First Quarter 2006 Review May 4, 2006 First Quarter 2006 Review May 4, 2006 John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO John V. Faraci Chairman & CEO Marianne M. Parrs Executive VP & CFO Exhibit 99.2 |
2 Forward-Looking Statements hese slides contain forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) industry conditions, including changes in the cost or availability of raw materials and energy, changes in transportation costs, competition, changes in the Company’s product mix and demand and pricing for the Company's products; (ii) market and economic factors, including changes in international conditions, specifically in Brazil, Russia, Poland, China and South Korea, changes in currency exchange rates, changes in credit ratings issued by nationally recognized statistical rating organizations, pension and healthcare costs and natural disasters, such as hurricanes; (iii) the Company's transformation plan, including the ability to accomplish the transformation plan, the impact of the plan on the Company's relationship with its employees, the ability to realize anticipated profit improvement from the plan and the ability to successfully negotiate satisfactory sale terms for assets that are contemplated for sale but are not currently under contract; (iv) the execution of sale transactions currently under contract and the realization of anticipated sales proceeds thereunder, including, the ability to successfully consummate the transactions without a purchase price adjustment, the successful fulfillment (or waiver) of all conditions set forth in the sale agreements, the successful closing of the transactions within the estimated timeframes and the ability to monetize the non-cash portion of the sale proceeds; and (v) results of legal proceedings and compliance costs, including unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and the uncertainty of the costs and other effects of pending litigation. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. These and other factors that could cause or contribute to actual results differing materially from such forward-looking statements are discussed in greater detail in the company's Securities and Exchange Commission filings. T |
3 uring the course of this presentation, certain non- U.S. GAAP financial information will be presented. A reconciliation of those numbers to U.S. GAAP financial measures is available on the company’s website at www.internationalpaper.com under Investors. Statements Relating to Non-GAAP Financial Measures D |
4 Agenda First Quarter 2006 Review Second Quarter 2006 Outlook Transformation Plan Update First Quarter 2006 Review Second Quarter 2006 Outlook Transformation Plan Update |
5 First Quarter 2006 Summary Solid first quarter – broad-based improvement from fourth quarter 2005 Volume stronger across many key grades IP pricing improving Raw material costs lower Manufacturing operations performed well Record first quarter for IP’s distribution business Lower land sales and higher tax rate Solid first quarter – broad-based improvement from fourth quarter 2005 Volume stronger across many key grades IP pricing improving Raw material costs lower Manufacturing operations performed well Record first quarter for IP’s distribution business Lower land sales and higher tax rate |
6 Diluted EPS from Continuing Operations and Before Special Items * A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investors .13 .33 .27 .29 .16 .21 .21 .16 .15 .41 .34 .39 .34 2002 2003 2004 2005 1Q 3Q 1Q 2Q 4Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q .29 .23 3Q 4Q .09 1Q .19 2006 |
7 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 4Q'05 Price Volume/ Downtime Cost/Mix Raw Material Land Sales Corporate Items Tax Other 1Q'06 1Q’06 vs. 4Q’05 EPS $ / Share EPS from cont. ops before special items $.09 $.08 $.02 $.00 $.19 $.02 ($.04) ($.01) $.05 ($.02) Energy $.03 Wood $.01 Other ($.02) Packaging $.05 Paper $.02 1Q06 Tax rate 30% 4Q05 Tax rate 14% IP Realty $.01 Land Sales ($.05) |
