Industry Reports

Deutsche Bank Reports Summaries

080430 Deutsche Bank Report - IP's 1Q 08 in 100 Words

Deutsche Bank - Equity Research

International Paper {Ticker: IP.N, Closing Price: USD 26.17, Target Price: USD 40.00, Recommendation: Buy}.

Disappointing. EPS net of special items = $0.41. DB & FC @ $0.50. Comps: 4Q07 = $0.69, 1Q07 = $0.47. Lower land sales accounted for much of q/q weakness. Net of land sales, adjusted EPS: 1Q08 = $0.37, 4Q07 = $0.41, 1Q07 = $0.30.

What went wrong??? Relative to DB expectations, price & volume were uneventful. Low corporate exp. (+$0.06) largely offset lower land sale gains (-$0.03) and some op. issues (-$0.04). The issue was cost inflation: $90MM q/q ($0.15).

Printing Papers. Weak. EBIT = $185MM. 4Q07 = $243MM, 1Q07 = $167MM. Prices were off in both Europe & BZ.

Industrial Packaging. As expected. EBIT = $97MM, 4Q07 = $109MM, 1Q07 = $73MM. 1Q helped by lots of residual follow-thru: NA box prices +$21/ton q/q & board prices +$19/ton q/q.

Consumer Pkg. Still struggling. EBIT = $14MM, 4Q07 = $15MM, 1Q07 = $40MM.

Xpedx. Weak. EBIT = $16MM, 4Q07 = $28MM, 1Q07 = $20MM. Some signs of easing in selected markets as qtr progressed.

Forest Products - land sales. EBIT = $25MM, 4Q07 = $171MM, 1Q07 = $97MM. For '08, still pointing to $185-275MM - skewed to 2H. Remaining land = 300K acres.

Other issues. (1) WY deal still on track for 3Q close, (2) '08 Capex = $1.1B (100% of D&A), (3) '08 corporate items = $140-160MM (was $206MM in '07), (4) Received equity income from Ilim ($0.04) for first time, (5) $60MM in incremental q/q mtce in Q2 - highest qtr of '08.

View? Disappointed, but IP still looks attractive after sell-off. Margin squeeze should abate in 2Q with higher UFS pricing and 3Q

will bring further seasonal improvement. We also still like WY deal. Maintain Buy. Trimming est: '08 goes from $2.55 to $2.00 (2Q =

$0.45) & '09 goes from $3.00 to $2.50 (not PF for WY deal, which should be accretive).