Yahoo Finance International Paper Co (IP) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Operating Earnings Per Share (EPS): $0.17 in Q1 2024, compared to $0.41 in the previous quarter.
Free Cash Flow: Generated $144 million in Q1 2024.
Revenue Impact: Price and mix higher by $0.14 per share, driven by Box Go-to-Market and GCF optimization strategy.
Volume Impact: Unfavorable by $0.08 per share due to seasonally lower shipments and winter storm effects.
Operating Costs: Unfavorable by $0.13 per share, including impacts from the January freeze and Ixtac fire.
Maintenance Outages: Higher by $16 million or $0.03 per share in Q1 2024.
Input Costs: Increased by $0.07 per share, mainly due to higher OCC, energy, and chemical costs.
Corporate Items: Unfavorably impacted earnings by $0.07 per share sequentially.
Industrial Packaging Segment: Price and mix benefits of approximately $110 million; volume lower due to seasonal effects and strategic choices impacting near-term volume.
Global Cellulose Fibers Segment: Price and mix higher due to optimization strategy; operations and costs unfavorably impacted by January freeze and cost inflation.
Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: Could you start with just reconciling the benefits from the changes in your go-to-market strategy in the box business versus what you're expecting to start the year? And then it sounds like you're expecting some incremental benefits will flow through in Q2 and beyond. Could you help us just quantify that? A: (Mark Stephan Sutton - Chairman & CEO) We had initially forecasted closer to $70 million and we overachieved that. The price component exceeded expectations due to better-than-expected improvement at the local level and significant investments in teams in the field, which drove benefits for our customers and allowed us to secure a fair price that we might not have in the past. The volume gap to market was almost exactly where we expected it, so these trade-offs are playing out as expected, but the margin improvement is more significant.
Q: I realize it's a pretty marginal change, but could you talk about what you're seeing in the market, either in Q2 so far? Or more generally, that led you to revise your expected North American industry box shipment growth to 2% to 3% in '24 from 3% previously? A: (William Thomas Hamic - Senior VP of North American Container & Chief Commercial Officer) The second quarter is going to be close to plus 2% for the industry, which is an improvement from previous quarters. We expect this improvement to continue, but 2% aligns with a fairly tough economic second half. Our forecast suggests no improvement at all and probably a tough retail sales environment. I think it'd be closer to 3%, and I would not take 4% off the table. So, a moderate adjustment to be conservative.
Q: Just wanted to understand the operations and costs in the packaging business. I think you talked being a negative $70 million 2Q v 1Q. And I think though at the same time, we should have about $50 million positive because we don't have the fire and we don't have the winter freeze issues. So that seems to be like a $120 million negative swing. So I was hoping to get kind of more specific as to why that number would be so large? A: (Mark Stephan Sutton - Chairman & CEO) It's two parts. It's the value chain, starting with containerboard and all the way through Box. Our prepared remarks talked about generically preparing for what we believe will be higher utilization as well as some of the spending is maintenance costs, but it really is in the box business to improve productivity and throughput. It's just not at the capital cost level.
Q: In terms of the market prices and the recognition of the $40 per ton increase that was put through in March, followed by no further change in April. Is it your expectation that relative to the higher numbers that you and others announced at the start of the year that we won't see any further recognition unless there's further price increases made? A: (Mark Stephan Sutton - Chairman & CEO) We don't comment on forward-looking pricing. We obviously had an announcement of $70, $40 was recognized. There are lots of reasons for that in the way that the index discovers price through the analytics. So, I think we would just stop there and say that's what we had. That will flow through the next few quarters, but we really don't forecast or talk about forward pricing that hasn't been published in an index.
Q: You mentioned a change in the customer mix, pre-COVID versus post-COVID and the different margin profiles you have pending with. Can you provide more color about changing your customer mix, pre-COVID versus post-COVID, any regional impacts that mix would have as well? A: (Mark Stephan Sutton - Chairman & CEO) During COVID, some of our large contractual type customers in certain types of end-use segments grew at an outsized rate, absorbing basically all of our capacity. We had to leave certain customers in certain segments where we didn't have those contractual obligations because we just had no more room in our converting system. Post-COVID, we are improving the economics with large national accounts and retargeting the original segments and customers that we served for so many years.
Q: Going through this commercially or margin improvement in industrial packaging. What type of EBITDA margin are you looking to achieve and over what time frame? And can you help us frame how this should play out within [the next few years] itself? A: (Mark Stephan Sutton - Chairman & CEO) The number we've always thrown out there was an EBITDA margin that led us to a really strong ROIC, several hundred basis points above our cost of capital. At yesterday's revenue line, that used to be in the 20s. But I think for us, that's an aspirational target to get back into that area. But even at today's revenue and 18% margin generates very strong ROIC similar to what a 21% margin used to generate. So I think that's the sort of milepost we're working toward now is getting up into those high teens, 18-ish percent on our way to 20%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