8 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 1Q'05 Price Volume/ Downtime Cost/Mix Raw Material Land Sales Corporate Items Interest Tax Other 1Q'06 1Q’06 vs. 1Q’05 EPS $ / Share EPS from cont. ops before special items $.34 $.05 ($.13) ($.01) $.19 $.02 ($.05) $.04 ($.02) ($.02) ($.03) Energy ($.10) Wood ($.01) Caustic ($.01) Other ($.01) Packaging ($.02) 1Q06 Tax rate 30% 1Q05 Tax rate 19% IP Realty ($.01) Land Sales $.05 |
9 Higher Raw Material Costs EBIT impact 1Q’06 vs. 1Q’05 Total of $88 million or $0.13 per share negative impact in 1Q’06 versus 1Q’05 (100) (80) (60) (40) (20) 0 (100) (80) (60) (40) (20) 0 Energy Wood Caustic Soda EBIT ($MM) (73) (6) (4) (5) Other |
10 Printing Papers 1 U.S. operations only $ 1,500 120 Sales Earnings 1Q’06 4Q’05 $ Millions $ Millions Uncoated 1 Pulp 1 Europe 2 (uncoated) Volume Realizations/ton $ 1,485 60 1Q’06 Change vs 4Q’05: 1Q’06 Change vs 4Q’05: 7% (18%) 5% 2 Europe is average commodity cut-size price, excluding Russia Average IP realization (includes the impact of mix across all grades) $10 $25 € 5 |
11 Industrial Packaging Average IP realization (includes the impact of mix across all grades) $ 1,170 38 Sales Earnings 1Q’06 4Q’05 $ Millions $ Millions Containerboard 1 U.S. Container $35 $35 Volume Realizations/ton $ 1,170 5 1Q’06 Change vs 4Q’05: 1Q’06 Change vs 4Q’05: (12%) 1% 1 U.S. operations only |
12 Consumer Packaging Average IP realization (includes the impact of mix across all grades) $ 775 35 Sales Earnings 1Q’06 4Q’05 $ Millions $ Millions Coated Paperboard 1 $5 Volume Realizations/ton $ 800 29 1Q’06 Change vs 4Q’05: 1Q’06 Change vs 4Q’05: 6% Converting Businesses Sales Revenue (3%) 1 U.S. operations only |
13 Distribution $ 1,650 27 Sales Earnings 1Q’06 4Q’05 $ Millions $ Millions $ 1,635 25 xpedx had record first quarter earnings Revenues improved 8% vs. first quarter 2005 First quarter ROI of 7% Expenses down, margins up |
14 Forest Products Average IP realization (includes the impact of mix across all grades) $ 630 226 Sales Earnings 1Q’06 4Q’05 $ Millions Lumber 1 (mbf) Plywood (msf) $15 ($24) Volume Realizations/unit $ 665 257 1Q’06 Change vs 4Q’05: 1Q’06 Change vs 4Q’05: (3%) 2% 1 U.S. operations only |
15 Special Items - After Tax • Insurance Recoveries 12 • Legal Reserves (11) • Restructuring & Other (17) • Divestitures (2) • Tax Adjustments (6) Special Items Total (24) ($0.05) Discontinued Operations (Coated and Kraft Paper) • Writedown to Estimated Sales Value and Other (1,311) • 1Q’06 Earnings 7 (1,304) ($2.66) Special Items - After Tax • Insurance Recoveries 12 • Legal Reserves (11) • Restructuring & Other (17) • Divestitures (2) • Tax Adjustments (6) Special Items Total (24) ($0.05) Discontinued Operations (Coated and Kraft Paper) • Writedown to Estimated Sales Value and Other (1,311) • 1Q’06 Earnings 7 (1,304) ($2.66) $MM EPS Special Items & Discontinued Operations – 1Q’06 |
16 Earnings from Continuing Operations and Before Special Items $0.19 Special Items (0.05) Earnings from Continuing Operations 0.14 Discontinued Operations (2.66) Net Loss ($2.52) Earnings from Continuing Operations and Before Special Items $0.19 Special Items (0.05) Earnings from Continuing Operations 0.14 Discontinued Operations (2.66) Net Loss ($2.52) Reconciliation to 1Q’06 Diluted Earnings Per Share Diluted EPS |
17 Second Quarter 2006 Outlook Volume remains solid Implementing IP’s announced price increases in paper and packaging Continued progress in improving operations Input costs mixed • Natural gas and wood costs down • Fuel oil and transportation costs up Tax rate – 33% Volume remains solid Implementing IP’s announced price increases in paper and packaging Continued progress in improving operations Input costs mixed • Natural gas and wood costs down • Fuel oil and transportation costs up Tax rate – 33% |
18 Carter Holt Harvey Forestlands Coated Papers Beverage Packaging Kraft Papers Wood Products Arizona Chemical Consider Strategic Options Distribute Sales Book Evaluate Final Bids Sales Agreement Announced Close on Sale - Phase completed Transformation Plan Update Divestments status as of May 4, 2006 Sales agreements announced for 5.7 million acres as of 5/4/06 Inpacel Mill (Brazil) |
