International Paper (NYSE: IP), today announced first quarter earnings of $73 million over $44 million for the same period last year. Earnings per share were $0.15 for the first quarter of 2004 up over $0.09 in earnings per share for the first quarter of 2003. Earnings from continuing operations and before special items were $79 million or $0.16 per share. First quarter sales were $6.4 billion, up from $6.0 billion in the first quarter of 2003.

International Paper (IP) reported a tough first quarter as it expected. Although a difficult quarter, EPS of $0.16 is the highest first quarter earnings in four years. Paper and package prices were below those of first and fourth quarter of 2003. IP prices bottomed out during the quarter while wood fiber and raw material prices remained high. Demand increased in March with higher demand across the business. IP enacted several price increases as the quarter ended, but increases did not have an impact on first quarter results but will flow through in the second the third quarters of 2004.

Topics of this summary:

  • Segment Performance
  • Divestiture/Acquisition
  • Outlook
  • Q & A

Segment Performance

Printing Papers - Operating profits in the printing papers segments were $83 million during the first quarter as compared to operating profits during the fourth quarter of 2003 of $65 million. Overall this segment experienced better volumes and lower prices that were offset by lower volumes on uncoated free sheet paper. Results in Europe were especially positive with a 17% increase in volumes over the fourth quarter of 2003.

Packaging - Operating profits were $79 million for the first quarter as compared to $11 million in the fourth quarter of 2003. Volumes increased in container board, bleached board and U.S. container products but lower than average prices offset volume gains.

Forest Products - Operating profits for the first quarter were $232 million for the first quarter as compared to $236 million for the fourth quarter of 2003.


International Paper President and CEO John Faraci reiterated the company's priorities of achieving non-price improvement targets, achieving earnings performance and paying down debt. Faraci also outlined criteria for IP acquisitions which included making choices that help the business get stronger, that the acquisition be earnings accretive, earn cost to capital and provide competitive advantage. Under this spotlight, Faraci announced the divestiture of the Carter Holt Harvey Tissue business to SCA. IP will sell the business for $640 million. Cash proceeds will be slightly over $100 million and IP expects to realize a $150 million pre-tax gain.

IP announced plans to purchase Box USA, a decision that supports the company's strategy to strengthen is core business in the U.S. Box USA is said to improve IP's ROI in the industrial packaging business, provide a double digit return and will improve IP's ability to serve customers in an expanded geographic area. The deal should close in August 2004. Faraci stated the Box USA acquisition is the first in four years and as such is it does not mark the beginning of an acquisition trend.


Today's call did not include specific earnings estimates. CEO Faraci indicated optimism about future quarters as seen by growing customer demand and price increases that IP should realize in the second and third quarters.

Q & A

  1. IP has made cost reductions through operating efficiencies, better management of its transportation system and a higher level of productivity. The company has also experienced higher margin business wins, which has improved its business mix.
  2. Backlogs are in the 2-3 week category and IP is managing backlogs carefully so as not to compromise service to customers. The coated paper operation continues to be a struggle although there has been a pick-up in commercial printing.
  3. IP priorities remain the same as reported in the past. IP is not focused in a geographic domestic or international area, but rather is focusing on improving its business around the world. IP is not following a specific improvement sequence.
  4. Coated paper is still proving a "drag" in North America mainly due to the cost structure in the coated paper business. Foreign exchange rates will positively impact coated paper operations overseas.
  5. A number of questions focused on the acquisition of Box USA. CEO Faraci stated IP has not started its due diligence and was unwilling to discuss potential synergies or purchase price. On a general basis, Faraci did disclose general integration synergies such as box plant earnings, cost sharing and overhead opportunities and a benefit for IP's liner board system. The goal for the integration rate is for a level more than 60.
  6. Faraci was careful to point out analysts were reading too much into the acquisition as a change in IP strategy or direction. Many other potential acquisitions have been on IP's radar, however, they have not met the company's criteria for full acquisition. Return rate was cited as one criterion for acquisition.
  7. Timberland sales were $20 million lower the first quarter over fourth quarter of 2003.
  8. Volumes in Europe were off compared to the same quarter last year. Cost structures have had an impact on European performance.
  9. IP downtime during the quarter was only for maintenance and equaled 150K tons.
  10. IP is not capacity constrained and has not run at full capacity since the integration of Champion. Running below capacity allows IP to better respond to customer demands.
  11. Capital expenditures were lower in the quarter, however, 2004 cap ex is slated at $140 million per quarter.
  12. SAP rollout will occur with the first mill in August 2004.