International Paper Co. Earnings Call Nuggets: Q1 Reaction, Corporate Expense

On Friday, International Paper Co. (NYSE:IP) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Q1 Reaction

Steve Chercover – D.A. Davidson: First of all, I just wanted to ask did your results in the first quarter surprise you at all, were they perhaps a bit better than you might have thought?

John V. Faraci – Chairman and CEO: I don’t think – (it always) turns out to Steve if we got there probably a slightly different way than we thought we would. I think we left a little money on the table in terms of our mill operations. We had a great running quarter in Printing Papers in North America. We ran really well in Russia. We left a little money on the table in Industrial Packaging in some of the IP legacy mills, not the Temple mills. So, with the global balance we have, we’re always going to have plusses and minuses relative to expectations, but we’re pleased with how the quarter came out, and again looking at the free cash flow I think that’s kind of the important number for us.

International Paper Co. Earnings: Margins Shrink on Rising Costs, Net Income Falls>>

Steve Chercover – D.A. Davidson: Then with respect to the expenses associated at Franklin and the Sun JV, did they peak in the first quarter or are they behind you or just going to trend down?

John V. Faraci – Chairman and CEO: They’re pretty much flat. We’re running with market (close to a month) at Franklin.

Steve Chercover – D.A. Davidson: Is that mill producing commercial grade now?

John V. Faraci – Chairman and CEO: No.

Tim S. Nicholls – SVP, Printing & Communications Papers the Americas: No, we’ll startup midyear.

John V. Faraci – Chairman and CEO: That was Tim answering the question. I am not. But we can trade back and forth.

Corporate Expense

Gail Glazerman – UBS: A quick question on corporate expense. The first quarter was a lot higher than I would have expected unless I’m missing some adjustment. It’s a huge percentage of your overall annual guidance, but there is something kind of unusual driving that and what would drive that back down?

Carol L. Roberts – SVP and CFO: Gail, I think it’s both to the corporate expense is higher due to pension expense, and so it’s on Page 26 if you look at the – in the appendix it shows the corporate expense.

Gail Glazerman – UBS: Yeah, but it’s like $65 million or $69 million for the first quarter which would be a lot higher than that run rate. I mean you kind of would assume it will come back down then?

Carol L. Roberts – SVP and CFO: Yeah, it should even out through time. So, there could be a little timing there on things, but the $220 million is the good estimate to use for the year.

Gail Glazerman – UBS: Okay, and just looking at the demand environment a little. When you look at industrial production performance and consumer non-durables is significantly underperforming, and seems to be reflected in overall box volumes and as well as Consumer Packaging volumes. Is there anything structural that you think is going on? Is there anything you’re hearing from your customers?

John V. Faraci – Chairman and CEO: No. Let Mark comment on what he sees in corrugated, the GDP numbers are a little over 2%. That kind of feels like last year. It’s not yet slowed a bit from the fourth quarter, with box demand was up 0.5% last year, and we’re kind of going along that path sideways.

Mark S. Sutton – SVP, Industrial Packaging: Yeah, John, I would agree with that. I mean we are seeing nothing really structural in that. I think some of those non-durable categories quite honestly are affected by short-term issues like gasoline prices and other things. But we aren’t seen anything structural and we are pretty much tracking our box businesses tracking with the market which is our strategy.

Gail Glazerman – UBS: Again, just one last one, given the performance of the Temple assets in the first quarter, is there any change to kind of the original guidance that you gave that would be a slight drag or neutral this year?

John V. Faraci – Chairman and CEO: Well, if we’re neutral in the first quarter on two months of financials with $10 million of merger benefits, I think you can do the math yourself. We’ll talk more about that at Investor Day at the end of May, but we’re pretty pleased with where we are.