01—Abstract
Summary
Summary of the 10-K filed February 19, 2021. Cited figures are marked; the original filing is the authoritative source.
International Paper Company reported full-year 2020 net earnings attributable to shareholders of $482 milliona ($1.22 per diluted share), compared with $1.2 billion ($3.07 per diluted share) in 2019.
Adjusted Operating Earnings were $1,107 millionb ($2.80 per share) versus $1,768 million ($4.43 per share) in 2019. Management described solid earnings and strong cash generation despite the COVID-19 pandemic, with cash provided by operations of $3.1 billion and free cash flow of $2.3 billion. Net sales declined to $20.6 billion from $22.4 billion, driven by lower average sales prices and mix, lower volumes in Printing Papers, and lower equity earnings from Ilim.
Pre-tax special items totaled $764 millionc, including $465 million of net losses on sales and impairments of businesses, most notably a $348 million Brazil Packaging impairment and a $123 million Turkey impairment. The company returned $820 million to shareowners and reduced debt by $1.7 billion during 2020, leaving approximately $8.1 billion of outstanding indebtedness at year-end. Long-term credit ratings were BBB (stable outlook) from S&P and Baa2 (stable outlook) from Moody's.
Management announced in December 2020 a plan to spin off its Printing Papers segment as a standalone public company, expected to be completed in late third quarter 2021, and in February 2021 agreed to sell its Kwidzyn, Poland mill for approximately $812 milliond. Capital spending was $751 million in 2020 and is planned at approximately $800 million for 2021.
02—Key points
Key Highlights
- Net earnings attributable to shareholders fell to $482 million ($1.22 per diluted share) from $1.2 billion ($3.07 per diluted share) in 2019.
- Cash provided by operations was $3.1 billion and free cash flow was $2.3 billion, versus $3.6 billion and $2.3 billion in 2019.
- Net sales were $20.6 billion, down from $22.4 billion, with Printing Papers net sales down 29% to $3.0 billion.
- Pre-tax special items totaled $764 million, including $465 million of net losses on sales and impairments of businesses, led by the Brazil Packaging and Turkey impairments.
- Printing Papers spin-off into a standalone public company is expected to be completed in late third quarter 2021, with the company retaining up to 19.9% of the shares of the new company.
- Total outstanding indebtedness was approximately $8.1 billion, with $1.7 billion of net debt reduction in 2020 and $820 million returned to shareowners.
- The Kwidzyn, Poland mill sale for approximately $812 million was agreed in February 2021, and a sale of the Olmuksan International Paper stake was announced in January 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, International Paper kept $0.03.
- Revenue$17.57B100.0%
- Cost of revenue−$12.34B70.2%
- Gross profit$5.23B29.8%
- Operating costs−$5.04B28.7%
- Operating income$182.0M1.0%
- Interest, other & tax$300.0M1.7%
- Net income$482.0M2.7%
Where FY2020 revenue went
$17.57B- Cost of revenue: $12.34B, 70% of revenue
- Other operating costs: $3.69B, 21% of revenue
- Operating income: $182.0M, 1.0% of revenue
- SG&A: $1.35B, 7.7% of revenue
Kept 1.0% as operating incomeOperating income $182.0M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 19, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $17.57B$18.32B | −4.1% |
| Cost of Revenue | $12.34B$12.67B | −2.6% |
| Gross Profit | $5.23B$5.65B | −7.5% |
| SG&A Expenses | $1.35B$1.45B | −6.6% |
| Operating Income | $182.00M$699.00M | −74.0% |
| Interest Expense | $597.00M$701.00M | −14.8% |
| Net Income | $482.00M$1.23B | −60.7% |
| EPS (Basic) | $1.23$3.10 | −60.3% |
| EPS (Diluted) | $1.22$3.07 | −60.3% |
| Shares Outstanding (Basic) | 393.00M395.30M | −0.6% |
| Shares Outstanding (Diluted) | 395.70M398.80M | −0.8% |
05—Questions
Frequently Asked Questions
Why did earnings decline significantly in 2020?
The filing attributes the decline mainly to lower average sales price and unfavorable mix ($670 million impact), lower sales volumes ($70 million), and higher operating costs ($53 million), partly offset by lower input costs ($163 million) and lower maintenance outage costs ($47 million). Printing Papers was hit hardest by the unprecedented pandemic-related drop in demand, and Ilim equity earnings fell to $48 million from $207 million.
What is the Printing Papers spin-off?
On December 3, 2020, the company announced a plan to spin off its Printing Papers segment into SpinCo, a standalone publicly traded company, distributed to International Paper shareholders in a transaction intended to be tax-free. The transaction is expected to close in late third quarter 2021, subject to customary conditions including final board approval and the effectiveness of a Form 10 registration statement.
How strong is the company's liquidity and balance sheet?
The company had approximately $2.8 billion of credit facilities, with no borrowings outstanding under them at December 31, 2020, and a $1.0 billion commercial paper program with no borrowings outstanding. It was in compliance with all debt covenants and held long-term credit ratings of BBB (stable outlook) from S&P and Baa2 (stable outlook) from Moody's. Management stated it expects to meet capital expenditures, debt service and dividend requirements for the next 12 months from cash and operations.
What are the key risks highlighted in the filing?
Key risks include the ongoing COVID-19 pandemic's effects on demand, particularly for Printing Papers; volatility in raw material, energy and transportation costs; cyclicality and changing consumer preferences; exposure to Russia, Brazil, Poland and Turkey; pension funding obligations (the benefit liability was $1.1 billion); the possibility of downgrades affecting borrowing costs, with about $1.0 billion of debt whose interest rates may rise on a downgrade; and the risk that the spin-off does not complete on the expected timeframe or does not qualify as tax-free.
What capital allocation plans does the company have for 2021?
Capital spending is planned at approximately $800 million in 2021, or about 61% of depreciation and amortization. The company expects significant cash generation in 2021 from the Kwidzyn mill sale, further monetization of its Graphic Packaging investment, the Printing Papers spin-off, the unwind of the 2005 timber monetization structure, and the Olmuksan sale, and intends to maintain its investment grade rating, return cash through dividends and share repurchases (with $1.73 billion remaining under its authorization), and invest in packaging.
06—Continue