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International Paper Offloads Brazilian Packaging Business

International Paper Company IP recently wrapped up the sale of its Brazilian corrugated packaging business to Klabin S.A. The divesture includes three containerboard mills and four box plants.

This March, the company entered into this divesture agreement in sync with its previously-announced strategic review of the packaging business in Brazil. It decided to unload the Brazilian containerboard and corrugated packaging business as the unit could not perform profitably. In fact, International Paper’s existing business structure was not competitive enough for the Brazilian packaging market. However, the company stated that it will continue to run its papers business and forestry operations in Brazil.

International Paper had earlier sold its North American consumer packaging business to Graphic Packaging Holding Company GPK. The divesture helped the company maximize the value of the North American consumer packaging business by combining it with Graphic Packaging, while also focusing on its core businesses and strengthening the balance sheet. The company intends to invest significantly to boost its North American containerboard mill system, enhance product quality, and reduce manufacturing and delivery costs.

In North America, the company envisions a large opportunity within its industrial packaging businesses, which continues to generate the best margins in the industry. It is rolling out initiatives to drive further margin expansion across the business.

Also, mergers and acquisitions remain a key strategy for International Paper to fortify its packaging business. This May, the company increased its ownership interest in a sheet feeder with a strong box plant network in North America. The investment enables the company to expand sales through the channel by 140,000 tons annually, by providing a broad range of containerboard solutions.

The company has also decided to increase capital investments in its North American box system this year to boost capabilities and converting capacity in order to support the growing customer segments and geographies. Last year, it acquired two packaging businesses located in Portugal (Ovar) and France (Torigni and Cabourg) from DS Smith Packaging.

International Paper is witnessing solid demand driven by processed food, beverage, proteins, chemicals, paper tissue and towel. The company will continue benefiting from the growing e-commerce demand as it has become a primary spending channel for customers owing to restrictions amid the coronavirus pandemic. Moreover, the Global cellulose fibers segment is riding on healthy consumer demand for absorbent hygiene products and tissue products triggered by the pandemic.

Share Price Performance

International Paper’s shares have gained 6.6% over the past year, outperforming the industry’s growth of 3.5%.

Zacks Rank & Stocks to Consider

International Paper currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space include Brenntag AG BNTGY and Equinox Gold Corp. EQX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brenntag has an expected earnings growth rate of 2.9% for 2020. The company’s shares have rallied 37.3% over the past year.

Equinox has an estimated earnings growth rate of 137.9% for the current year. The stock has surged 130.1% in the past year.

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International Paper Company (IP): Free Stock Analysis Report
 
Graphic Packaging Holding Company (GPK): Free Stock Analysis Report
 
Brenntag AG (BNTGY): Free Stock Analysis Report
 
Equinox Gold Corp. (EQX): Free Stock Analysis Report
 
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