By Trevor Shackelford August 2, 2005 -- International Paper (NYSE: IP) today reported its second quarter results today. Net sales were $6.5 billion, up 5% from $6.2 billion last year. Income for the quarter dropped to $77 million, or $0.16 per share, from $193 million, or $0.40 per share last year. The company cited weaker than anticipated demand and discontinued operations for the 60% decline in profits. Last week the company announced the sales of billions of dollars of assets and signaled large cuts to the workforce were likely. The company hopes the restructuring plan will increase profits by as much as $400 million annually. Topics of this Summary Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights Restructuring plan announced – $8 billion to $10 billion in assets will be up for sale Included in the restructuring will be spinning off or selling 7 businesses units: Carter Holt Harvey, Coated Papers, Beverage Packaging, Kraft Papers, Arizona Chemical, selected acreage in U.S. Forestlands, and Wood Products Uncoated printing paper machines in Maine, Florida, and Louisiana shut down indefinitely due to lack of orders – Total capacity closure through the Q2 of 2005 increased to 430,000 tons annually Segment Performance Printing Papers Second quarter operating profits were $149 million, down from $183 million in the Q1 2005. The company cited lower volumes and increased downtime as well as a $17 million charge related to the shutdown of 3 US based paper machines for the reduction in earnings. Industrial Packaging Second quarter operating profits were $85 million, down from $105 million last quarter. Weak pricing was a factor, as well as lower sales volumes and high input costs according to the company. Consumer Packaging Operating profits for the Q2 were up to $41 million, compared to $23 million from last quarter. Converting volumes were up, prices were up, and recent restructuring activities all contributed to the growth. xpedx International Paper’s distribution business, xpedx, reported operating profits of $18 million, flat from last quarter. Commercial print volumes and pricing were both down, but were offset by gains in productivity and growth in packaging. Forest Products The segment saw operating profits drop approximately 8% to $191 million from the Q1 earnings of $207 million. Wood products saw strong growth but were offset by decreasing volumes in plywood and a $14 million dollar special charge to relocate forest products headquarters from Georgia to Tennessee. Carter Holt Harvey The company’s New Zealand based 50.5% owned subsidiary, Carter Holt Harvey, saw operating profits increase to $10 million in the second quarter, compared to $5 million last quarter. The company is currently exploring strategic operations for its share in the business. Guidance Q3 operating income should be in line with this quarter. Pricing pressures in uncoated papers and industrial packaging offset increases in coated paper. The company is expecting to gain $8 billion to $10 billion in after-tax proceeds from the sales of 7 business segments (listed above). International Paper would use approximately half of the proceeds for debt repayment, with the remainder being used to return value to shareowners and selective reinvestments. The company provided no specific earnings guidance, but analysts expect earnings of $0.30 per share on approximately $6.8 billion in revenue according to Thomson/First Call. Raine Radar It looks as though demand for paper has declined compared to the available supply given the magnitude of changes announced earlier last week. The company has taken substantial amounts of down time. International Paper market share also appears to be down and the ability to continue to increase prices looks impaired. The company has seen dramatic decreases in profits over the last year and embarking on a $10 billion dollar restructuring is no easy task. It’s doubtful that the company will be able to return to levels seen last year anytime soon. Q & A International Paper was disappointed at the lack of seasonal pick up in demand across products in the U.S. Supply chain spending should be only slightly higher in 2006 from 2005. International Paper is interested in keeping Sherwood Packaging and continuing to improve the profitability of the business. The $400 million annual improvement from restructuring is an estimate of the average that will be seen over the next three years, although the actual savings may be “lumpy.” Prices are flat in Western Europe, and at relatively low levels. Demand is much better in Eastern Europe, with production in Poland and Russia. The effect of the high steel and currency prices in Brazil is being factored into discussions over the proposed facility. The search for a CFO is being conducted both internally and externally, and should be wrapped up reasonably soon. The company is open to candidates from outside of the industry. The seven business units being spun off or sold should be divested within the next 12 months. Uncoated free sheet business was down 11%, while the industry was only down 4%. Despite this, executives believe they have the support of their customer base.