International Paper Reports Q2 Earnings: xpedx Shows $22 Million Profit
Press release from the issuing company
STAMFORD, Conn., July 24 -- International Paper today reported second-quarter 2003 net earnings of $88 million ($0.19 per share), compared with net earnings of $215 million ($0.45 per share) in the second quarter of 2002 and net earnings of $44 million ($0.09 per share) in the first quarter of 2003. Amounts in all periods include the effects of special items.
Before special items, earnings for the second quarter of 2003 were $89 million ($0.19 per share), compared with $169 million ($0.35 per share) in the 2002 second quarter and $68 million ($0.14 per share) in the first quarter of 2003.
In addition to the special items outlined below, second-quarter 2003 earnings benefited from a $9 million reduction in the provision for income taxes ($0.02 per share) due to a reduction in the projected 2003 full year effective tax rate before special items from 31 to 28 percent. The full year effective tax rate projection is lower due to a higher proportion of taxable income in lower tax rate jurisdictions.
Net sales for the second quarter totaled $6.2 billion, compared with $6.3 billion in the second quarter of 2002 and $6.1 billion in the first quarter of 2003.
"Externally, we are disappointed by business conditions, but we are pleased with what we've accomplished through our internal focus. We improved our earnings since the first quarter in a lackluster economy through our strong manufacturing operations, better product mix and administrative cost control measures," said John Dillon, International Paper chairman and chief executive officer. "Energy and weather-related wood costs remained high, volumes were slightly lower than the first quarter and prices declined in uncoated paper, linerboard and boxes. We continue to overcome these external pressures to improve our profitability through manufacturing excellence, creating customer value, and streamlining our cost structure."
Effects of Special Items
Special items in the second quarter included charges of $81 million before taxes ($50 million after taxes), consisting of $43 million for facility shut-down costs, and $38 million for severance costs associated with organizational restructuring programs, early debt extinguishment costs, and legal reserves. Special items also included a $10 million pre-tax adjustment ($6 million after taxes) for previous divestitures and a $9 million pre-tax reserve reversal ($5 million after taxes and minority interest). In addition, a $50 million tax provision reduction was recorded in the quarter reflecting settlements of prior period tax issues. The net after-tax effect of these special items is $0.00 per share.
Special items in the second quarter of 2002 consisted of a pre-tax charge of $79 million ($50 million after taxes) for facility closures, administrative realignment and related severance costs, and a net $28 million gain before taxes and minority interest ($96 million after taxes and minority interest) related to sales and expenses of businesses held for sale.
Special items in the first quarter of 2003 included a net charge of $23 million before taxes and minority interest ($14 million after taxes and minority interest or $0.03 per share) for certain costs related to the shutdown of the Natchez, Miss., dissolving pulp mill, and other charges for organizational realignments and related severance. Also in the quarter, the company adopted Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations", resulting in a $10 million after-tax charge ($0.02 per share) for the cumulative effect of a change in accounting.
A reconciliation of earnings before special items to net earnings (loss), including information regarding the cumulative effect of accounting changes and special items and a statement relating to the use of these non-GAAP measures, is presented in a table in this press release.
Commenting on the third-quarter outlook, Dillon said, "We anticipate a very tough external environment. We expect flat demand, but raw material and energy costs should improve versus the second quarter. Internally, operating performance will continue to improve, and we will maintain our intense customer focus."
While operating profits of $448 million for the second quarter of 2003 were above first quarter totals of $410 million, operating profits were down compared with the second quarter of 2002 amid higher energy and fiber costs.
Second-quarter 2003 segment operating profits and business trends compared with the first quarter were as follows:
Second-quarter operating profits for Printing Papers were $143 million compared with first-quarter operating profits of $122 million as intensive cost reduction efforts offset weaker volumes and flat pricing across most grades.
Industrial and Consumer Packaging operating profits were $121 million in the second quarter, up from $89 million in the first quarter as price declines in linerboard and boxes were offset by cost reduction efforts as well as by somewhat better price realization and volume in bleached board and higher containerboard and box volumes.
The company's distribution business, xpedx, reported operating profits of $22 million for the second quarter compared with operating profits in the first quarter of $15 million. The increase was largely due to operational cost improvements.
Second-quarter Forest Products operating profits of $143 million were down from $161 million in the first quarter. The effect of higher lumber and plywood volumes did not offset the impact of weather-related lower harvest volumes in the South and adverse Canadian foreign exchange rates that impacted earnings from Weldwood.
Operating profits at Carter Holt Harvey, International Paper's 50.5 percent owned subsidiary in New Zealand, were $9 million in the second quarter, compared with $16 million in the first quarter, reflecting the impact of a labor strike at its Kinleith mill.
The company will hold a webcast to discuss earnings and current market conditions at 10 a.m. (EDT) today. All interested parties are invited to listen to the webcast live via the company's Internet site at http://www.internationalpaper.com by clicking on the Investor Information button. Persons who wish to listen to the live earnings webcast must pre-register at the site prior to the webcast. A replay of the webcast will also be available on the Web site beginning at 1 p.m. (EDT) this afternoon.
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