Will International Paper (IP) Disappoint Earnings in Q4?

Leading packaging and paper manufacturer International Paper Company IP is scheduled to report fourth-quarter 2015 results before the opening bell on Feb 3. In the last reported quarter, the company's adjusted earnings had exceeded the Zacks Consensus Estimate by 5 cents.

Let's see how things are shaping up for this announcement.

Factors at Play

Mergers and acquisitions remain a key strategy for International Paper to strengthen its long-term business proposition. The company is taking initiatives to drive further margin expansion over time across the business. The company is also investing more resources in high-return capital projects within its core businesses, which can, in turn, accelerate earnings growth. International Paper's investment strategy involves the adoption of a holistic view of the rapidly evolving market and deploying a dynamic capital allocation approach.

International Paper aims to utilize its cash flow through investment in capital projects, acquisitions, reducing its total debt, and returning a greater proportion of cash to shareholders through increased dividend payouts and share repurchases.  The company is currently focused on debt reduction opportunities in order to improve its balance sheet and reduce the effective cost of debt. The company's best-in-industry talent pool and expertise are expected to generate optimal and affordable solutions, thus rendering it an edge over its peers.

However, the company expects pricing and mix to be unfavorable in its North American paper business due to some seasonal weaknesses, and expects lower pricing and less a favorable regional mix.

Earnings Whispers

Our proven model does not conclusively show that International Paper is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) and #3 (Hold) for this to happen. However, that is not the case here, as you will see below:

Zacks ESP: The Most Accurate estimate stands at 82 cents, while the Zacks Consensus Estimate is pegged slightly higher at 84 cents. This equates to an ESP of -2.38%.

Zacks Rank: International Paper's Zacks Rank #3, when combined with a negative ESP, makes a surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or #5) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

American Capital, Ltd. ACAS has an Earnings ESP of +12.50% and a Zacks Rank #1.

TCP Capital Corp. TCPC has an Earnings ESP of +2.44% and a Zacks Rank #3.

Old National Bancorp. ONB has an Earnings ESP of +17.86% and a Zacks Rank #2.

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