Global paper products giant International Paper (NYSE:IP)stock peaked at $61.80 on June 4, 2021, before falling to $51.89 lows. Demand for renewable fiber-based packaging, pulp, and paper products continues to accelerate causing a divergence in share prices. The pandemic was a boon for International Paper, but the reopening is continuing to accelerate both sales and margin expansion into the end of the year.
The Company has been able to efficiently manage transportation costs and its supply chain logistics in a difficult environment. International Paper has the top market share size in U.S. packaging and second market share for printing paper. Over 70% is its revenues are derived from its Industrial Packaging segment. More packages mean more growth. While still a cyclical business, it’s both a pandemic and reopening play especially heading into the holiday season. Prudent investors seeking exposure in this segment can watch for opportunistic pullbacks.
Q2 FY 2021 Earnings Release
On July 29, 2021, International Paper released its fiscal second-quarter 2021 results for the quarter ending June 2021. The Company reported an earnings-per-share (EPS) profit of $1.06 excluding non-recurring items versus consensus analyst estimates for $1.05, an $0.01 beat. Revenues grew 15.4% year-over-year (YoY) to $5.62 billion matching analyst estimates for $2.62 billion. The Base Business grew 35.5% organically. COVID-19 PCR and antibody testing revenues were flat at $444 million YoY. International Paper CEO Mark Sutton commented:
"International Paper delivered solid earnings growth and strong cash generation in the second quarter. Commercially, we achieved strong revenue growth, while executing well in a very challenging supply chain and input cost environment. Looking ahead to the third quarter, we expect demand to remain strong and margins to expand meaningfully as the realization of prior price movements outpaces input and transportation costs, and we step down from our highest maintenance outage quarter. We continue to make excellent progress on the spin-off of our papers business, which we expect to complete on October 1st. Our team is doing an outstanding job managing complexity. I appreciate their commitment to execute well and take care of each other and our customers as we work together to build a better IP."
Conference Call Takeaways
CEO Sutton set the tone:
”We continue to see very strong demand for corrugated packaging and containerboard and solid demand for fluff pulp. And in our paper's business, demand recovery accelerated in the second quarter across our key geographies. We grew revenue by 15% as compared to the second quarter of last year, with price realization accelerating in all of our business segments. Our mill and the converting system performed well. However, we operated with extremely low containerboard inventory across our packaging network, due to two facts: the lingering effects of the winter storm in the first quarter and then our planned maintenance outages in the second quarter. These operating conditions were severely stressed along with severely stressed transportation environments, adversely affected volume, and operating costs in the second quarter. Input costs and freight were significant headwinds in just about every category. I would call out the sharp rise in recovered fiber costs in North America and Europe. However, it certainly had a significant cost impact, and it is another indication of the strong demand environment. Our Ilim joint venture delivered outstanding performance with equity earnings of $101 million in the second quarter and a strong outlook as we move into the third quarter.”
He concluded:
“Margins improved sequentially with price realization outpacing higher input and transportation costs. We expect margins to expand meaningfully in the second half of the year as price realization outpaces rising input and transportation costs, and importantly, as we stepped down from our highest maintenance quarter of a year.”
IP Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the price action playing field for IP stock. The weekly rifle chart peaked at the $61.91 Fibonacci (fib) level before forming a bearish inverse pup breakdown. The weekly 5-period moving average (MA) has been falling at $53.69 and the 15-period MA falling at $55.24. The weekly rifle chart formed a market structure low (MSL) buy trigger on a breakout through the $54.79 level. The weekly stochastic is has stalled on the stairstep mini inverse pup at the 20-band. The weekly lower Bollinger Bands (BBs) sit at $50.40. The daily rifle chart peaked at the $56.62 fib as shares collapsed under the daily 5-period MA at $55.17 and 15-period MA at $54.35. This caused the daily stochastic to reject off the 80-band as it falls back down again. The daily lower BBs sits at $51.58. Prudent investors can look for opportunistic pullback levels at the $52.83 fib, $51.84 fib, $51.30 fib, $50.18 fib, $49.02 fib, $47.89 fib, and the $46.19 fib. Upside trajectories range from the $60.06 fib upwards to the $69.93 fib level.