We Like International Paper's (NYSE:IP) Earnings For More Than Just Statutory Profit

International Paper Company's (NYSE:IP) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for International Paper

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, International Paper issued 52% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out International Paper's historical EPS growth by clicking on this link.

How Is Dilution Impacting International Paper's Earnings Per Share (EPS)?

International Paper's net profit dropped by 31% per year over the last three years. The good news is that profit was up 84% in the last twelve months. But EPS was less impressive, up only 84% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So International Paper shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the US$618m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. International Paper took a rather significant hit from unusual items in the year to December 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On International Paper's Profit Performance

International Paper suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if International Paper's profits are a reasonable reflection of its underlying profitability. If you'd like to know more about International Paper as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with International Paper (including 2 which are potentially serious).

Our examination of International Paper has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.