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International Paper Reports First Quarter 2016 Earnings

Wednesday, April 27, 2016

Press release from the issuing company

MEMPHIS, Tenn. - International Paper (NYSE: IP) today reported first quarter 2016 net earnings attributable to International Paper of $334 million ($0.81 per share) compared with net earnings of $178 million ($0.43 per share) in the fourth quarter of 2015 and net earnings of $313 million ($0.74 per share) in the first quarter of 2015. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.

Operating Earnings in the first quarter of 2016 totaled $330 million ($0.80 per share) compared with $361 million ($0.87 per share) in the fourth quarter of 2015 and $357 million ($0.84 per share) in the first quarter of 2015.

Quarterly net sales were $5.1 billion in the first quarter of 2016 compared with $5.4 billion in the fourth quarter of 2015 and  $5.5 billion in the first quarter of 2015.  Year-over-year revenues declined primarily due to the sale of the IP-Sun joint venture in the early fourth quarter of 2015. 

Business segment operating profits in the first quarter of 2016 were $497 million, compared with $483 million in the fourth quarter of 2015 and $623 million in the first quarter of 2015.

Free cash flow was $311 million in the first quarter of 2016. Cash from operations was $620 million.

"International Paper delivered a solid first quarter driven by continued strong results from North American Industrial Packaging and improving performance in our papers businesses around the globe,"  said Mark Sutton, Chairman and Chief Executive Officer.  "Demand outlook is positive and we remain focused on productivity improvements, allocating capital to high return investments and generating free cash flow.  I am confident in our ability to continue to create value through the generation of high returns on capital while returning cash to shareholders."

SEGMENT INFORMATION

The performance of the Company's business segments is measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items. First quarter 2016 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the first quarter of 2016 were $433 million ($396 million including special items) compared with $441 million ($304 million including special items) in the fourth quarter of 2015.  In North America, box shipments were seasonally lower, while export shipments of containerboard recovered from a weak fourth quarter.  Modestly lower average sales prices for boxes and domestic containerboard sales were more than offset by favorable input costs for recycled fiber and freight, as well as favorable operating results. Earnings were also impacted by higher planned maintenance outage expenses. 

Printing Papers operating profits were $85 million in the first quarter of 2016 versus $144 million in the fourth quarter of 2015.  Earnings in North America were mixed, as the Papers business benefited from lower maintenance outage costs and improved operations, but Pulp earnings decreased primarily due to higher outage expenses and other costs associated with the Riegelwood mill conversion as well as lower pricing. In Brazil, seasonally weaker demand was partially offset by increased sales prices in the domestic market.

Consumer Packaging operating profits were $25 million ($16 million including special items) in the first quarter of 2016 compared with $38 million ($35 million including special items) in the fourth quarter of 2015.  In North America,  higher planned maintenance outage costs and lower volume due to the sale of the Coated Bristols brand had a negative impact on earnings. Foodservice business earnings decreased due to lower volume (including seasonal impacts) and a less profitable mix of products sold.   

International Paper recorded Ilim joint venture equity earnings of $62 million in the first quarter of 2016 compared with $34 million in the fourth quarter of 2015. Primarily due to Ilim's U.S. dollar denominated net debt, the Company recognized a non-cash after-tax foreign exchange gain of $11 million in the first quarter of 2016 ($0.03 per share), compared with an after-tax loss of $19 million in the fourth quarter of 2015 ($0.05 per share). Operational EBITDA for Ilim was lower than in the fourth quarter due to decreased sales volumes and lower export pulp prices, partially offset by improved operating costs.

CORPORATE EXPENSES

Net corporate expenses, excluding non-operating pension expense, for the first quarter of 2016 were $21 million compared with $9 million in the fourth quarter of 2015. 

EFFECTIVE TAX RATE

The effective tax rate before special items and non-operating pension expense for the first quarter of 2016 was 33%, compared with an effective tax rate of 32% in the fourth quarter of 2015.  The principal reason for the lower rate in the fourth quarter of 2015 is the enactment of Federal income tax legislation, which retroactively restored several expired business tax provisions.

EFFECTS OF SPECIAL ITEMS

Special items in the first quarter of 2016 included a pre-tax loss of $1 million ($1 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $9 million ($6 million after taxes) related to costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production and a pre-tax gain of $8 million ($5 millionafter taxes) for the sale of our remaining  investment in Arizona Chemical. Special items also included a pre-tax charge of $37 million ($34 million after taxes) for an impairment of the assets of our Asia Box business and costs associated with the announced definitive sales agreement, a tax benefit of $57 million associated with the legal restructuring of our Brazil Packaging business and a tax benefit of $14 million related to the closure of a U.S. federal income tax audit.

Special items in the fourth quarter of 2015 included a pre-tax loss of $33 million ($20 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $15 million ($9 million after taxes) related to costs associated with the conversion of the Riegelwood, North Carolina mill to 100% pulp production, net pre-tax charges of $15 million($9 million after taxes)  to adjust a legal reserve and pre-tax charges of $3 million ($2 million after taxes) for other items. Special items also included a gain of $12 million (before and after taxes) to reflect the sale of the IP-Sun JV, a charge of $137 million (before and after taxes) for the impairment of the goodwill and other intangible assets of the Company's Brazil Packaging business and a tax expense of $2 million for other items.

There were no special items in the first quarter of 2015.

DISCONTINUED OPERATIONS

Discontinued operations in the first quarter of 2016 includes a pre-tax charge of $8 million ($5 million after taxes) for a legal settlement related to the xpedx business, which was spun-off in the third quarter of 2014.

Full Release

 

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