4Q08 & 1Q09 earnings include $4 million, $11 million and $15 million of after-tax foreign exchange losses, respectively 18
  19. 19. Free Cash Flow ($ Million) 1Q08 4Q08 1Q09 Cash from Operations $434 $713 $649 Alternative Fuel Mixture - - $145 Tax Credits Cash Provided by $434 $713 $794 Continuing Operations Less Capital Investment ($215) ($270) ($128) Free Cash Flow $219 $443 $666 19
  20. 20. Debt Reduction Progress $1.6 Billion in 9 Months Billion $14 12.7 0.6 $13 0.6 $12 0.4 11.1 $11 $10 $9 $8 August 2008 g 2H08 1Q09 Q April p April 30th p Pro Forma Balance with Acquisition 20
  21. 21. Cash & Committed Facilities $3.5 Billion $ Billion Maturity Facility Cost $1.0 $1 0 Quarter-End Cash - - $1.0B1 Accounts CP Rate2 + 150 bps Zero Drawn JAN 2010 Receivables Program $1.5B Corporate Zero Drawn MAR 2011 LIBOR + 50 to 60 bps Revolver $3.5 $3 5 Total Cash & Committed Facilities - Cost includes commitment fees 1 $871 million available at quarter-end based on eligible receivable balances 21 2 Conduit’s rate
  22. 22. Debt Maturities by Quarter 2009 - 2011 $1,200 $1,000 $800 $600 $400 $680 $550 $200 $50 $0 $0 2009 2010 2011 Q1 Q2 Q3 Q4 Monetization & Other U.S. debt as of April 30; foreign debt as of March 31 Monetization & Other: Intend to rollover or refinance timber monetization debt, Sun JV debt and other foreign subsidiary debt 22
  23. 23. Pension Funding Update No Cash Contributions Expected in 2009/10 December 2008 Legislation Funding Requirements – 94% of liability for 2009 – 96% of liability for 2010 – 100% of liability beyond 2010 – Allows asset smoothing which d f All t thi hi h defers i investment l t t loss March 2009 Regulatory Relief – Provided relief in yield curve determination – Select discount rate between August 2008 – December 2008 – Estimated 10 - 20% reduction in 2009 liability Impact of Relief – IP credit balance likely to satisfy any 2009/10 funding requirements – N required cash contributions lik l until 2011 No id h t ib ti likely til 23
  24. 24. Alternative Fuel Mixture Tax Credits IP generates >70% of integrated mill energy needs from renewable bio fuels bio-fuels Transforming pulping waste into bio-energy is environmentally beneficial b fi i l IP is not burning additional fossil fuel to qualify for these credits Black liquor energy is sustainable & merits tax treatment similar to other renewable energy sources 24
  25. 25. Alternative Fuel Mixture Tax Credits $558 Million Pre-Tax in 4Q08 & 1Q09 Tax Credit Claims $ Millions Received in 1Q09 $145 $ Accrued i 1Q09 A d in $413 Total Credits 4Q08 – 1Q09 $558* * Before $18 million of associated expenses and $210 million of taxes 25
  26. 26. First Quarter Summary Solid Results Despite Recession Solid Results in Challenging Environment 1.1MM tons of Lack of Order Downtime Excellent Operations $96 Million in Integration Synergies $30 Million in Overhead Expense Reduction $124 Million Input Cost Relief $666 Million Free Cash Flow $600 Million Debt Reduction 26
  27. 27. Second Quarter Outlook Challenging Economic Environment Major V i bl M j Variables - V l Volume, Downtime, & P i i D ti Pricing Increased Maintenance Outages Lower Ilim Equity Earnings 27
