MEMPHIS, Tenn., Nov. 2 -- International Paper today reported preliminary third-quarter 2006 net earnings of $201 million ($0.42 per share) compared with second-quarter net earnings of $115 million ($0.24 per share) and $1 billion ($2.03 per share) in the third quarter of 2005. Amounts in all periods include special items, including credits of $1.19 per share related to a favorable U.S. federal tax agreement and $0.55 per share related to the sale of Carter Holt Harvey Limited in the third quarter of 2005. Earnings from continuing operations and before special items in the third quarter of 2006 were $188 million ($0.39 per share), compared with $196 million ($0.40 per share) in the second quarter and up from $130 million ($0.27 per share) in the third quarter of 2005, including $13 million ($0.03 per share), $31 million ($0.06 per share), and $27 million ($0.05 per share) for the 2006 third quarter, 2006 second quarter and 2005 third quarter, respectively, from the U.S. coated papers business. Quarterly net sales were $5.9 billion for the quarter, down from $6.2 billion in the second quarter, and flat with the third quarter of 2005. The decrease reflects declining average prices for wood products and the sale of the U.S. coated papers business. Paper and packaging product sales remained strong in the 2006 third quarter. Operating profits continue to rise, at $636 million for the 2006 third quarter versus $624 million in the second quarter and $475 million in the third quarter of 2005. The increase is due to continued price realizations and strong manufacturing operations. "International Paper had a solid quarter in its platform businesses, driven by continued improved price realizations and strong operations in our North American paper and packaging businesses," said IP Chairman and Chief Executive Officer John Faraci. "North American paper and packaging operating profits more than doubled from third-quarter 2005 levels and were up about 30 percent from second quarter of this year. Volumes were solid for the third quarter, and distribution costs continue to be high. We lost money in wood products in the third quarter, reflecting a weaker housing market and excess capacity." Commenting on the fourth quarter of 2006, Faraci said, "We expect volumes will be seasonally slower toward the end of the year. Through the end of the third quarter, for North America, we've realized most of our announced paper and packaging increases, and believe we are near the bottom on wood products pricing. Input costs will likely remain high, but we see some favorable signs on the horizon. In light of these factors, we expect earnings from continuing operations and before special items to be slightly lower than in third quarter." SEGMENT INFORMATION Third-quarter 2006 segment operating profits and business trends compared with the second quarter of 2006 are as follows: Third-quarter operating profits for Printing Papers were $249 million ($231 million, excluding U.S. coated papers), up slightly from second-quarter operating profits of $247 million ($198 million, excluding U.S. coated papers). Despite some elevated costs for input materials and distribution, the improvement (excluding U.S. coated papers) reflects a $25 million increase in U.S. uncoated papers earnings, driven by continued realization of previously announced price increases and strong mill operations. Industrial Packaging operating profits increased significantly to $138 million in third quarter (including a $13 million gain from sale of a facility property in Spain), compared with $100 million in the second quarter. Improvements were largely due to higher average price realizations. Volumes increased in our mill system, but were down slightly in converting. Consumer Packaging operating profits were $64 million in the third quarter, up from $41 million in the second quarter. Mill operations were much stronger, more than offsetting continuing inflationary increases in costs. The company's distribution business, xpedx, reported record third-quarter operating profits of $34 million compared with operating profits in the prior quarter of $36 million. A solid third-quarter business environment resulted in higher revenues, but margins were slightly down due to rising product costs. Third-quarter Forest Products operating profits declined to $129 million from second-quarter operating profits of $184 million principally as a result of declining price realizations in wood products. Earnings from forestland and real estate sales were $130 million in third quarter 2006, flat with the second quarter. Net corporate expenses totaled $216 million for the quarter, up from $174 million in the second quarter due principally to benefit-related charges in third quarter.