"New" International Paper Focuses on Continued Improvement After Acquiring Weyerhaeuser Unit

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Researched by Industrial Info Resources (Sugar Land, Texas)--The International Paper Company (NYSE:IP) (Memphis, Tennessee) has been undergoing a transformation, and Chairman and CEO John V. Faraci describes the company as "new and different." International Paper's primary objective is to generate higher earnings before interest, taxes, depreciation and amortization (EBITDA), said Faraci, speaking at the UBS (NYSE:UBS) (Zurich, Switzerland) Global Paper and Forest Products Conference on September 16 in New York. Faraci said the company is different in five ways:

1. A more focused portfolio
2. Improved earnings and cash flow generation capability
3. Lower-cost manufacturing assets
4. More global balance
5. More balanced use of cash going forward

International Paper announced the major changes to its company in July 2005. For more information, see related April 11, 2007, news article - International Paper Capital Expenditures Remain Healthy Amidst Major Transformation. "In 2005, we posted EBITDA of about $2.8 billion," Faraci said. "We divested businesses, which together accounted for 40% of the company's EBITDA at that point in time -- $1.1 billion. Three years later, International Paper has more than replaced the earnings of the divested businesses through business improvements -- improving the margins and earnings of our existing businesses -- and strategic acquisitions."

The company announced in early August that it had finalized the acquisition of Weyerhaeuser Company's (NYSE:WY) (Federal Way, Washington) containerboard, packaging and recycling business unit for about $6 billion in cash. "Because the transaction is a purchase of assets rather than of stock, International Paper will realize a tax benefit that has an estimated net present value of approximately $1.4 billion," the company stated. Faraci said the company plans to repay about $1.5 billion-$2 billion of the incremental debt from the acquisition over the next 24 months. He added that the integration of Weyerhaeuser's packaging business could help International Paper improve its EBITDA by more than $1 billion.

In the past seven years, International Paper eliminated almost 25,000 jobs, or about 40% of the company's work force. " It's not an easy thing to do; it's not a fun thing to do, but improving our cross base -- and this is just one element of it -- is something that International Paper has been working on, and it's one thing that has allowed us to expand our margins at a time when input costs are going up significantly," Faraci said. He said the company maintained its revenue base since the beginning of the job cuts, leading to an overall decrease in overhead expenses. International Paper is targeting a decrease of $150 million-$200 million in overhead expenses by 2010, he said.

The company is also working toward limiting capital spending to about $1 billion over the next couple of years in order to further boost its free cash flow. Industrial Info is tracking 53 active International Paper projects worth $404 million combined. The projects range from $2 million to $48 million and include upgrades, unit additions and plant expansions.

International Paper is a global paper and packaging firm with operations in North America, Europe, Latin America, Russia, Asia and North Africa.

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