19 Transformation Plan Update Announced sales of 5.7 million acres for $6.6 billion • Cash to IP in 4Q’06 • Retained 830,000 acres in U.S. South (700,000 acres for future sale) Total after-tax proceeds could exceed $11 billion Industrial asset sales process on track Details on returning value to shareholders will be communicated by end of July 2006 Maintaining focus on improving key platform operations – fewer, bigger, better strategy Selective reinvestment – taking a disciplined approach Announced sales of 5.7 million acres for $6.6 billion • Cash to IP in 4Q’06 • Retained 830,000 acres in U.S. South (700,000 acres for future sale) Total after-tax proceeds could exceed $11 billion Industrial asset sales process on track Details on returning value to shareholders will be communicated by end of July 2006 Maintaining focus on improving key platform operations – fewer, bigger, better strategy Selective reinvestment – taking a disciplined approach First Quarter 2006 |
20 Q & A Q & A |
21 Appendix Appendix |
22 Total IP Forestlands* 6.5 MM acres Transformation Plan Update IP has announced agreements to sell 5.7 million acres for approximately $6.6 billion as of May 4, 2006 * U.S. forestlands owned or managed as of December 31, 2005 Targeted sale of 5.7 million acres as part of transformation plan U.S. Forestlands RMS Announced Sale 4.2MM acres South TimberStar Announced Sale 0.9MM acre South Conservation Announced Sales 0.3MM acres South/Lake States Lyme Timber Announced Sale 0.3MM acres New York Acreage Retained 0.8 MM acres South |
23 Transformation Plan Update 6,620 5,672 Total Sales 137 275 Lyme Timber Sale (NY) 1,100 900 TimberStar Sale (LA, TX, AR) 440 Michigan 3,770 Southern U.S. 5,000 4,210 RMS Sale 83 69 The Nature Conservancy (WI) 300 218 The Nature Conservancy & The Conservation Fund Southern U.S. 383 287 Conservation Sales Timber Notes Cash Estimated Value ($MM) Acres (000s) Forestland sales summary |
24 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Containerboard Uncoated Papers Pulp Coated Paperboard European Papers *Includes indefinitely closed uncoated papers capacity at Pensacola, FL, Bastrop, LA and Jay, ME in 2Q05 (72,000 tons), 3Q05 (108,000 tons) and 4Q’05 (108,000 tons). Permanently closed at end of 4Q’05. 168 44 49 232 Lack of Order Downtime 59 90 236 173 5 10 5 35 95 M Short Tons 2002 2003 2004 2005 275* 270* 181* 25 2006 |
25 Earnings by Industry Segment Earnings by Industry Segment Printing Papers $120 $60 $157 Industrial Packaging 38 5 102 Consumer Packaging 35 29 32 Distribution 27 25 18 Forest Resources 226 257 207 Other Businesses 10 (5) 10 Operating Profit 456 371 526 Interest Expense (148) (151) (168) Minority Interest 3 (1) (1) Corporate Items, net (174) (165) (152) Earnings from continuing operations before income taxes, minority interest & special items $137 $54 $205 Earnings by Industry Segment Printing Papers $120 $60 $157 Industrial Packaging 38 5 102 Consumer Packaging 35 29 32 Distribution 27 25 18 Forest Resources 226 257 207 Other Businesses 10 (5) 10 Operating Profit 456 371 526 Interest Expense (148) (151) (168) Minority Interest 3 (1) (1) Corporate Items, net (174) (165) (152) Earnings from continuing operations before income taxes, minority interest & special items $137 $54 $205 $ Millions 4Q’05* 4Q’05* 1Q’05* 1Q’05* 1Q’06 1Q’06 Before special items *industry segment information has been reclassified to conform with minor changes in 2006 organizational structure as well as to reflect Coated Papers and Kraft Papers businesses as discontinued operations |
26 Before Special Items Q1 137 (41) (5) 91 30% 491.7 0.19 Special Items Q1 (30) 6 - (24) 19% 491.7 (0.05) Earnings from Continuing Operations Q1 107 (35) (5) 67 33% 491.7 0.14 2006 Earnings from Continuing Operations Pre-Tax Tax MI Net ETR Average Diluted Shares 2 EPS 1 $ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority Interest; Net – Net Income; ETR – Effective Tax Rate; EPS – Earnings per Share; NM – Not Meaningful 1 A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investor Information 2 Assuming dilution |
