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International Paper Reports Second Quarter 2016 Earnings

Thursday, July 28, 2016

Press release from the issuing company

Strong Overall Results Driven by Solid Execution Across the Businesses

MEMPHIS, Tenn. - International Paper (NYSE: IP) today reported second quarter 2016 net earnings attributable to International Paper of $40 million ($0.10 per share) compared with net earnings of $334 million ($0.81 per share) in the first quarter of 2016 and net earnings of $227 million ($0.54 per share) in the second quarter of 2015. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations. 

Diluted Earnings Per Share Attributable to International Paper Shareholders

             
   

Second
Quarter
2016

 

First
Quarter
2016

 

Second
Quarter
2015

Net Earnings

 

$

0.10

   

$

0.81

   

$

0.54

 

Less – Discontinued Operations (Gain) Loss

 

   

0.01

   

 

Net Earnings (Loss) from Continuing Operations

 

0.10

   

0.82

   

0.54

 

Add Back – Net Special Items Expense (Income)

 

0.10

   

(0.09)

   

0.36

 

Add Back – Non-Operating Pension Expense

 

0.72

   

0.07

   

0.07

 

Operating Earnings*

 

$

0.92

   

$

0.80

   

$

0.97

 

 

*    Operating Earnings is defined as net earnings from continuing operations attributable to International Paper Company (GAAP) excluding special items and non-operating pension expense.  Non-operating pension expense in the second quarter of 2016 included a pre-tax charge of $439 million ($270 million after taxes or $0.65 per share) for a settlement accounting charge associated with payments under the previously announced term-vested lump sum buyout.

Operating Earnings in the second quarter of 2016 totaled $379 million ($0.92 per share) compared with $330 million ($0.80 per share) in the first quarter of 2016 and $409 million ($0.97 per share) in the second quarter of 2015.

Quarterly net sales were $5.3 billion in the second quarter of 2016 compared with $5.1 billion in the first quarter of 2016 and  $5.7 billion in the second quarter of 2015.   The year-over-year revenue decline was primarily due to the sale of the IP-Sun joint venture and the sale of the Carolina® Coated Bristols business.  

Business segment operating profits in the second quarter of 2016 were $628 million, compared with $497 million in the first quarter of 2016 and $676 million in the second quarter of 2015.

Cash from operations was $605 million in the second quarter of 2016.  Free cash flow was $527 million for the quarter.

"International Paper continues to perform very well and we are taking deliberate and meaningful strategic steps to make the company stronger.  Our second quarter results were driven by strong execution across our operations around the globe," said Mark Sutton, Chairman and Chief Executive Officer.  "As we move into the second half of the year, we remain focused on running our businesses well and closing the Weyerhaeuser acquisition, which will strengthen our position in the growing global fluff pulp markets and create additional value for our 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. Second quarter 2016 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the second quarter of 2016 were $487 million ($459 million including special items) compared with $433 million ($396 million including special items) in the first quarter of 2016.  In North America, earnings increased $58 million driven by improved operations and higher box shipments due to seasonally stronger market demand and one more shipping day. This was partly offset by modestly lower average sales prices for North America boxes and export containerboard. 

Printing Papers operating profits were $101 million ($96 million including special items) in the second quarter of 2016 versus $85 million in the first quarter of 2016. Earnings in North America were mixed, as the papers business declined primarily due to increased planned maintenance outages.  However, pulp improved due to lower conversion and outage costs associated with the Riegelwoodmill conversion, partially offset by a less favorable product mix and lower pulp prices.  In Brazil, earnings were essentially flat quarter over quarter, as higher planned maintenance outage costs offset higher export sales volumes and improved domestic prices. Earnings in Europe were impacted by higher planned maintenance outage costs.

Consumer Packaging operating profits were $73 million in the second quarter of 2016 compared with $25 million ($16 million including special items) in the first quarter of 2016.  The earnings increase was primarily due to no planned maintenance outages in North America, good operational performance, as well as lower overall manufacturing costs.  Foodservice business earnings increased $7 million, primarily driven by seasonally higher sales volume and cost improvements. 

International Paper recorded Ilim joint venture equity earnings of $46 million in the second quarter of 2016 compared with $62 million in the first quarter of 2016.  Operational EBITDA for Ilim was lower than in the first quarter due to higher planned maintenance outages and input costs, partially offset by higher sales volumes.  Primarily due to Ilim's U.S. dollar denominated net debt, the Company recognized a non-cash after-tax foreign exchange gain of $6 million in the second quarter of 2016 ($0.01 per share), compared with an after-tax gain of $11 million in the first quarter of 2016 ($0.03 per share). 

CORPORATE EXPENSES

Net corporate expenses, excluding non-operating pension expense, were $26 million for the second quarter of 2016, compared with $21 million in the first quarter of 2016. 

EFFECTIVE TAX RATE

The effective tax rate before special items and non-operating pension expense for the second quarter of 2016 was 34%, compared with an effective tax rate of 33% in the first quarter of 2016.  The higher rate in the second quarter is due to changes to our estimates of non-cash global tax reserves and valuation allowances.   

EFFECTS OF SPECIAL ITEMS

Special items in the second quarter of 2016 included a pre-tax charge of $28 million ($20 million after taxes) for costs associated with the sale of our Asia corrugated packaging business, a pre-tax charge of $5 million ($3 million after taxes) for costs associated with the announced agreement to purchase the Weyerhaeuser pulp business, a tax expense of $23 million associated with 2016 cash pension contributions and a tax benefit of $6 million related to an international legal entity restructuring.

Special items in the first quarter of 2016 included a loss of $1 million (before and 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 mill 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 corrugated packaging business and costs associated with the sale of the business, 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 second quarter of 2015 included a net pre-tax loss of $194 million ($125 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $207 million ($133 million after taxes) for premiums paid on a cash tender offer on outstanding debt, a net pre-tax gain of $14 million ($9 million after taxes) related to the sale of the Carolina® Coated Bristols brand and costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production, and a charge of $1 million (before and after taxes) for other items. Special items also included a pre-tax gain of $4 million ($2 million after taxes) related to state tax credits, a tax expense of $23 million for the tax impact of the 2015 cash pension contribution of $750 million and a tax expense of $5 million for other items.

DISCONTINUED OPERATIONS

Discontinued operations in the first quarter of 2016 included 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.

 

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