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International Paper Closes Foodservice Unit Sale in China

Zacks

Paper and packaging products manufacturer, International Paper Company IP recently completed the divesture of its foodservice business in China. The assets were sold to Huhtamaki Hong Kong Limited, one of the world’s largest packaging companies with 68 manufacturing units and 23 sales offices in 34 countries, for an undisclosed amount. The divested asset portfolio included two manufacturing plants with employee strength of roughly 200.

The foodservice business of International Paper offers innovative single-use packaging solutions to cater to the evolving needs of its customers. The company manufactures hot and cold cups, food containers and buckets, lids and accessories, as well as various environment-friendly options for foodservice establishments across the country — from one-store locations to large national chains. These products are developed from responsibly managed forests as the company remains committed to improving its environmental footprint through sustainable business practices.

Over the past couple of years, the company has strategically offloaded businesses in China to focus more on its U.S. operations. It believes that it could cater to the Chinese and Asian markets more effectively by supplying globally competitive products primarily through its Ilim joint venture in Russia and exports from the United States and other parts of the world.

Last year, International Paper sold its corrugated packaging business in China and Southeast Asia to Xiamen Bridge Hexing Equity Investment Partnership Enterprise, which specializes in packaging and related industries, for approximately RMB 1 billion ($150 million). These included 18 manufacturing plants with employee strength of about 3,000.

In 2015, the company also sold 55% equity interest in its Chinese coated-board joint venture with Shandong Sun Holding Group Co., Ltd. for RMB 149 million (roughly $23 million). The joint venture had one manufacturing facility in the Shandong Province, which produced about 1.4 million metric tons of coated-board products.

Moving forward, International Paper intends to focus more resources on high-return capital projects within its core businesses that can drive additional earnings growth. The company has underperformed the industry with an average year-to-date return of 3.1% compared with a 6.8% gain for the latter. International Paper is undergoing restructuring initiatives to transform itself into a core packaging company. It intends to invest $300 million through 2017 to further improve its North American containerboard mill system, enhance product quality and reduce manufacturing and delivery costs. These projects are expected to have a collective internal rate of return of 20%.



International Paper currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Mondi plc MONDY, Smurfit Kappa Group plc SMFKY and Taseko Mines Limited TGB, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mondi has a long-term earnings growth expectation of 6%.

Smurfit Kappa Group has a long-term earnings growth expectation of 4%.

Taseko Mines has beaten earnings estimates in each of the trailing four quarters with a positive surprise of 241.7%.

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