Skip to Content
Stock Strategist

International Paper's Spin-Off of xpedx Gains the Firm a Narrow Moat

We're confident that the firm can generate consistent economic profits over the next decade thanks to the low-cost production advantage in its legacy mills.

Mentioned: , ,

Since 2005,  International Paper Co. (IP) has transformed from a business with 12 operating units to one with just three operating units today (excluding the distribution business that's scheduled to be spun off in mid-2014). Over the past eight years, it has shed more than $11 billion worth of timberland and noncore businesses and strengthened its position in industrial packaging by acquiring  Weyerhaeuser's (WY) packaging division in early 2008 and Temple-Inland in 2012. These acquisitions have resulted in IP having an approximate one-third share of the North American containerboard industry, compared with 19% for its closest competitor,  Rock-Tenn (RKT).

We recently increased our economic moat rating for International Paper to narrow after considering the impact of the forthcoming tax-free spin-off of the struggling xpedx distribution business. In 2013, xpedx accounted for about 20% of group revenue, and it has been a drag on IP's ability to generate economic profits over the past decade. Though the xpedx division is a relatively small piece of IP's operations, the spin-off provides us with additional confidence that the firm can generate consistent economic profits over the next decade as a result of a low-cost production advantage in its legacy mills, which serve the legacy industrial and consumer packaging and printing papers segments.

Todd Wenning does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.