01—Abstract
Summary
Summary of the 10-K filed February 22, 2017. Cited figures are marked; the original filing is the authoritative source.
International Paper Company reported 2016 net sales of $21.1 billiona, down from $22.4 billion in 2015 and $23.6 billion in 2014.
Net earnings attributable to International Paper Company were $904 millionb ($2.18 per diluted share), compared with $938 million ($2.23 per share) in 2015 and $555 million ($1.29 per share) in 2014. Adjusted Operating Earnings, a non-GAAP measure, were $1.4 billion ($3.35 per share) in 2016, versus $1.5 billion ($3.65 per share) in 2015. Management cited margin pressure, price erosion and weaker mix across most businesses, with input costs rising in the back half of the year, partly offset by higher volumes and the December 1, 2016 acquisition of Weyerhaeuser's pulp business for approximately $2.2 billion in cash.
Cash generation remained solid, with cash provided by operations of $2.5 billionc and Free Cash Flow of $1.9 billion in 2016. Capital spending was $1.3 billion and is targeted at $1.5 billion for 2017. Total debt rose to $11.3 billion at year-end 2016 after $1.9 billion in net borrowings used largely to fund the pulp acquisition.
Management said its near-term focus is debt reduction and returning value to shareholders, and the quarterly dividend was increased to $0.46d per share. The filing also flags a January 22, 2017 digester and power house incident at the Pensacola, Florida mill, which will prevent full containerboard production there in the first quarter of 2017.
Management estimates the total impact will exceed $50 million, with insurance expected to cover a significant portion of the costs. The company now reports Global Cellulose Fibers as a separate segment, which posted an operating loss of $180 million in 2016.
02—Key points
Key Highlights
- Net sales fell to $21.1 billion in 2016 from $22.4 billion in 2015, while diluted EPS was $2.18 versus $2.23.
- Adjusted Operating Earnings were $1.4 billion ($3.35 per share) in 2016, down from $1.5 billion ($3.65 per share) in 2015.
- Cash provided by operations was $2.5 billion and Free Cash Flow was $1.9 billion in 2016.
- Total debt was $11.3 billion at December 31, 2016, with $1.9 billion in net debt increases to fund the Weyerhaeuser pulp acquisition.
- The Weyerhaeuser pulp business was acquired on December 1, 2016 for approximately $2.2 billion in cash, creating the new Global Cellulose Fibers segment, which posted an operating loss of $180 million.
- A January 22, 2017 structural damage incident at the Pensacola, Florida mill is expected to cost more than $50 million, partly offset by insurance.
- The quarterly dividend was raised from $0.44 to $0.46 per share, and the company expects 2017 capital spending of about $1.5 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, International Paper kept $0.05.
- Revenue$19.50B100.0%
- Cost of revenue−$14.06B72.1%
- Gross profit$5.44B27.9%
- Operating costs−$4.64B23.8%
- Operating income$802.0M4.1%
- Interest, other & tax$102.0M0.5%
- Net income$904.0M4.6%
Where FY2016 revenue went
$19.50B- Cost of revenue: $14.06B, 72% of revenue
- Other operating costs: $3.18B, 16% of revenue
- Operating income: $802.0M, 4.1% of revenue
- SG&A: $1.46B, 7.5% of revenue
Kept 4.1% as operating incomeOperating income $802.0M · 4.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 22, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $19.50B$20.68B | −5.7% |
| Cost of Revenue | $14.06B$14.31B | −1.8% |
| Gross Profit | $5.44B$6.90B | −21.2% |
| SG&A Expenses | $1.46B$1.54B | −5.3% |
| Operating Income | $802.00M$2.36B | −66.0% |
| Interest Expense | $695.00M$644.00M | +7.9% |
| Net Income | $904.00M$938.00M | −3.6% |
| EPS (Basic) | $2.20$2.25 | −2.2% |
| EPS (Diluted) | $2.18$2.23 | −2.2% |
| Shares Outstanding (Basic) | 411.10M417.40M | −1.5% |
| Shares Outstanding (Diluted) | 415.60M420.60M | −1.2% |
05—Questions
Frequently Asked Questions
How did International Paper perform financially in 2016?
Net sales were $21.1 billion, down from $22.4 billion in 2015. Net earnings attributable to International Paper Company were $904 million, or $2.18 per diluted share, compared with $938 million, or $2.23 per share, in 2015. Adjusted Operating Earnings were $1.4 billion ($3.35 per share).
What drove the decline in earnings?
Management attributed results to lower average sales price realizations and mix, which the filing cites as a $443 million headwind to business segment operating profits, along with higher operating costs. Escalating input costs, primarily natural gas and OCC, in the later part of the year also weighed on results. Higher sales volumes, lower input costs and the pulp acquisition partly offset these pressures.
What is the Weyerhaeuser pulp acquisition and how is it reflected in the results?
International Paper finalized the purchase of Weyerhaeuser's pulp business on December 1, 2016 for approximately $2.2 billion in cash. The business is now part of the new Global Cellulose Fibers segment, which had 2016 net sales of $1.1 billion and an operating loss of $180 million, including special items.
What are the company's debt and liquidity positions?
Outstanding indebtedness was about $11.3 billion at December 31, 2016. The company had approximately $2.1 billion of credit facilities and held long-term credit ratings of BBB (stable outlook) from S&P and Baa2 (stable outlook) from Moody's. Management stated that its near-term focus is debt reduction and returning value to shareholders.
What is the impact of the Pensacola mill incident?
A January 22, 2017 structural damage incident to the largest pulp digester and power house at the Pensacola, Florida mill will prevent full containerboard production there in the first quarter of 2017. The company estimates the total impact will exceed $50 million, with property damage and business interruption insurance expected to cover a significant portion of the costs. The timing of costs and insurance recoveries is unknown.
06—Continue