International Paper (NYSE: IP) reported preliminary full-year 2011 net earnings attributable to common shareholders totaling $1.3 billion ($3.07 per share) compared with $644 million ($1.48 per share) in full-year 2010. In the fourth quarter of 2011, the company reported net earnings of $257 million ($0.59 per share) compared with $316 million ($0.73 per share) in the fourth quarter of 2010. Amounts in all periods include special items.

Full-year 2011 earnings from continuing operations and before special items were $1.4 billion ($3.10 per share) compared with $890 million ($2.05 per share) in 2010. Earnings from continuing operations and before special items in the fourth quarter of 2011 totaled $288 million ($0.66 per share) compared with $296 million ($0.68 per share) in the fourth quarter of 2010.

Annual sales totaled $26.0 billion in 2011 compared with $25.2 billion in 2010. Quarterly net sales were $6.4 billion in the fourth quarter compared with $6.5 billion in the fourth quarter of 2010.

Full-year 2011 operating profits were $2.2 billion compared with $1.7 billion in 2010. Operating profits in the fourth quarter were $577 million compared with $561 million in 2010, both of which included special items.

Full year EBITDA margins improved 100 basis points over 2010, before special items. “Margin expansion across our global operations, as well as growth in emerging markets, contributed to a solid fourth quarter and drove IP’s performance throughout 2011,” said John Faraci, Chairman and Chief Executive Officer. “International Paper has consistently delivered strong results for the sixth consecutive quarter since the global downturn, generating our best financial results in nearly two decades. Sustaining positive momentum in an uneven global economy is challenging, but over the course of the full year ahead we remain confident in our ability to continue to execute at a high level.”

SEGMENT INFORMATION

To measure the performance of the company's business segments from quarter to quarter without variations caused by special items, management focuses on business segment operating profits excluding those items. Fourth-quarter 2011 segment operating profits and business trends, excluding special items, compared with the prior quarter are as follows: 

Industrial Packaging operating earnings in the fourth quarter of 2011 were $316 million ($306 million including special items) compared with $301 million ($293 million including special items) in the third quarter of 2011. The current quarter’s earnings were favorably impacted by strong mill operations, lower recycled fiber costs in the U.S. and seasonally stronger box volumes and improved margins in Europe. Partially offsetting these gains were higher maintenance outages, lower export containerboard prices and seasonally lower U.S. box volume (four fewer box shipping days) and associated market related downtime in the mills.

Printing Papers operating earnings were $190 million ($189 million including special items) in the fourth quarter of 2011 versus $238 million ($239 million including special items) in the third quarter of 2011.  Higher manufacturing operating costs primarily associated with unfavorable seasonal energy usage and lower export and pulp sales prices in the quarter more than offset lower inputs and seasonally stronger paper sales in Brazil, Russia and Eastern Europe. 

Consumer Packaging operating earnings were $62 million ($66 million including special items) in the fourth quarter of 2011 compared with $103 million ($30 million including special items) in the third quarter of 2011. Increased maintenance outages, seasonally weaker U.S. and export demand for coated paperboard and lower pricing in China and Europe were only partially offset by lower input costs in the quarter.

xpedx operating earnings were $33 million ($16 million including special items) in the 2011 fourth quarter compared with $27 million ($9 million including special items) in the third quarter of 2011. Fourth quarter cost decreases associated with transformation-related initiatives and favorable year- end true-ups more than offset lower printing papers volume due to fewer shipping days.

Net corporate expenses for the 2011 fourth quarter totaled $31 million, compared with $34 million in the third quarter of 2011 and $63 million in the fourth quarter of 2010. The decrease compared with the fourth-quarter of 2010 reflects lower pension costs and the scheduled ramp down in spending associated with the global supply chain project.

EFFECTIVE TAX RATE

The effective tax rate before special items for the fourth quarter of 2011 was 32 percent, compared with an effective tax rate before special items of 30 percent in the third quarter of 2011. The lower rate in the third quarter is the result of the inclusion of adjustments of prior-year income tax estimates as the result of filing the company’s 2010 income tax returns and the release of tax reserves due to the expiration of statutes of limitation. The 2011 full year rate was 32 percent compared with 30 percent for the 2010 full year.

