MEMPHIS, Tenn., Nov. 2 2007 -- International Paper today reported preliminary third-quarter 2007 net earnings of $217 million ($0.51 per share) compared with net earnings of $190 million ($0.44 per share) in the 2007 second quarter and $224 million ($0.46 per share) in the third quarter of 2006. Amounts in all periods include special items, most notably a gain of $185 million ($0.38 per share) in the third quarter of 2006 from sales of U.S. forestlands included in the transformation plan.
Earnings from continuing operations and before special items in the third quarter of 2007 were $243 million ($0.57 per share), compared with $223 million ($0.52 per share) in the second quarter and $216 million ($0.45 per share) in the third quarter of 2006.
Quarterly net sales were $5.5 billion, up slightly from $5.3 billion in the second quarter and $5.4 billion in the third quarter of 2006.
Industry segment operating profits rose to $610 million for the 2007 third quarter versus $572 million in the prior quarter and $686 million in the third quarter of 2006. The quarter-to-quarter increase reflects fewer planned maintenance outages as well as improved price realizations in North America, Europe and Brazil, offset somewhat by higher input costs.
"We had a solid third quarter," said International Paper Chairman and Chief Executive Officer John Faraci. "We continue to improve paper and packaging business earnings and expand margins, and we continue to improve earnings capacity from non-U.S. operations. Volumes were flat quarter-to- quarter, but we saw overall price improvement, which more than offset some increases in raw material and distribution costs."
Commenting on the fourth quarter of 2007, Faraci said, "We expect slightly higher earnings from continuing operations. Volumes will slow seasonally in most segments. We expect modest overall improvement in pricing with the realization of previously announced price increases. Costs for wood, energy and transportation will continue to increase, and other costs will remain high."
SEGMENT INFORMATION
Third-quarter 2007 segment operating profits and business trends compared with the previous quarter are as follows:
Operating profits for Printing Papers reached $307 million, up from second-quarter operating profits of $249 million, propelled by a 45 percent increase in U.S. uncoated papers, largely because of continuing price improvement and lower planned maintenance spending, as well as volume, price and mix improvements in Brazilian papers. Pulp earnings were about flat, and European papers profits declined slightly, largely resulting from increased planned maintenance spending.
Industrial Packaging operating profits were $115 million, down from $139 million in the prior quarter. The Pensacola linerboard machine start-up and one-time restructuring costs contributed to the decline, along with seasonal slowdown in European container, lower U.S. box volumes and higher converting costs. Results were favorably impacted by fewer planned maintenance outages in the quarter.
Consumer Packaging operating profits were about flat at $49 million compared with $48 million in the second quarter. The U.S. coated paperboard business experienced strong volumes, price and operations, and reduced planned maintenance spending, somewhat offset by higher input costs. Foodservice business profits declined slightly from seasonally strong second-quarter performance, and Shorewood Packaging results were flat.
The company's distribution business, xpedx, again reported strong quarterly sales and earnings, with operating profits of $40 million, a 4 percent increase from prior-quarter results of $38 million and a 16 percent increase year over year. Volumes and margins increased, in part because of the addition of Central Lewmar to xpedx near the end of the quarter.
Forest Products operating profits were $99 million, even with second- quarter operating profits of $98 million. While land sales are difficult to forecast within a quarter, the company expects full-year 2007 earnings from land sales of approximately $450 million. The company's objective in selling its remaining 390,000 acres of forestland is to obtain maximum value for shareowners.
Net corporate expense totaled $188 million for the quarter, compared with $179 million in the second quarter and $221 million in the 2006 third quarter. The increase compared with the 2007 second quarter reflects small increases in various expense categories. The decrease from the 2006 third quarter primarily reflects benefits from lower pension expenses.
EFFECTIVE TAX RATE
The effective tax rate from continuing operations and before special items for the third quarter of 2007 was 29 percent, even with the second quarter, and up slightly from 28 percent in the third quarter of 2006.
