International Paper Company IP recently completed its previously announced separation and spin-off of its global printing papers business, which is now operating as Sylvamo Corporation and trading under the symbol "SLVM” on the New York Stock Exchange. This move makes International Paper a more-focused corrugated packaging and absorbent cellulose fibers company serving attractive segments, which in turn will increase the scope to augment earnings and cash generation.
On Oct 1, each International Paper shareholder received one share of Sylvamo common stock for 11 shares of International Paper common stock held on Sep 15, 2021. International Paper now owns approximately 19.9% of the outstanding shares of Sylvamo common stock.
Last December, International Paper announced its plan to spin-off its Printing Papers segment into a standalone, publicly-traded company. It has been subsequently named Sylvamo, with headquarters planned in Memphis, TN. This move will enable International Paper to focus on its Industrial Packaging segment, and capitalize on the growing demand for corrugated packaging, cut costs and improve earnings. International Paper now expects to generate around $17 billion in annual sales, with 85% stemming from Industrial Packaging and the balance from Global Cellulose Fibers.
The separation is a prudent move for International Paper, as paper demand has been eroding thanks to the transition to digital media and paperless communication. The company has been witnessing a decline in commercial printing due to the significant pullback in print advertising. The coronavirus pandemic induced closure of schools, offices and businesses dealt another blow by impacting paper consumption. Even though demand for printing papers has picked up lately, as offices and schools have resumed, it still remains below prior-year levels.
International Paper is riding on the surging demand for corrugated and containerboard packaging, as it plays a key role in the supply chain to deliver essential products to consumers. It will continue to benefit from the growing e-commerce demand as it has become a primary spending channel for customers owing to the containment measures amid the pandemic. The company has focused its efforts on streamlining and simplifying its organization to form a packaging-focused company and capitalize on the current trend in demand.
The company has been redesigning processes to increase efficiency and reduce costs in maintenance and reliability, distribution and logistics, and sourcing. It is also identifying opportunities to optimize fleet of assets to make the right products and own the right assets to strengthen cost position. International Paper is committed to delivering $350-$400 million in incremental earnings by the end of 2023. This includes $50-$100 million of incremental annual earnings growth and $300 million in structural cost reductions.
Price Performance
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International Paper’s shares have gained 28.6% in a year’s time against the industry’s growth of 37.5%.
Zacks Rank & Stocks to Consider
International Paper currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space include Veritiv Corporation VRTV, Nucor Corporation NUE and Teck Resources Ltd. TECK. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Veritiv has a projected earnings growth rate of 214.9% for the current year. The company’s shares have appreciated 542% in a year.
Nucor has a projected earnings growth rate of roughly 534.4% for the current year. The company’s shares have rallied 107% in a year.
Teck Resources has a projected earnings growth rate of 305.3% for the current year. The company’s shares have gained 81% in a year.
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