  28. 28. Priorities Aggressively Manage Cost gg y g Match Supply to Customers’ Needs Strengthen Balance Sheet 28
  29. 29. Questions & Answers Investor Relations Contacts I t R l ti Ctt Thomas A. Cleves 901-419-7566 Emily Nix 901-419-4987 Media Contact Kathleen Bark 901-419-4333 901 419 4333 29
  30. 30. Appendix pp 30
  31. 31. Special Items Net of Taxes 1Q09 $ Million EPS Earnings from Continuing Operations $34 $0.08 & Before Special Items Special Items Net of Taxes: S i l It N t fT Alternative Fuel Mixture Credits $330 Facilities Closure Costs ($33) Overhead Reduction Initiative ($32) Integration Costs ($22) Tax Adjustments ($20) Total Special Items Net of Taxes $223 $0.53 $0 53 Net Earnings $257 $0.61 31
  32. 32. Key Financial Statistics 2009 20071 2008 $ Billion Estimate $1.3 $1.0 $0.6 Capital Spending Depreciation & $1.53 $1.1 $1.3 Amortization $0.3 $0.5 $0.7 Net Interest Expense Corporate Items2 $0.2 $0 2 $0.1 $0 1 $0.25 $0 25 Effective Tax Rate2 30% 31.5% 32% - 34% 1 Excludes discontinued operations 2 Before special items and excluding Ilim 3 Estimated depreciation impacted by extensive lack-of-order downtime 32
  33. 33. Maintenance Outages Expenses $58 Million Seasonal Increase $ Millions 1Q09 2Q09E 3Q09E 4Q09E North America 19 38 39 28 Europe 7 19 13 0 Brazil 5 0 3 0 Printing Papers Total $31 $57 $55 $28 Industrial Packaging $44 $58 $6 $43 Consumer Packaging $4 $22 $11 $9 Total Impact $79 $137 $72 $80 Dollar impact of planned maintenance outages are estimates and subject to change 33 Includes CBPR outages
  34. 34. Business Segment Price Realization Average Selling Price Realizations Industrial Packaging ($/ton) 1Q08 4Q08 1Q09 Containerboard $545E $584 $551 Corrugated Boxes $785E $836 $846 Printing Papers ($/ton) 1Q08 4Q08 1Q09 U coated ees eet Uncoated Freesheet $950 $ ,005 $1,005 $996 Pulp $646 $577 $538 Average IP U.S. selling price realizations (includes the impact of mix across all grades) Industrial Packaging price realizations include CBPR 34
  35. 35. Industrial Packaging 1Q09 vs 4Q08 vs. 1Q09 vs 1Q08 vs. Price / Price / Business Volume Volume Ton Ton N.A. Containerboard (23%) ($32) (49%)E $8E N.A. N A Container (5%) $10 (17%)E $61E European Container (3%) (€21) (9%) (€26) Average IP price realization (includes the impact of mix across all grades) 35 Includes CBPR
  36. 36. Printing Papers 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Business Volume Price / Ton Volume Price / Ton N.A. Paper (7%) ($10) (24%) $46 N.A. Pulp (21%) ($39) (9%) ($108) European Paper 3% (€56) (1%) (€72) Brazilian Paper (16%) ($39) (15%) $19 Average IP price realization (includes the impact of mix across all grades) 36
  37. 37. Consumer Packaging 1Q09 vs. 4Q08 1Q09 vs. 1Q08 Volume Volume Price/Ton Price/Ton (25%) $38 (28%) $107 U.S. Coated Paperboard Revenue Price Revenue Price (10%) NA (3%) NA Converting Businesses Average IP price realization (includes the impact of mix across all grades) 37
