MEMPHIS, Tenn.—October 28, 2015—International Paper today reported third quarter 2015 net earnings attributable to common shareholders of $220 million ($0.53 per share) compared with net earnings of $227 million ($0.54per share) in the second quarter of 2015 and $355 million ($0.83 per share) in the third quarter of 2014. Operating Earnings were $407 million ($0.97 per share) in the third quarter of 2015, compared with $409 million ($0.97 per share) in the second quarter of 2015 and $409 million ($0.95 per share) in the third quarter of 2014. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.
Quarterly net sales were $5.7 billion in the third quarter of 2015 compared with $5.7 billion in the second quarter of 2015 and $6.1 billion in the third quarter of 2014. Revenues continue to be negatively impacted by foreign exchange translation.
Business segment operating profits before special items in the third quarter of 2015 were $773 million, compared with $663 million in the second quarter of 2015 and$840 million in the third quarter of 2014.
Free cash flow was $512 million in the third quarter. Cash from operations was $837 million.
"International Paper delivered another strong performance in the third quarter, highlighted by 25 percent EBITDA margins in our North American Industrial Packaging business and excellent operating results from our Ilim Joint Venture," said Mark Sutton, chairman and CEO. "We remain confident in our ability to continue to deliver consistent, robust free cash flow and create long-term shareholder value, despite a global macro environment that remains challenged."
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. Third quarter 2015 business segment operating profits and business trends compared with the prior quarter are as follows:
Industrial Packaging operating profits in the third quarter of 2015 were $553 million compared with $528 million in the second quarter of 2015. In North America, earnings were higher due primarily to lower planned maintenance outage costs, partially offset by lower export pricing and higher input costs.
Printing Papers operating profits were $179 million in the third quarter of 2015 versus $101 million in the second quarter of 2015. Earnings in North America were higher due to increased volume, strong operations and lower planned maintenance outage expenses. In Brazil, earnings improved primarily due to seasonally higher volume in the domestic Brazilian market and strong results on export sales.
Consumer Packaging operating profits were $41 million (a loss of $153 million including special items) in the third quarter of 2015 compared with $34 million ($47 million including special items) in the second quarter of 2015. In North America, improved manufacturing operations and lower planned maintenance outage costs were partially offset by weaker commercial conditions, which resulted in increased market-related downtime, slightly lower prices and a less favorable mix. Earnings inEurope were higher mainly due to increased volume and lower planned maintenance outage costs.
International Paper recorded Ilim joint venture equity loss of $9 million in the third quarter of 2015 compared with earnings of $67 million in the second quarter of 2015. Primarily due to Ilim's U.S. dollar denominated net debt, the company recognized a non-cash after-tax foreign exchange loss of $65 million in the third quarter of 2015 ($0.15 per share), compared with an after-tax gain of $27 million in the second quarter of 2015 ($0.06 per share). The JV recorded record operational EBITDA results for the quarter due to increased margins on export sales and strong operational performance.
Corporate Expenses
Net corporate expenses, excluding non-operating pension expense, for the third quarter of 2015 were $10 million compared with $8 million in the second quarter of 2015.
Effective Tax Rate
The effective tax rate before special items and non-operating pension expense for the third quarter of 2015 was 33 percent, compared with an effective tax rate of 33 percent in the second quarter of 2015.
Effects of Special Items
Special items in the third quarter of 2015 included a pre-tax loss of $25 million ($16 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $17 million ($11 million after taxes) related to the restructuring of our 2006 timber monetization, net pre-tax charges of$7 million ($4 million after taxes) related to the sale of the Carolina Coated Bristols brand and costs associated with the conversion of the Riegelwood, North Carolina, facility to 100 percent pulp production and a charge of $1 million (before and after taxes) for other items. Special items also included a pre-tax charge of $186 million ($125 million after taxes) for the impairment of goodwill and other assets of the IP-Sun JV.
Special items in the second quarter of 2015 included a net pre-tax loss of $194 million ($125 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $207 million ($133 million after taxes) for premiums paid on a cash tender offer on outstanding debt, a net pre-tax gain of $14 million ($9 million after taxes) related to the sale of the Carolina Coated Bristols brand and costs associated with the conversion of the Riegelwood, North Carolina, facility to 100 percent pulp production, and a charge of $1 million (before and after taxes) for other items. Special items also included a pre-tax gain of $4 million ($2 million after taxes) related to state tax credits, a tax expense of $23 million for the tax impact of the 2015 cash pension contribution of $750 million and a tax expense of $5 million for other items.
Special items in the third quarter of 2014 included a net pre-tax loss of $24 million($15 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $13 million ($8 million after taxes) for debt extinguishment costs, a pre-tax charge of $3 million ($2 million after taxes) for costs associated with the closure of our Courtland, Alabama, mill, pre-tax charges of $5 million ($3 million after taxes) for costs associated with the restructuring of our EMEA Packaging business and pre-tax charges of $3 million ($2 million after taxes) for other items. Also included in special items were a pre-tax charge of $35 million ($21 million after taxes) for a multi-employer pension plan withdrawal liability, a pre-tax charge of $32 million ($17 million after taxes) related to a foreign tax amnesty program, a gain of $20 million (before and after taxes) related to the resolution of a legal contingency in India, charges of $1 million (before and after taxes) for integration costs related to the Temple-Inland acquisition and a pre-tax charge of $5 million ($3 million after taxes) for a refund of previously taken state tax credits.
Discontinued Operations
As a result of the July 1, 2014 spin-off of the xpedx business, all prior year amounts have been adjusted to reflect xpedx as a discontinued operation. Previously reported information regarding the Distribution reportable segment has been excluded as this reportable segment was comprised solely of the xpedx business.
Discontinued operations in the third quarter of 2014 included a gain of $11 million($14 million after taxes) for the recovery of costs related to the July 1, 2014 spin-off of our xpedx business and a tax benefit of $2 million related to the divestiture of the Temple-Inland Building Products business.
About International Paper
International Paper (NYSE: IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging along with uncoated papers and pulp. Headquartered in Memphis, Tennesee, the company employs approximately 58,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2014 were $24 billion.
Source: International Paper.