VOL. 128 | NO. 209 | Friday, October 25, 2013
International Paper Earnings Surge 38 Percent
By Bill Dries
Memphis-based International Paper Co. reported third quarter net earnings of $382 million, an increase of $145 million, or 38 percent, from the third quarter 2012 net earnings of $259 million.
The earnings posted Thursday, Oct. 24, were also a 32 percent increase from the second quarter of 2013.
The global paper and paper products company also posted record operating earnings of $471 million for the three-month period ending Sept. 30. That compares to $358 million for the same quarter of 2012.
Operating earnings do not include special items and non-operating pension expenses.
As expected, International Paper had higher wood costs because of the wettest summer in the Southeastern U.S. in 100 years.
The impact of the soaking on wood costs was even higher for the quarter than IP anticipated and created more of a headwind, although the rainfall has since moderated.
“That said, it was still a big cost increase for the quarter,” said Carol L. Roberts, International Paper’s chief financial officer, who added the cost increase will also show up to some degree in fourth-quarter earnings. She said the wood costs associated with the wet weather “significantly impacted” coated and printed papers.
“The Southeast is finally drying out and inventories are being rebuilt,” said International Paper CEO John Faraci.
The company got a one-time tax adjustment in its favor of $30 million from a U.S. court case involving how fixed assets are taxed.
In consumer packaging, IP executives are encouraged by two large food service companies announcing plans to move away from Styrofoam cups to paper cups. International Paper is the largest cup stock producer in North America.
The announcement by McDonald’s Corp. in September is a switch to paper cups at all 14,000 of its U.S. restaurants in a multi-year transition through 2016. Dunkin Donuts is switching to paper in some of its New England stores based on several local ordinances in towns there banning the use of Styrofoam cups. The ban on Styrofoam cups in Brookline, Mass., takes effect in December.
Roberts said just the transition by those two companies nationally could mean as much as 4 billion cups in increased demand.
International Paper plans to permanently shut down the first two of the paper machines at its Courtland, Ala., mill by mid-November, company leaders announced on the Thursday earnings call with analysts and investors.
The last two machines at the mill will shut down sometime during the second quarter of 2014.
IP announced it was closing the Courtland mill because of excess capacity. It will mean the loss of more than 1,000 jobs in the Alabama town. Because the closing is being phased-in over several quarters, the company estimates there would be a $40 million adverse impact on operations earnings in future quarters.
Part of the closing process is salvaging the profitable operations at the plant and moving them to International Paper’s remaining four mills in North America.
“The process is well underway. We are trying to do it at the lowest possible cost,” said Tim Nicholls, senior vice president of printing and communications papers for the Americas, on the shutdown project. “We’re working through qualifications and other facilities for various products and customers.”