Packaging and materials company International Paper (NYSE:IP) fell short of the market’s revenue expectations in Q4 CY2024, with sales flat year on year at $4.58 billion. Its non-GAAP loss of $0.02 per share was $0.03 below analysts’ consensus estimates.
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International Paper (IP) Q4 CY2024 Highlights:
- Revenue: $4.58 billion vs analyst estimates of $4.76 billion (flat year on year, 3.8% miss)
- Adjusted EPS: -$0.02 vs analyst estimates of $0.01 ($0.03 miss)
- Adjusted EBITDA: $275 million vs analyst estimates of $529 million (6% margin, 48% miss)
- Operating Margin: -4.9%, down from -3.5% in the same quarter last year
- Free Cash Flow Margin: 3%, down from 4.1% in the same quarter last year
- Market Capitalization: $20.14 billion
"During 2024, we initiated our strategy to deliver profitable growth as the low-cost, most reliable and innovative sustainable packaging solutions provider for our customers," said Chairman and CEO Andy Silvernail.
Company Overview
Established in 1898, International Paper (NYSE:IP) produces containerboard, pulp, paper, and materials used in packaging and printing applications.
Industrial Packaging
Industrial packaging companies have built competitive advantages from economies of scale that lead to advantaged purchasing and capital investments that are difficult and expensive to replicate. Recently, eco-friendly packaging and conservation are driving customers preferences and innovation. For example, plastic is not as desirable a material as it once was. Despite being integral to consumer goods ranging from beer to toothpaste to laundry detergent, these companies are still at the whim of the macro, especially consumer health and consumer willingness to spend.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. International Paper’s demand was weak over the last five years as its sales fell at a 3.6% annual rate. This fell short of our benchmarks and signals it’s a low quality business.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. International Paper’s recent history shows its demand has stayed suppressed as its revenue has declined by 6.2% annually over the last two years. International Paper isn’t alone in its struggles as the Industrial Packaging industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time. 
We can better understand the company’s revenue dynamics by analyzing its most important segments, Industrial Packaging and Cellulose Fibers, which are 84.5% and 14.5% of revenue. Over the last two years, International Paper’s Industrial Packaging revenue (containers, displays, bins) averaged 5.4% year-on-year declines while its Cellulose Fibers revenue (materials) averaged 6.1% declines.
This quarter, International Paper missed Wall Street’s estimates and reported a rather uninspiring 0.5% year-on-year revenue decline, generating $4.58 billion of revenue.
Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
International Paper was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.8% was weak for an industrials business.
Looking at the trend in its profitability, International Paper’s operating margin decreased by 5.9 percentage points over the last five years. The company’s performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn’t pass those costs onto its customers.
In Q4, International Paper generated an operating profit margin of negative 4.9%, down 1.4 percentage points year on year. Since International Paper’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Sadly for International Paper, its EPS declined by more than its revenue over the last five years, dropping 23.9% annually. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
We can take a deeper look into International Paper’s earnings to better understand the drivers of its performance. As we mentioned earlier, International Paper’s operating margin declined by 5.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For International Paper, its two-year annual EPS declines of 45.9% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q4, International Paper reported EPS at negative $0.02, down from $0.41 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects International Paper’s full-year EPS of $1.14 to grow 173%.
Key Takeaways from International Paper’s Q4 Results
We struggled to find many resounding positives in these results as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.6% to $56.58 immediately following the results.
The latest quarter from International Paper’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.