01—Abstract
Summary
Summary of the 10-K filed February 19, 2020. Cited figures are marked; the original filing is the authoritative source.
International Paper Company reported 2019 net sales of $22.4 billiona, down from $23.3 billion in 2018, and net earnings attributable to International Paper Company of $1.2 billion ($3.07 per diluted share), compared with $2.0 billion ($4.85 per diluted share) in 2018.
Management described 2019 as delivering solid earnings and strong cash generation despite a challenging global environment marked by price pressure in export pulp and containerboard markets, lower export volumes, and inventory headwinds. Cash provided by operations was $3.6 billionb and free cash flow was approximately $2.3 billion, which funded $1.3 billion returned to shareholders through about $800 million of dividends and about $500 million of share repurchases, plus roughly $1 billion of debt repaid during the year. The filing shows several one-time items that weighed on 2019 results, including a $159 million India impairment, a $52 million Global Cellulose Fibers goodwill impairment, a $203 million foreign deferred tax valuation allowance, and a €29 million (about $32 million) Italian antitrust fine under appeal.
Global Cellulose Fibers posted an operating loss of $(6) million, down from $262 millionc in 2018. Management expects 2020 earnings to face headwinds from price carryover, higher planned maintenance outage expense and Riverdale conversion costs, and plans capital spending of approximately $1.0 billion in 2020.
Total debt was approximately $9.8 billiond at December 31, 2019, and the company held long-term credit ratings of BBB (stable outlook) from S&P and Baa2 (stable outlook) from Moody's. Investors should also note the company's exposure to a $4.2 billion nonrecourse bank loan tied to forestland installment notes that matures in the fourth quarter of 2020 and the potential $485 million acceleration of deferred taxes if letter-of-credit banks are downgraded.
02—Key points
Key Highlights
- Net sales of $22.4 billion in 2019 versus $23.3 billion in 2018; net earnings attributable to International Paper of $1.2 billion ($3.07 per diluted share) versus $2.0 billion ($4.85 per diluted share) in 2018.
- Cash provided by operations of $3.6 billion and free cash flow of approximately $2.3 billion in 2019, compared with $3.2 billion and $1.7 billion in 2018.
- Shareholder returns of $1.3 billion in 2019, including about $800 million in dividends and about $500 million in share repurchases; the quarterly dividend was raised to $0.5125 per share in Q4 2019.
- Business Segment Operating Profit fell to $2.6 billion from $3.1 billion; Industrial Packaging $2.1 billion, Global Cellulose Fibers $(6) million, Printing Papers $529 million.
- Significant special items in 2019 included a $159 million India impairment, a $52 million Global Cellulose Fibers goodwill impairment, and a $203 million foreign deferred tax valuation allowance.
- Total debt of approximately $9.8 billion at year-end 2019; long-term ratings BBB (S&P, stable) and Baa2 (Moody's, stable); about $2.1 billion of credit facilities available.
- 2020 outlook calls for capital spending of approximately $1.0 billion and expected earnings headwinds from price carryover, higher planned maintenance outage expense, and Riverdale conversion costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, International Paper kept $0.07.
- Revenue$18.32B100.0%
- Cost of revenue−$12.67B69.2%
- Gross profit$5.65B30.8%
- Operating costs−$4.95B27.0%
- Operating income$699.0M3.8%
- Interest, other & tax$526.0M2.9%
- Net income$1.23B6.7%
Where FY2019 revenue went
$18.32B- Cost of revenue: $12.67B, 69% of revenue
- Other operating costs: $3.50B, 19% of revenue
- Operating income: $699.0M, 3.8% of revenue
- SG&A: $1.45B, 7.9% of revenue
Kept 3.8% as operating incomeOperating income $699.0M · 3.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 19, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $18.32B$23.31B | −21.4% |
| Cost of Revenue | $12.67B$15.55B | −18.6% |
| Gross Profit | $5.65B$7.75B | −27.1% |
| SG&A Expenses | $1.45B$1.72B | −15.9% |
| Operating Income | $699.00M$1.67B | −58.1% |
| Interest Expense | $701.00M$734.00M | −4.5% |
| Net Income | $1.23B$2.01B | −39.1% |
| EPS (Basic) | $3.10$4.91 | −36.9% |
| EPS (Diluted) | $3.07$4.85 | −36.7% |
| Shares Outstanding (Basic) | 395.30M409.10M | −3.4% |
| Shares Outstanding (Diluted) | 398.80M414.20M | −3.7% |
05—Questions
Frequently Asked Questions
Why did net earnings decline in 2019?
Net earnings attributable to International Paper fell to $1.2 billion ($3.07 per diluted share) from $2.0 billion ($4.85 per diluted share) in 2018. The filing attributes the decline to lower average sales prices and unfavorable mix, lower sales volumes, and higher operating costs, partly offset by lower input and maintenance outage costs. The 2018 results also included discontinued operations and a non-operating pension charge that did not recur at the same level.
How is the company's cash generation and balance sheet position?
Cash provided by operations was $3.6 billion in 2019, and free cash flow was approximately $2.3 billion. The company repaid about $1 billion of debt and held about $2.1 billion of credit facilities at year-end. Total debt was approximately $9.8 billion, and the company stated it was in compliance with its debt covenants.
What risks does the filing highlight for the debt and financing structure?
The filing notes a $4.2 billion nonrecourse Extension Loan tied to forestland installment notes that matures in the fourth quarter of 2020 unless extended, and management is evaluating alternatives. It also notes that roughly $485 million of deferred taxes could accelerate if letter-of-credit banks are downgraded below required ratings, and that a credit rating downgrade below investment grade would increase interest costs on about $1.4 billion of debt.
What did the company say about its outlook for 2020?
Management expects to generate solid cash flows in 2020 but anticipates earnings headwinds from price carryover from 2019, a January 2020 containerboard index movement, higher planned maintenance outage expense, and Riverdale conversion costs. Capital spending is planned at approximately $1.0 billion, including about $250 million of strategic investments. The filing also says the company expects to record a gain in the first quarter of 2020 on its January 2020 exchange of GPIP units for $250 million.
What significant legal and environmental matters are disclosed?
The filing discloses the Harris County San Jacinto Superfund site, where the company says additional losses are probable but cannot reasonably estimate them beyond its recorded liability, and an Allied Paper/Kalamazoo River matter in which it was allocated a 15% share of past costs. It also discloses a €29 million (about $32 million) Italian antitrust fine that the company is appealing, and a Signature contract lawsuit with a judgment of approximately $137 million that the company has appealed and expects to be immaterial.
06—Continue