International Paper Co. (IP) reported fourth-quarter EPS of 24 cents, slightly above the Zacks Consensus Estimate of 23 cents and up 14% from EPS of 21 cents reported in the prior-year quarter. Earnings growth in the quarter was primarily a result of the company’s overhead cost reduction efforts as well as integration synergies.

Quarterly sales of $6.0 billion were 8.7% lower than the year-ago sales of $6.5 billion. The company’s packaging business has been adversely impacted by declining consumer spending, while the paper business is affected by lower commercial printing and advertising activity and deteriorating white-collar employment levels, which impact the usage of copy and laser printer paper.

For the full-year 2009, International Paper reported earnings of 88 cents per share on net sales of $23.4 billion compared to 2008 earnings of $2.01 per share on net sales of $24.8 billion.

Through its strong focus on margin improvement and working capital management, International Paper generated strong free cash flow of approximately $4.1 billion in 2009, compared to $1.7 billion in 2008. The company therefore was able to reduce its debt by $3.1 billion during 2009. As of December 31, 2009, International Paper had $1.9 billion in cash and cash equivalents.

International Paper has been witnessing declining unit volumes in most of its markets since the second half of 2008. The company is adjusting its capacity to match demand levels, as it believes that the accumulative cost of down time is far less than the negative impact of chasing volumes and building excess inventories. We do not expect any significant recovery in the company’s end-markets in the coming months.

We maintain a Neutral rating on the stock.

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