MEMPHIS, Tenn. - International Paper (NYSE: IP) today reported second quarter 2017 net earnings attributable to International Paper of $80 million ($0.19per share) compared with net earnings of $209 million ($0.50 per share) for the first quarter of 2017 and net earnings of $40 million ($0.10 per share) in the second quarter of 2016. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.

Adjusted operating earnings in the second quarter of 2017 were $270 million ($0.65 per share) compared with $249 million ($0.60 per share) in the first quarter of 2017 and $379 million ($0.92 per share) in the second quarter of 2016.

Quarterly net sales were $5.8 billion in the second quarter of 2017 compared with $5.5 billion in the first quarter of 2017 and  $5.3 billion in the second quarter of 2016. The year-over-year revenue increase was primarily due to the pulp business that was acquired in late 2016. 

Business segment operating profits in the second quarter of 2017 were $129 million, compared with $428 million in the first quarter of 2017 and $627 million in the second quarter of 2016.  The second quarter of 2017 includes the impact of the Kleen Products settlement.

Cash provided by operations was $645 million in the second quarter of 2017 and $605 million in the second quarter of 2016.  Free cash flow (non-GAAP) was $355 million for the second quarter of 2017 and $527 million in the second quarter of 2016.   

"Solid second quarter results were supported by healthy demand in our North American Industrial Packaging business and record fluff pulp sales which were partially offset by higher than expected OCC costs," said Mark Sutton, Chairman and Chief Executive Officer.  "Looking forward, we see margin expansion associated with the realization of our announced price increases, acquisition synergies and significantly lower outage expenses driving a very strong second half and putting IP on track to deliver our full year earnings target."

SEGMENT INFORMATION
The performance of the Company's business segments is measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items (non-GAAP).  The combination of IP's legacy pulp business with the acquired pulp business in 2016 is now called Global Cellulose Fibers and reported as a separate business segment (previously reported in Printing Papers).  Prior periods have been restated to reflect this change.  Second quarter 2017 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the second quarter of 2017 were $50 million ($407 million excluding special items) compared with $365 million ($360 million excluding special items) in the first quarter of 2017.  U.S. box shipments remain strong driven by favorable domestic conditions.  Earnings were also favorably impacted by solid sales price realization and strong demand for U.S. kraft linerboard exports. This was partially offset by mill outage costs and rising costs for OCC.

Global Cellulose Fibers operating profits in the second quarter of 2017 were $7 million ($12 million excluding special items) compared with a loss of $70 million (a loss of $51 millionexcluding special items) in the first quarter of 2017.  The business achieved record fluff pulp sales volumes in the quarter as global demand for fluff pulp remains strong. Greater synergy benefits, favorable pricing and lower overall manufacturing cost, along with lower planned maintenance outage expenses, contributed to the earnings increase.

Printing Papers operating profits were $86 million ($88 million excluding special items) in the second quarter of 2017 versus $100 million in the first quarter of 2017.  Earnings in North America were impacted by lower sales volumes, unfavorable mix and heavy maintenance outage expenses, partially offset by higher export sales volume from Brazil.

Consumer Packaging operating profits were a loss of $14 million (a loss of $5 million excluding special items) in the second quarter of 2017 compared with earnings of $33 million in the first quarter of 2017. The earnings decrease in the quarter was largely attributable to annual outage expenses and reliability issues at the Augusta, GA mill. 

International Paper recorded Ilim joint venture equity earnings of $21 million in the second quarter of 2017 compared with $50 million in the first quarter of 2017.  Operationally, sales volumes were seasonally higher and average sales price realizations improved, primarily for export sales, however, maintenance outage costs were higher. The Company recognized a non-cash after-tax foreign exchange loss of $18 million in the second quarter of 2017 ($0.04 per share), compared with a gain of $23 million in the first quarter of 2017 ($0.06 per share), primarily due to Ilim's U.S. dollar denominated net debt.

CORPORATE EXPENSES
Net corporate expenses, excluding non-operating pension expense, were $4 million for the second quarter of 2017, compared with $11 million in the first quarter of 2017.

EFFECTIVE TAX RATE
The reported effective tax rate for the second quarter of 2017 was 298%, reflecting a tax benefit for the second quarter of $89 million that includes a net $47 million tax benefit primarily related to planned income tax refund claims, compared to a 2017 first quarter effective tax rate of 34%.  Excluding special items and non-operating pension expense, the effective tax rate for the second quarter of 2017 was 30%, compared with an effective tax rate of 30.5% in the first quarter of 2017.  The lower rate of 30% in the second quarter was due to the benefit of a state tax rate change.  

EFFECTS OF SPECIAL ITEMS
Special items in the second quarter of 2017 included a pre-tax gain of $16 million ($11 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax gain of $14 million ($9 million after taxes) related to the sale of our investment in ArborGen and a gain of $2 million (before and after taxes) for other items. Special items also included a pre-tax charge of $354 million ($219 million after taxes) related to an agreement to settle the Kleen Products antitrust class action lawsuit, a pre-tax loss of $9 million ($4 million after taxes) for the impairment of the assets of our Foodservice business in Asia, a pre-tax loss of $5 million ($3 million after taxes) for integration costs associated with the 2016 acquisition of the Weyerhaeuser pulp business, and a net charge of $1 million (before and after taxes) for other items.  Also included in special items is a net tax benefit of $47 million primarily due to planned income tax refund claims.

Special items in the first quarter of 2017 included a pre-tax charge of $14 million ($8 million after taxes) to amortize the inventory fair value step-up of the pulp business acquired in December 2016, pre-tax charges of $4 million ($2 million after taxes) for costs associated with the acquisition of that business, a net bargain purchase gain of $6 million (before and after taxes) on the June 2016 acquisition of the Holmen Paper newsprint mill in Madrid, Spain and a charge of $2 million (before and after taxes) for other items. Also included in special items is a $15 million tax expense associated with an international investment restructuring.

Special items in the second quarter of 2016 included a pre-tax charge of $28 million ($20 million after taxes) for costs associated with the sale of our Asia corrugated packaging business, a pre-tax charge of $5 million ($3 million after taxes) for costs associated with the agreement to purchase the Weyerhaeuser pulp business, a tax expense of $23 millionassociated with 2016 cash pension contributions and a tax benefit of $6 million related to an international legal entity restructuring.

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