  38. 38. Special Items 1Q08 4Q08 1Q09 Special Items Pre-Tax: Alternative Fuel Mixture Credits $240 Printing Papers Facility Closure Costs ($153) ($29) Alternative Fuel Mixture Credits $208 Industrial Integration Costs ($26) ($36) Packaging Facility Closure Costs ($8) Consumer Alternative Fuel Mixture Credits $92 Packaging Reorganization ($5) ($4) ($2) Restructuring & Other Charges ($36) ($53) ($52) Corporate Impairments of Goodwill ($1,777) ($41) ($2,021) $421 Total Special Items Pre-Tax 38
  39. 39. Debt Covenants 1Q09 Covenant Maximum Debt-to-Total Capital 60% 50.3% Minimum Consolidated Net Worth $9B $11.4B 39
  40. 40. 1Q09 EBITDA from Continuing Operations before Special Items Operating D&A Tons EBITDA per Profit $ Millions (000) Ton $ Millions Industrial Packaging North American $175 $156 2,863 $116 European $13 $8 270 $78 Printing Papers North American $84 $51 706 $191 European $25 $22 370 $127 Brazilian $20 $24 180 $244 U.S. Market Pulp ($28) $6 317 ($69) Consumer Packaging U.S. Coated Paperboard $6 $28 290 $117 Total $295 $295 4,996 $118 40
  41. 41. Operating Profits by Industry Segment from Continuing Operations before Special Items 1Q08 4Q08 1Q09 $ Million $97 $145 $188 Industrial Packaging $185 $113 $101 Printing Papers $14 $1 $22 Consumer Packaging $16 $26 ($7) Distribution $25 $38 $2 Forest Products $337 $323 $306 Operating Profit ($81) ($186) ($164) Net Interest E pense Expense Noncontrolling Interest / $4 ($13) $6 Equity Earnings Adjustment ($ ) ($21) ($ ) ($21) ($ ) ($51) Corporate Items p ($41) ($2,021) $421 Special Items Earnings (Loss) from continuing operations before $198 ($1,918) $518 income taxes, equity earnings & minority interest $17 $0 ($26) Equity Earnings, net of taxes - Ilim 41
  42. 42. Geographic Business Segment Operating Results from Continuing Operations before Special Items Sales Operating Profit $ Million 1Q08 4Q08 1Q09 1Q08 4Q08 1Q09 Industrial Packaging North American $1,050 $2,125 $1,885 $79 $130 $175 European $315 $255 $240 $18 $15 $13 Asian $80 $75 $55 $0 $0 $0 Printing Papers North American $885 $765 $705 $106 $73 $84 European $435 $350 $325 $42 $36 $25 Brazilian $225 $215 $170 $33 $44 $20 U.S. Market Pulp $165 $170 $125 $4 ($39) ($28) Asian Ai $5 $5 $0 $0 ($1) $0 Consumer Packaging North American $600 $635 $530 $2 $16 $4 European $75 $70 $70 $9 $5 $14 Asian $95 $95 $115 $3 ($20) $4 Distribution $1,985 $1,940 $1,590 $16 $26 ($7) 42 Excludes Forest Products
  43. 43. 2009 Earnings from Continuing Operations Minority Net Average Pre-Tax Tax Equity Estimated Diluted Shares1 Interest Income EPS2 $MM $MM Earnings Tax Rate $MM $MM MM Before Special Items 1Q09 $97 ($32) ($4) ($27) $34 32% 423 $0.08 $0 08 Special Items 1Q09 Q $421 $ ($198) ($ ) $0 $ $0 $ $223 $ 47% % 423 $0.53 $ Earnings from Continuing Operations 1Q09 $518 ($230) ($4) ($27) $257 44% 423 $0.61 1 Assuming dilution 2 A reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at presentations 43
  44. 44. Total Cash Cost Components 1Q09 Fiber Overhead 28% 9% Energy 12% Materials 14% Freight 12% Labor Chemicals 13% 13% 44 North American Mills Only
  45. 45. Global Input & Freight Costs by Input $124MM, or $0.23/Share Positive Impact vs. 4Q08 Outside North America North America $50 44 31 28 $30 Million 21 M $10 ($10) Fiber Chemicals Energy Freight 45 Input costs for continuing businesses
