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International Paper Reports Third Quarter 2017 Earnings

Thursday, October 26, 2017

Press release from the issuing company

 

MEMPHIS, Tenn. - International Paper (NYSE: IP) today reported third quarter 2017 net earnings attributable to International Paper of $395 million or $0.95 per share compared with net earnings of $80 million or $0.19 per share for the second quarter of 2017 and net earnings of $312 million or $0.75 per share in the third quarter of 2016. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations. 

Diluted Net EPS Attributable to International Paper Shareholders and Adjusted Operating EPS

             
   

Third

Quarter

2017

 

Second

Quarter

2017

 

Third

Quarter

2016

Net Earnings

 

$

0.95

   

$

0.19

   

$

0.75

 

Add Back – Discontinued Operations (Gain) Loss

 

   

   

 

Net Earnings (Loss) from Continuing Operations

 

0.95

   

0.19

   

0.75

 

Add Back – Non-Operating Pension Expense

 

0.05

   

0.05

   

0.06

 

Add Back – Net Special Items Expense (Income)

 

0.08

   

0.41

   

0.10

 

Adjusted Operating Earnings*

 

$

1.08

   

$

0.65

   

$

0.91

 

 

*    Adjusted operating earnings (non-GAAP) is defined as net earnings from continuing operations attributable to International Paper Company (GAAP) excluding special items and non-operating pension expense. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results.

Adjusted operating earnings in the third quarter of 2017 were $449 million or $1.08 per share compared with $270 million or $0.65 per share in the second quarter of 2017 and $380 million or $0.91 per share in the third quarter of 2016.

Quarterly net sales were $5.9 billion in the third quarter of 2017 compared with $5.8 billion in the second quarter of 2017 and  $5.3 billion in the third quarter of 2016. The year-over-year revenue increase was primarily due to the pulp business that was acquired in late 2016. 

Business segment operating profits in the third quarter of 2017 were $707 million, compared with $129 million in the second quarter of 2017 and $613 million in the third quarter of 2016.  The second quarter of 2017 includes the impact of the Kleen Products settlement.

Cash provided by (used for) operations was $(709) million in the third quarter of 2017 and $341 million in the third quarter of 2016.  Free cash flow (non-GAAP) was $624 million for the third quarter of 2017 and $575 million in the third quarter of 2016.  The third quarter 2017 cash used for operations includes a $1.25 billion cash contribution to the U.S. qualified pension plan and the $354 million Kleen Products settlement.

"We had a solid third quarter driven by price realization across key businesses and significantly lower maintenance outage costs, even as our operations were impacted by two hurricanes and record high recycled fiber prices," said Mark Sutton, Chairman and Chief Executive Officer. "Looking forward, continued strong demand across our Industrial Packaging and Global Cellulose Fibers businesses, combined with prior price increases, should keep International Paper on track to deliver our expected targeted earnings growth in 2017."

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 (non-GAAP).  The combination of IP's legacy pulp business with the acquired pulp business in 2016 is now called Global Cellulose Fibers and reported as a separate business segment (previously reported in Printing Papers).  Prior periods have been restated to reflect this change.  Third quarter 2017 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the third quarter of 2017 were $469 million ($484 million excluding special items) compared with $50 million ($407 million excluding special items) in the second quarter of 2017.  In North America, overall market conditions remain healthy, resulting in higher sales price realizations for containerboard and boxes. Planned maintenance outage costs were lower, partially offset by higher input costs primarily for recycled fiber.  The negative impact of the hurricanes in the third quarter was about $20 million. Sales volume in EMEA was seasonally lower, while Brazil results  improved due to higher sales volume and prices.

Global Cellulose Fibers operating profits in the third quarter of 2017 were $49 million ($57 million excluding special items) compared with $7 million ($12 million excluding special items) in the second quarter of 2017.  Improvement in earnings was driven by improved sales prices, lower maintenance outage costs and strong synergy realization.  The negative impact of the hurricanes in the third quarter was about $5 million.