EFFECTS OF SPECIAL ITEMS
Special items in the third quarter of 2007 included restructuring and other charges totaling $42 million before taxes ($26 million after taxes), including $37 million of pre-tax charges ($23 million after taxes) related to the closure of the company's Terre Haute, Ind., mill. Additionally, net pre- tax gains of $8 million ($6 million after taxes) were recorded, principally to reduce estimated transaction costs accrued in connection with the transformation plan forestland sales in 2006, and a $3 million increase to the income tax provision was recorded related to the settlement of a prior-year tax audit.
Special items in the second quarter of 2007 consisted of a $26 million pre-tax charge ($16 million after taxes) for organizational restructuring programs associated with the company's transformation plan, including $17 million ($11 million after taxes) of accelerated depreciation expense for long-lived assets being removed from service, and a pre-tax gain of $1 million (a loss of $7 million after taxes) for adjustments to estimated losses on sales of businesses previously sold.
Special items in the third quarter of 2006 included restructuring and other charges totaling $92 million before taxes ($56 million after taxes), including costs associated with the company's transformation plan and charges for adjustments to legal reserves; pre-tax credits of $304 million ($185 million after taxes) from sales of U.S. forestlands; and net pre-tax gains on sales and impairments of businesses totaling $74 million ($44 million after taxes), including a $110 million pre-tax gain ($68 million after taxes) related to a previous forestland sale in Maine and a $38 million pre-tax charge ($23 million after taxes) upon the completion of the sale of the company's U.S. coated and supercalendered papers business.
DISCONTINUED OPERATIONS
The company completed the sale of the remainder of its beverage packaging business in the third quarter of 2007.
Discontinued operations for the second quarter of 2007 included pre-tax charges of $6 million ($4 million after taxes) and $5 million ($3 million after taxes) relating to adjustments to estimated losses on the sales of its wood products and beverage packaging businesses, respectively.
Discontinued operations for the third quarter of 2006 included a pre-tax credit of $101 million ($80 million after taxes) for the gain on the sale of the Brazilian coated papers business, pre-tax losses of $115 million and $165 million ($82 million and $165 million after taxes) to adjust the carrying values of the beverage packaging and wood products businesses to their estimated fair values, a net $12 million pre-tax gain ($3 million after taxes) related to other smaller items, and the operating results of these businesses and the kraft papers business for the quarter.
EARNINGS WEBCAST
The company will hold a webcast to review earnings at 10 a.m. Eastern Daylight Time / 9 a.m. Central Daylight Time 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 Investors tab and going to the Presentations page. A replay of the webcast will also be available on the Web site beginning at noon today. Parties who wish to participate in the webcast via teleconference may dial (706) 679-8242 or, within the U.S. only, (877) 316-2541 and ask to be connected to the International Paper 3Q 2007 Earnings Call. The conference ID number is 15371359. Participants should call in no later than 9:45 a.m. EDT/8:45 CDT. An audio-only replay will be available for four weeks following the call. To access the replay, dial (706) 645-9291 or, within the U.S. only, (800) 642-1687, and when prompted for the conference ID, enter "15371359."
International Paper, founded in 1898, is a global uncoated paper and packaging company with primary markets and manufacturing operations in North America, Europe, Russia, Latin America, Asia and North Africa. Its uncoated papers and packaging businesses are complemented by xpedx, North America's largest distributor of printing papers and graphics supplies and equipment. Headquartered in the United States, International Paper employs approximately 54,000 people in more than 20 countries, and serves customers worldwide. Annual sales are about $22 billion. International Paper partners with customers and environmental, academic, civic and governmental organizations, as well as landowners and harvesting professionals, to encourage responsible forest stewardship, to improve the health and productivity of forestlands and to increase recovery of our recyclable products. The company has a long-standing policy of using no wood from endangered forests. To learn more about International Paper, its products and commitment to economic, social and environmental sustainability, visit www.internationalpaper.com.