What's In Store For International Paper (IP) In Q3 Earnings?

Leading packaging and paper manufacturer International Paper Company (NYSE:IP) is scheduled to report third-quarter 2017 results before the opening bell on Oct 25.

In the last reported quarter, the company’s adjusted earnings beat the Zacks Consensus Estimate by 1.6%. Over the trailing four quarters, the company topped earnings estimates thrice, generating an average positive surprise of 2.1%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

During the third quarter, International Paper completed the divestment of its foodservice business in China, as part of its strategy to focus more resources on high-return capital projects in the company’s core businesses. The move is aimed to improve its long-term profitability amid tough competition from diverse players. The company has taken taking other initiatives as well to drive margin expansion, which are anticipated to reflect well in the upcoming results.

The acquisition of Weyerhaeuser Co.’s pulp business has strengthened its position in the global fluff pulp market and augmented its operating cash flow. The synergies so generated, along with top-line contribution, are anticipated to bolster sales in the upcoming quarterly results.

We expect the company’s Industrial Packaging business to continue its strong growth momentum in the third quarter. The segment’s revenues exceeded estimates by 18.6% and grew 5.3% year over year to $3,706 million in second-quarter 2017. In the upcoming quarterly results, the Zacks Consensus Estimate for the segment’s sales is pegged at $3,823 million, reflecting robust sequential growth.

Sales numbers of Printing Papers segment are likely to remain flat sequentially, while the Consumer Packaging segment is expected to show slight positive sequential growth.

International Paper depends heavily on raw materials such as wood fiber, purchased in the form of pulpwood, wood chips and old corrugated containers (OCC), and certain chemicals, including caustic soda and starch, energy sources, principally natural gas, coal and fuel oil. Rising energy, chemical and OCC costs remain headwinds, particularly under harsh winter conditions. This is likely to lower its profitability in the to-be-reported quarter to some extent.

International Paper Company Price, Consensus and EPS Surprise

International Paper Company Price, Consensus and EPS Surprise | International Paper Company Quote

Furthermore, International Paper has a huge burden of pension obligations. Fluctuations in actual equity market returns, changes in general interest rates and the number of retirees are likely to increase pension costs and reduce its cash flow, thereby limiting the growth momentum lent by the company’s acquisitions.

Earnings Whispers

Our proven model does not conclusively show that International Paper will likely beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for the company is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.04.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: International Paper has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Terex Corporation (NYSE:TEX) , with an Earnings ESP of +3.17% and a Zacks Rank of 2, is expected to release quarterly numbers around Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNH Industrial N.V. (NYSE:CNHI) , with an Earnings ESP of +8.11% and a Zacks Rank of 2, is slated to report results on Oct 31.

Rockwell Collins, Inc. (NYSE:COL) , with an Earnings ESP of +2.23% and a Zacks Rank of 2, is expected to report quarterly figures around Oct 27.

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