Will International Paper (IP) Surprise this Earnings Season?

Leading packaging and paper manufacturer International Paper Company IP is scheduled to report its second-quarter 2014 results before the opening bell on Jul 29. In the last reported quarter, International Paper's operating earnings exceeded the Zacks Consensus Estimate by 4 cents. Let's see how things are shaping up for this announcement.

Growth Factors in the Second Quarter

Over the years, International Paper has undergone various restructuring initiatives in order to divest its non-core operations and focus on the traditional industrial packaging businesses. The company recently completed the spin-off of its struggling xpedx distribution business under a Reverse Morris Trust structure. Under the terms of the deal, xpedx merged with UWW Holdings, the parent company of Unisource Worldwide, to form a new entity titled Veritiv Corp. VRTV. International Paper received $400 million in cash from the divestiture and will own 51% stake of the newly-formed entity.

International Paper also recently modified its share repurchase program to enhance shareholder value, focus on debt reduction opportunities for improving balance sheet and reduce effective cost of debt. Under the new share repurchase program, the company has doubled its share authorization tally to enable repurchase of an additional $1.5 billion worth of stock over a period of time. The additional shares over its existing $1.5 billion share repurchase authorization could be repurchased through a slew of open market transactions.

Over the years, International Paper has consistently returned significant cash to its shareholders through dividends and share repurchases. The company's investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to focus on the relative value of the various sectors within the broader industry. All these factors give us enough confidence to remain bullish on the stock.

Earnings Whispers

Our proven model further conclusively shows that International Paper is likely to beat earnings this quarter as it possesses the key ingredients for a success recipe.

Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 2.44%. This indicates likely earnings beat for the shares.

Zacks Rank #3 (Hold): International Paper's Zacks Rank #3 increases the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.  

Other Stocks to Consider

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

American Capital Agency Corp. AGNC, earnings ESP of +4.48% and Zacks Rank #1 (Strong Buy).

Credit Acceptance Corp. CACC, earnings ESP of +2.39% and Zacks Rank #2 (Buy).

CH Robinson Worldwide Inc. CHRW, earnings ESP of +2.60% and Zacks Rank #2 (Buy).

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