27 Before Special Items Q1 205 (39) (2) 164 19% 488.9 0.34 Q2 205 (62) (3) 141 30% 487.4 0.29 Q3 170 (54) (4) 112³ 32% 487.1 0.23 Q4 55 (8) (4) 43 14% 486.0 0.09 Full Year Total 636 (163) (12) 461 26% 509.7 0.96 Special Items Q1 (103) 36 - (67) 35% 488.9 (0.14) Q2 35 (95) - (61) NM 487.4 (0.13) Q3 167 441 - 608 NM 487.1 1.25 Q4 (241) 102 - (138) 43% 486.0 (0.28) Full Year Total (142) 484 - 343 NM 509.7 0.67 Earnings from Continuing Operations Q1 102 (2) (2) 98 2% 488.9 0.20 Q2 240 (157) (3) 80 65% 487.4 0.16 Q3 337 387 (4) 721³ NM 487.1 1.48 Q4 (186) 94 (4) (95) 51% 486.0 (0.19) Full Year Total 494 322 (12) 803³ NM 509.7 1.63 2005 Earnings from Continuing Operations Pre-Tax Tax MI Net ETR Average Diluted Shares 2 EPS 1 $ MM MM Shares $/Share $ MM $ MM $ MM MI – Minority Interest; Net – Net Income; ETR – Effective Tax Rate; EPS – Earnings per Share; NM – Not Meaningful 1 A reconciliation to GAAP EPS is available at www.internationalpaper.com under Investor Information 2 Assuming dilution 3 Does not include impact of additional $7 million in 3Q and $27 million for full year of income related to dilutive securities Numbers may not add due to rounding |
28 * U.S. only Average IP realization (includes the impact of mix across all grades) Average Sales Realizations Forest Products $/ton Packaging $/ton Printing Papers Segments* 301 352 688 402 476 793 4Q’05 Average Sales Realizations 291 358 733 453 488 797 1Q’05 277 376 735 454 510 826 Mar 06 Plywood, $/MSF Lumber, $/MBF Corrugated boxes Containerboard Pulp Uncoated Grades 277 367 721 437 499 803 1Q’06 299 375 733 437 496 802 Mar 05 |
29 Forest Resources Earnings Sources – Gross Margin • Forestland Sales 1 $106 $142 $71 • Harvest & Recreational Income 72 75 69 Forestland Expenses (30) (30) (34) Land Utilization (real estate), Net of Expenses 45 40 54 Total EBIT $193 $227 $160 Earnings Sources – Gross Margin • Forestland Sales 1 $106 $142 $71 • Harvest & Recreational Income 72 75 69 Forestland Expenses (30) (30) (34) Land Utilization (real estate), Net of Expenses 45 40 54 Total EBIT $193 $227 $160 $ Millions 4Q’05 4Q’05 1Q’05 1Q’05 1Q’06 1Q’06 1 Excludes U.S. forestlands identified for sale as part of transformation plan |
30 Lower Raw Material Costs EBIT impact 1Q’06 vs. 4Q’05 Total of $16 million or $0.02 per share positive impact in 1Q’06 versus 4Q’05 (30) (20) (10) 0 10 20 30 (30) (20) (10) 0 10 20 30 Energy Wood Other EBIT ($MM) 18 10 (12) |
31 0 50 100 150 200 250 300 Jan Apr July Oct Jan Apr July Oct Jan Apri July Oct Jan Index: Jan 2003 Natural Gas Costs = 100 2003 2004 Natural gas costs peaked in October Natural Gas Costs 2005 Trended lower in 1Q’06 |
32 U.S. Mill Wood Costs 90 100 110 120 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Index: Jan 2003 Wood Costs = 100 2003 2004 * Delivered cost to U.S. pulp & paper mills Trended lower in 1Q’06 2005 U.S. mill wood costs decreased in 1Q’06 |
33 0 100 200 300 Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Index: Jan 2003 Caustic Soda Costs = 100 2003 2004 Caustic soda costs remain historically high Caustic Soda Costs 2005 Trended slightly lower in 1Q’06 |
34 Domestic Facilities Key input indicative purchase levels 1 Old corrugated containers 2 2006 Run Rate Natural Gas MMbtus 37,000,000 # 6 Fuel Oil BBLs 5,000,000 Coal Tons 1,600,000 Wood Tons 65,000,000 OCC Tons 600,000 Caustic Soda Tons 315,000 Sodium Chlorate Tons 290,000 LD Polyethylene Tons 100,000 Latex Tons 41,000 Energy Energy Fiber Fiber Chemicals Chemicals Units Units Annual Purchases Annual Purchases 2 1 |
35 Coated Papers and Kraft Papers moved to Discontinued Operations Coated Bristols to Consumer Packaging from Printing Papers Bleached Kraft to Printing Papers from Industrial Packaging Minor Reclassifications By industry segments |
36 $6,011 (314) 275 610 1,530 1,295 630 $1,985 1Q’05 As Reported in 4Q’05 $526 10 207 18 102 32 $157 1Q’05 As Restated in 1Q’06 $546 $5,593 (287) Less: Intersegment Sales 10 275 Other Businesses 207 610 Forest Products 18 1,530 Distribution 105 23 1,215 740 Industrial Packaging Consumer Packaging $183 $1,510 Printing Papers 1Q’05 1Q’05 As Reported in 4Q’05 As Restated in 1Q’06 Sales Operating Profit 1Q’05 industry segment information has been reclassified to conform with minor changes in 2006 organizational structure as well as to reflect Coated Papers and Kraft Papers businesses as discontinued operations $ Millions Minor Reclassifications Sales & earnings by industry segments $ Millions |
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