STAMFORD, Conn., April 22 -- International Paper today reported first-quarter 2005 net earnings of $77 million ($0.16 per share) compared with $73 million ($0.15 per share) in the 2004 first quarter and $169 million ($0.35 per share) in the fourth quarter of 2004. Amounts in all periods include special items and earnings from discontinued operations. Earnings from continuing operations and before special items in the first quarter of 2005 were $164 million ($0.34 per share), compared with $60 million ($0.12 per share) in the first quarter of 2004 and $209 million ($0.42 per share) in the fourth quarter of 2004. First-quarter 2005 net sales rose to $6.6 billion from $6.1 billion in the first quarter of 2004. Sales in the fourth quarter of 2004 were $6.6 billion. Operating profits of $551 million for the 2005 first quarter were lower compared with fourth-quarter 2004 operating profits of $583 million, as the benefit of higher average price realizations in Printing Papers and Wood Products was offset by higher input costs and lower volumes. "Business conditions in North America were seasonally slow in January and February and started to improve in mid-March. Volumes in Europe and Brazil were also down versus the fourth quarter. Despite this, we realized the highest first-quarter sales revenues in four years, due to better pricing across our businesses in North America," said John Faraci, International Paper chairman and chief executive officer. "During the quarter, we took downtime at some of our mills to balance our production with customer demand, and our mills performed exceptionally well around the world. Operating margins continue to be negatively impacted by higher raw material costs, primarily for wood, energy and chemicals." Commenting on the second quarter of 2005, Faraci said, "We expect the second quarter to be somewhat seasonally stronger than the first quarter, with better volume in Pulp and Industrial Packaging and higher price realizations in Brazil and the North American paper and packaging businesses. However, our raw material costs remain at high levels and continue to impact our profit margins. While the rate of increase in these raw material costs appears to be abating, we expect no significant decline in the near term. Our focus on internal cost and mix improvements and strong operational performance will remain key to our success in this high-cost environment." SEGMENT INFORMATION First-quarter 2005 segment operating profits and business trends compared with the fourth quarter of 2004 are as follows: First-quarter operating profits for Printing Papers were $183 million compared with fourth-quarter operating profits of $196 million as higher average price realizations for pulp and coated paper were offset by higher input costs and lower volumes across most of the business, with approximately 40,000 tons of uncoated free sheet downtime taken in the quarter to balance production with customer demand. Industrial Packaging operating profits for the first quarter were $105 million compared with fourth-quarter operating profits of $131 million. During the quarter, the business took nearly 45,000 tons of containerboard downtime to match production with customer demand, and it experienced higher input costs and lower European box earnings. Consumer Packaging operating profits were $23 million in the first quarter, compared with $39 million in the fourth quarter, as higher input costs and seasonally weaker volume in Shorewood Packaging offset the positive effects of better operational performance and higher average Bleached Board price realization. The company's distribution business, xpedx, reported operating profits of $18 million for the first quarter compared with operating profits in the fourth quarter of $22 million, due to seasonally lower sales in January and February. First-quarter Forest Products operating profits rose to $207 million from fourth-quarter earnings of $176 million as a result of stronger sales volumes and average price realizations in wood products as well as improved operational performance, which was partially offset by lower harvest volumes. Operating profits at Carter Holt Harvey, International Paper's 50.5 percent owned subsidiary in New Zealand, were $5 million in the first quarter, compared with fourth-quarter 2004 operating profits of $12 million as a result of seasonally weaker demand in the wood products division compounded by lower Australian housing starts. Net corporate expenses of $155 million in the 2005 first quarter were essentially flat with $156 million in the 2004 fourth quarter as higher pension costs were offset by lower inventory-related expenses. EFFECTIVE TAX RATE The effective tax rate excluding special items for the first quarter of 2005 was 24 percent, compared with a tax rate of 16 percent in the 2004 fourth quarter and 33 percent in the first quarter of 2004. The first-quarter 2005 effective tax rate reflects the favorable resolution of a tax matter that reduced the tax provision by $19 million ($0.04 per share). EFFECTS OF SPECIAL ITEMS Special items in the first quarter of 2005 included a charge of $79 million ($52 million after taxes) for estimated losses on businesses held for sale, reflecting charges to reduce the net assets of the Industrial Papers and Fine Papers businesses to their estimated realizable value, and a charge of $66 million before taxes and minority interest ($36 million after taxes and minority interest). This $66 million charge includes a goodwill impairment write off in the United States of $42 million ($21 million after minority interest) associated with an acquisition by Carter Holt Harvey, and a $24 million charge ($15 million after taxes) for losses on early extinguishment of high-cost debt. The net after-tax effect of these special items was an expense of $0.18 per share. Special items in the 2004 fourth quarter consisted principally of a charge of $79 million ($64 million after taxes) for estimated losses on sales and impairments of businesses held for sale. The net after-tax effect of all special items for the quarter was an expense of $0.10 per share. Special items in the 2004 first quarter consisted principally of a charge of $30 million ($19 million after taxes) for restructuring and other costs. The net after-tax effect of all special items for the quarter was an expense of $0.02 per share.