Memphis, Tenn. – International Paper today reported second quarter 2020 financial results.
SECOND QUARTER 2020 HIGHLIGHTS
- Second quarter net earnings (loss) attributable to International Paper of $266 million ($0.67 per diluted share), compared with $(141) million ($(0.36) per diluted share) in the first quarter of 2020 and $292 million ($0.73 per diluted share) in the second quarter of 2019. First quarter 2020 net earnings included an after-tax charge of $337 million ($0.85 per diluted share) for the impairment of the net assets and write-off of foreign currency translation adjustment following the announcement of the sale of our Brazil Packaging business.
- Second quarter adjusted operating earnings* (non-GAAP) of $305 million ($0.77 per diluted share) compared with $226 million ($0.57 per diluted share) in the first quarter of 2020 and $460 million ($1.15 per diluted share) in the second quarter of 2019
- Second quarter cash provided by operations of $890 million and year-to-date of $1.5 billion compared with $1.8 billion year-to-date in the same period of 2019
- Liquidity position of $3.6 billion at the end of the second quarter compared with $3.5 billion at the end of the first quarter, which reflects cash and unused committed facilities
"International Paper delivered solid earnings and generated strong cash from operations while navigating the COVID-19 pandemic and its significant economic impact," said Mark Sutton, Chairman and Chief Executive Officer. "Our performance demonstrates the strength and resilience of our employees, our diverse customer base and our world-class manufacturing and supply chain capabilities. Looking ahead, we will continue to focus on cash generation to reinforce the company's financial strength as we manage through ongoing uncertainty."
Sutton added, "The health and safety of our employees remain our most important responsibility. I am proud of their ongoing commitment to take care of each other and our customers."
Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses and is calculated as set forth in footnote (h) below under "Sales and Earnings by Business Segment."
Industrial Packaging operating profits in the second quarter of 2020 were $449 million compared with $470 million in the first quarter of 2020. In North America, earnings were stable, reflecting seasonally lower export containerboard sales volumes and lower sales volumes for boxes as demand slowed from elevated levels in the first quarter, as well as the impact of one less shipping day. Input costs were higher driven by recycled fiber costs. The volume and input cost earnings impact was mostly offset by strong operations and cost management, lower maintenance outage expenses and lower wood, energy and freight costs. Second quarter 2020 earnings benefited from insurance recoveries related to the Rome fire and Bogalusa recovery boiler event. In Europe, earnings decreased driven by lower sales volumes due to the impacts of the COVID-19 pandemic in all regions and seasonality in Morocco, partially offset by improved margins reflecting a favorable product mix and favorable foreign currency impacts, primarily in Morocco.
Global Cellulose Fibers operating profits (losses) in the second quarter of 2020 were $(10) million compared with $(54) million in the first quarter of 2020. Earnings improved driven by higher average sales prices, higher sales volumes reflecting continued strong consumer demand driven by the COVID-19 pandemic, strong mill operations and cost management and lower planned maintenance outage expenses, partially offset by the non-repeat of a favorable inventory valuation adjustment in the first quarter of 2020.
Printing Papers operating profits (losses) in the second quarter of 2020 were $(11) million compared with $96 million in the first quarter of 2020. In North America, earnings decreased significantly driven by lower sales volumes and increased economic downtime reflecting the unprecedented demand impact of the COVID-19 pandemic. Strong mill operations and cost management drove lower operating costs. Maintenance outage expenses were also lower. In Brazil, earnings decreased significantly due to lower sales volumes and economic downtime driven by the demand impacts of the COVID-19 pandemic and unfavorable foreign currency impacts, slightly offset by lower operating costs. In Europe and Russia, earnings were also significantly impacted by the COVID-19 pandemic, resulting in lower sales volumes and economic downtime. Maintenance outage expenses were higher, partially offset by lower operating costs in both regions.
EQUITY METHOD INVESTMENTS
Ilim joint venture equity earnings (loss) were $63 million in the second quarter of 2020 compared with $(35) million in the first quarter of 2020. Operationally, earnings increased driven by higher sales volumes, higher sales prices for hardwood and softwood pulp to China and other export regions, partially offset by higher planned maintenance outage expenses. The Company recognized a non-cash after-tax foreign exchange gain of $34 million in the second quarter of 2020 ($0.09 per diluted share), compared with a loss of $51 million in the first quarter of 2020 ($0.13 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.
Graphic Packaging equity earnings on our 18.9% ownership position were $11 million in the second quarter of 2020, compared with $7 million in the first quarter of 2020.
Corporate expenses (income) were $(3) million for the second quarter of 2020, compared with $32 million in the first quarter of 2020.
EFFECTIVE TAX RATE
The reported effective tax rate for the second quarter of 2020 was 26%, compared to a 2020 first quarter reported effective tax rate of (588)%. The reported effective tax rate in the first quarter reflects the impact of a non-deductible impairment of our Brazil packaging business, included in the below net special items table.
Excluding net special items and non-operating pension expense, the operational effective tax rate for the second quarter of 2020 was 26%, compared with 29% for the first quarter of 2020. The higher operational effective tax rate in the first quarter is primarily related to the final measurement of the tax deduction for equity-classified awards, treated as a discrete period item.
EFFECTS OF NET SPECIAL ITEMS
Net special items in the second quarter of 2020 amount to a net after-tax charge of $50 million ($0.13 per diluted share) compared with $372 million ($0.94 per diluted share) in the first quarter of 2020 and $162 million ($0.41 per diluted share) in the second quarter of 2019.
The company will host a webcast today to discuss earnings and current market conditions, beginning at 10 a.m. ET (9 a.m. CT). All interested parties are invited to listen to the webcast via the company's website at internationalpaper.com by clicking on the Performance tab and going to the Presentations and Events/Webcasts page. A replay of the webcast will also be on the website beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541, and ask to be connected to the International Paper second quarter earnings call. The conference ID number is 8077936. Participants should call in no later than 9:45 a.m. ET (8:45 a.m. CT). An audio-only replay will be available for ninety days following the call. To access the replay, dial +1 (404) 537-3406 or, within the U.S. only, (855) 859-2056 or (800) 585-8367, and when prompted for the conference ID, enter 8077936.