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UPDATE 2-International Paper profit boxed in by weak packaging demand
May 2, 2013 / 12:20 PM / 4 years ago

UPDATE 2-International Paper profit boxed in by weak packaging demand

By Ernest Scheyder

May 2 (Reuters) - International Paper Co, the largest producer of corrugated boxes in North America, posted a lower-than-expected quarterly profit on Thursday due to weak demand for food packaging and printing paper.

Strong sales of shipping boxes used by Amazon.com Inc and other key customers were not enough to offset sliding sales to meat and packaged-food customers, IP Chief Executive John Faraci said in an interview.

Shares of Memphis, Tennessee-based IP fell 5.9 percent to $43.20 in premarket trading. As of Wednesday’s close, the stock has gained 15 percent so far this year.

The company, which operates primarily in the United States but is growing rapidly in India and Russia, is experiencing slower GDP growth than some economists had expected, Faraci said.

“The economies of the world are moving up, but at a frustratingly slow pace,” he said.

Still, Faraci said he expects IP to finish 2013 in a “very strong” position due in part to new profits from a Russian joint venture and other overseas projects. The nascent recovery of the U.S. housing market is also helping increase demand for boxes used in moving, Faraci said.

Given the company’s strong cash flow, an increase in the quarterly dividend from 30 cents is possible, Faraci said.

“I think there’s room for us to move up in the dividend,” he said. “We’ll be looking at that later in the year with the board.”

IP said last month it would spin off and merge its xpedx distribution business with Bain Capital-backed Unisource Worldwide Inc.

The xpedx business, which delivers many of the products IP makes, has seen sales tumble roughly 25 percent since the recession due to slipping demand for paper.

Faraci said on Thursday that IP will own more than 50 percent of the joint venture after the tax-free, “Reverse Morris Trust” transaction concludes.

“This combination gives both companies the ability to create lots of merger benefits, which can enable both companies to earn attractive returns for shareholders,” Faraci said. “We think that’s possible for xpedx if it remained inside International Paper, but this creates a lot of upside for that.”

PROFIT JUMPS, BUT MISSES

The company posted first-quarter net earnings of $318 million, or 71 cents per share, compared with $188 million, or 43 cents per share, in the same quarter last year.

Excluding one-time items, IP earned 65 cents per share. By that measure, analysts expected earnings of 74 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 7 percent to $7.09 billion. Analysts expected $7.05 billion in revenue.

IP became the largest North American producer of corrugated packaging with its 2012 buyout of smaller rival Temple-Inland .

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