Printing Papers operating profits in the third quarter of 2017 were $135 million versus $86 million ($88 million excluding special items) in the second quarter of 2017.  In North America, seasonally higher sales volumes and lower maintenance outage costs were slightly offset by sales price erosion.  Higher export sales prices, higher domestic sales volumes and lower maintenance outage costs in Brazil were partially offset by lower export sales volumes and unfavorable foreign exchange. Earnings in Europe and Russia were higher primarily due to lower maintenance outage costs.

Consumer Packaging operating profits in the third quarter of 2017 were $54 million compared with a loss of $14 million (a loss of $5 millionexcluding special items) in the second quarter of 2017.   Earnings increased in North America due to increased sales prices, higher sales volumes, improved operations and lower maintenance outage costs. Earnings in Europe reflect higher sales volumes and lower maintenance outage expenses.

International Paper recorded Ilim joint venture equity earnings of $48 million in the third quarter of 2017 compared with $21 million in the second quarter of 2017.   Operationally, sales prices improved, primarily for export sales, but sales volumes were lower due to production constraints resulting from planned maintenance outages. The Company recognized a non-cash after-tax foreign exchange gain of $7 million in the third quarter of 2017 ($0.02 per share), compared with a loss of $18 million in the second quarter of 2017 ($0.04 per share), primarily due to Ilim's U.S. dollar denominated net debt. 

CORPORATE EXPENSES
Net corporate expenses, excluding non-operating pension expense, were $19 million for the third quarter of 2017, compared with $4 million in the second quarter of 2017. The increase in the quarter was due to other corporate reserves and a decline in the fair value of an energy hedging contract.

EFFECTIVE TAX RATE 
The reported effective tax rate for the third quarter of 2017 was 31% compared to a 2017 second quarter effective tax rate of 298%, reflecting a tax benefit for the second quarter of $89 million that includes a net $47 million tax benefit primarily related to income tax refund claims.  Excluding special items and non-operating pension expense, the effective tax rate for the third quarter of 2017 was 28%, compared with an effective tax rate of 30% in the second quarter of 2017.  The lower effective tax rate for the third quarter is primarily due to income tax credits related to both biomass investments and foreign taxes.

EFFECTS OF SPECIAL ITEMS
Special items in the third quarter of 2017 included pre-tax charges of $6 million ($4 million after taxes) for integration costs associated with the 2016 acquisition of the Weyerhaeuser pulp business, a pre-tax charge of $10 million ($7 million after taxes) for accelerated amortization of an intangible asset in Brazil packaging and pre-tax charges of $7 million ($4 million after taxes) related to abandoned property at our mills. Also included in special items is a net tax expense of $19 million due to international legal entity restructuring.

Special items in the second quarter of 2017 included a pre-tax gain of $16 million ($11 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax gain of $14 million ($9 million after taxes) related to the sale of our investment in ArborGen and a gain of $2 million (before and after taxes) for other items. Special items also included a pre-tax charge of $354 million ($219 million after taxes) related to an agreement to settle the Kleen Products antitrust class action lawsuit, a pre-tax loss of $9 million ($4 millionafter taxes) for the impairment of the assets of our Foodservice business in Asia, a pre-tax loss of $5 million ($3 million after taxes) for integration costs associated with the 2016 acquisition of the Weyerhaeuser pulp business, and a net charge of $1 million (before and after taxes) for other items.  Also included in special items is a net tax benefit of $47 million primarily due to income tax refund claims.

Special items in the third quarter of 2016 included a pre-tax charge of $46 million ($29 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $29 million ($18 million after taxes) for debt extinguishment costs and a pre-tax charge of $17 million ($11 million after taxes) to write-off costs associated with the India Packaging business evaluation. Special items also included a pre-tax charge of $8 million ($5 million after taxes) for the write-off of certain regulatory pre-engineering costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the agreement to purchase the Weyerhaeuser pulp business and pre-tax charges of $5 million ($4 million after taxes) for costs associated with the sale of our Asia corrugated packaging business.

 

 

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