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International Paper (NYSE:IP) is the world's largest forest products company. It produces uncoated paper, industrial and consumer packaging, and pulp. Together, paper and packaging account for nearly two-thirds of the company's sales. International Paper also distributes printing, packaging, and graphic-art supplies in North America through subsidiary xpedx and in Europe through multiple subsidiaries. Slimming down, the company has sold its specialty chemicals operations, the majority of its lumber and wood products business, and most of the 6.3 million acres of US forestland it once owned. It retains 500,000 acres of US land and owns or has harvesting rights to nearly 900,000 acres of forestland in Brazil and Russia.

International Paper is reshaping itself, getting leaner, and growing its business. Not bad for a large company with a $17 billion market cap. The sale of some of its businesses such as its Arizona chemicals, North American Beverage Packaging operations and a number of mills focuses the company back on its main business of paper. The proceeds from these sales will most likely be used to expand production capacity and maybe buy back some stock.

These moves have shown up where it counts: the bottom line. Earnings in the first quarter were better than analysts expected, coming in at 45 cents a share. Look for 50 cents this quarter and $2.10 for the year. Last year, the tally was $1.33. Next year anticipate $2.50. Over the next 5 years, analysts are predicting growth in profits of 17.5% a year, on average while revenues increase by 4% a year, on average. That contrasts nicely to the negative 3% a year in sales over the last 5 years and negative 1.5% a year in earnings in the same time frame.

Don't expect much help from the North American market to reach these new numbers. The slowdown in housing will be felt for some time. Add to that the increase in prices for energy and fiber that can't be passed on to customers due to over capacity currently in the uncoated freesheet and coated paperboard markets. The better numbers will come from the international effort IP is making. Two particularly strong markets are Brazil and China, new territory for the company where its products are well received. Brazil is expected to contribute $150 million in sales this year while China will add a little more, $15 million. The next major country will be Russia through a joint venture already started.

Some numbers to consider: Current assets are more than double current liabilities ($807 million vs. $390 million). Debt is 45% of the balance sheet. Return on Euqity is expected to jump to 11.5% this year, up from 8% last year, then go to 13% next year. Net profit margin was 2.9% last year, forecasted to be 4.2% this year and 4.7% next year. There is a decent dividend of $1.00 a year that goes with the shares, yielding 2.5%.

This stock has been a steady performer over the last several years, with a little downward bias in the stock price in the last two. It looks like it's starting to recover as the price appears to be moving to the upside. The stock used to trade as high as $61 back in 1997 and 1998. Maybe it will see those heights again if the domestic market improves and the international ones continue to grow.

IP 1-yr chart

IP

Disclosure: none

Source: International Paper: Strong Growth From Foreign Markets