EFFECTS OF SPECIAL ITEMS

Special items in the fourth quarter of 2011 included a pre-tax charge of $18 million ($13 million after taxes) for restructuring and other charges, a pre-tax gain of $4 million ($3 million after taxes) for an adjustment to the loss on the sale of our Shorewood business, a net tax expense of $22 million and charges of $6 million ($5 million after taxes) for other items. Restructuring and other charges included a pre-tax charge of $14 million ($11 million after taxes) for costs associated with the restructuring of our xpedx operations, pre-tax charges of $12 million ($7 million after taxes) for costs associated with the signing of an agreement to acquire Temple-Inland, and net pre-tax gains of $8 million ($5 million after taxes) for other items. The net tax expense of $22 million included a $24 million expense related to internal restructurings, a $9 million expense for costs associated with our acquisition of a majority interest in Andhra Pradesh Paper Mills Limited, a $13 million benefit related to the release of a deferred tax asset valuation allowance, and $2 million of expense for other items. In addition, a gain of $6 million (before and after taxes) was recorded for interest associated with a tax claim.  

Special items in the third quarter of 2011 included a pre-tax charge of $49 million ($32 million after taxes) for restructuring and other charges and a pre-tax charge of $82 million (a gain of $148 million after a $222 million tax benefit and a gain of $8 million related to a non-controlling interest) to reduce the carrying value of our Shorewood business to estimated fair market value. Restructuring and other charges included a pre-tax charge of $16 million ($10 million after taxes) for costs associated with the acquisition of a majority share of Andhra Pradesh Paper Mills Limited in India, a pre-tax charge of $18 million ($13 million after taxes) for costs associated with the restructuring of our xpedx operations, a pre-tax charge of $8 million ($5 million after taxes) for costs associated with the signing of an agreement to acquire Temple-Inland, a pre-tax charge of $6 million ($4 million after taxes) for costs associated with the sale of our Shorewood business and a pre- tax charge of $1 million ($0 million after taxes) for other items.

Special items in the fourth quarter of 2010 included pre-tax charges of $35 million ($22 million after taxes) for restructuring and other charges, a pre-tax gain of $25 million ($15 million after taxes) related to the partial redemption of the Company’s interests in Arizona Chemical, an $18 million pre- tax charge ($11 million after taxes) for an environmental reserve related to the Company’s property in Cass Lake, Minnesota , a charge of $2 million (before and after taxes) for asset impairment costs associated with the Inverurie, Scotland mill which was closed in 2009 and a net $40 million tax benefit related to cellulosic bio-fuel tax credits. Restructuring and other charges included pre-tax charges of $12 million ($7 million after taxes) for closure costs for the Bellevue, Washington and Spartanburg, South Carolina box plant closures, a pre-tax charge of $13 million ($8 million after taxes) for early debt extinguishment costs, a pre-tax charge of $5 million ($3 million after taxes) for severance and benefit costs associated with the Company’s 2008 overhead cost reduction initiative, a pre-tax charge of $4 million ($3 million after taxes) for costs associated with the reorganization of the Company’s Shorewood operations, a pre-tax charge of $3 million ($2 million after taxes) for closure costs for three box plants in Asia and a pre-tax gain of $2 million ($1 million after taxes) for other items.

EARNINGS WEBCAST

The company will hold a webcast to review earnings at 9 a.m. EST / 8 a.m. CST today. All interested parties are invited to listen to the webcast live via the company's Internet site at http://www.internationalpaper.com by clicking on the Investors tab and going to the Presentations page. A replay of the webcast will also be available on the Web site beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541 and ask to be connected to the International Paper Fourth-Quarter Earnings Call. The conference ID number is 40191658. Participants should call in no later than 8:45 a.m. EST/7:45 a.m. CST. An audio-only replay will be available for four weeks following the call. To access the replay, dial +1 (706) 645-9291 or, within the U.S. only, (800) 642- 1687, and when prompted for the conference ID, enter 40191658.