Industry Reports

Deutsche Bank Reports Summaries

071102 Deutsche Bank Report - IP's Q3 in 100 Words

Deutsche Bank - Equity Research

International Paper {Ticker: IP, Closing Price: USD 35.45, Target Price: USD 45.00, Recommendation: Buy}.

In-line Qtr – met recently-reduced #s.   Rep. EPS from cont'g op's of $0.52, ex. specials $0.57.  DB @ $0.58, FC @ $0.57.  Mixed results, printing papers & Xpedx had solid qtrs, ind. & cons. pkg bus's disappointing.  Q4 outlook: suggesting op' income slightly up q/q.

Segments:

(1) Printing Papers.  Nice Qtr.  EBIT = $317MM(18.5%), Q2 = $249MM (15.5%), 06Q3 = $234MM(14.5%).  $52MM of q/q gain in NA – small portion from price.  Vol's in line w/ industry #'s.  Prices rising on env. & offset – but, gradually.

(2) Industrial Pkg.  Disappointing.  EBIT  = $115MM(8.8%), Q2 = $139MM(10.6%), 06Q3 = $139MM(11.1%).  Weaker Euro vol's & Pensacola rebuild were biggest neg's.  US box prices up $30/ton in Oct.

(3) Cons. Pkg.  Bit weak. EBIT = $49MM(6.3%), Q2 = $48MM(6.1%), 06Q3 = $62MM(8.8%).  SBS prices aren't hitting bot. line as quickly as expected on board prices or in conv. prod's.  IP also pt'g to higher wood & resin costs.   7yrs on, how much of Shorewood still exists in IP?

(4) Xpedx. OK.   EBIT = $40MM(2.1%), Q2 = $38MM(2.2%), 06Q3 = $34MM (2.0%).  Aided  a bit by Central Lewmar acq'n.

(5) Forest Products.  EBIT = $99MM, Q2 = $98MM, 06Q3 = $166MM.  Q4 likely to be in $150-155MM range - - - this q/q increase is not included in IP's guidance of slightly higher op' inc.

Other. (1) Capex of $1.3B in '07, goes to $1.1B in '08.  Ex Pensacola, most inc. capex is offshore (BZ, Rus., China), (2) May consider div. hike in '08, (3) IP argues preference price to vol. – confirmed by most industry contacts.

View on stock?    Remain guardedly optimistic.  Weak US$ should help US businesses in '08.  B/S good.  IP making “relative” gains in op' perf – essential w/ timber earnings going away.  We like offshore strategy. Retain BUY rating. EPS est's unchanged ('07 @ $2.25, '08 @ $2.70).