  46. 46. Global Input & Freight Costs by Input $28MM, or $0.05/Share Negative Impact vs. 1Q08 Outside North America North America $20 8 $0 Million () (1) M ($20) (12) (23) ($40) Chemicals Fiber Energy Freight Input costs for continuing businesses; does not include CBPR 46
  47. 47. 1Q09 vs. 1Q08 EPS $ / Share $0.80 .28 28 (.33) ( 33) $0.70 Forest Products $0.60 Earnings .48 (.05) $0.50 .09 .41 () (.05) $0.40 .04 (.13) $0.30 () (.10) $0.20 $0 20 .37 37 .08 $0.10 $0.00 1Q08 Price Input Costs Cost & Mix Volume & LOO Corporate & Interest Ilim JV 1Q09 Other 47 Earnings from continuing operations before special items; volume includes earnings from CBPR
  48. 48. Industrial Packaging Earnings 1Q09 vs. 1Q08 $200 188 2 82 $150 1 22 (1) (14) Million 97 $100 $50 $0 1Q08 Price Input Costs Volume & LOO Cost & Mix Other 1Q09 1 Excludestrade volume and includes CBPR earnings 48 Earnings Before Special Items
  49. 49. Printing Papers Earnings 1Q09 vs. 1Q08 $200 (8) 185 (31) $175 (100) $150 $125 (3) 58 Million 101 $100 $75 $ $50 $25 $0 1Q08 Price Input Costs Volume & LOO Cost & Mix Other 1Q09 Earnings Before Special Items 49
  50. 50. Consumer Packaging Earnings 1Q09 vs. 1Q08 $60 (47) 3 39 $50 $40 Million $30 1 22 12 $20 14 $10 $0 1Q08 Price Input Costs Volume & LOO Cost / Mix Other 1Q09 Earnings Before Special Items 50
  51. 51. Natural Gas Costs 28% Decrease vs. 4Q08 Average Cost Index: Jan 2005 Natural Gas Costs = 100 250 200 150 100 50 2005 2006 2007 2008 2009 0 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 51 NYMEX Natural Gas closing prices
  52. 52. U.S. Fuel Oil 17% Decrease vs. 4Q08 Average Cost Index: Jan 2006 Fuel Oil Costs = 100 220 200 180 160 140 120 100 80 60 2006 2007 2008 2009 40 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 52 Delivered cost to U.S. facilities
  53. 53. U.S. Mill Wood Costs 9% Decrease vs. 4Q08 Average Cost Index: Jan 2005 Wood Costs = 100 125 120 115 110 105 100 95 2007 2008 2009 2006 2005 90 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 53 Delivered cost to U.S. facilities
  54. 54. U.S. Chemical Composite Index 7% Decrease vs. 4Q08 Average Cost Index: Q1’05 Chemical Composite= 100 250 225 200 175 150 125 100 75 2005 2006 2007 2008 2009 50 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Delivered cost to U.S. facilities; includes Caustic Soda, Sodium Chlorate, Starch and Sulfuric Acid 54 2005 - 2008 excludes CBPR
  55. 55. Global Consumption Annual Purchase Estimates for Key Inputs Commodity U. S. Non – U. S. 50,500,000 50 500 000 16,000,000 16 000 000 Natural G (MM BTUs) Gas ( ) Energy 2,100,000 500,000 Fuel Oil (Barrels) 1,100,000 1 100 000 230,000 230 000 Coal (Tons) 50,000,000 8,400,000 Wood (Tons) Fiber 3,500,000 310,000 Old Corrugated Containers (Tons) 330,000 60,000 Caustic Soda (Tons) 490,000 110,000 Starch (Tons) Chemicals Sodium Chlorate (Tons) 225,000 50,000 50,000 - LD Polyethylene (Tons) 25,000 4,000 Latex (Tons) Does not include Asian or Ilim consumption; excludes consumption by permanent & indefinite machine shutdowns 55 Estimates are based on normal operations and may be impacted by downtime

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