PaperAge Magazine

International Paper Reports Fourth Quarter and Full-Year 2017 Earnings

Mark Sutton "Looking at the fourth quarter, the company delivered its best results in a decade, driven by healthy demand and excellent commercial performance in Industrial Packaging and Global Cellulose Fibers." – Mark Sutton, Chairman and CEO, International Paper.

Feb. 1, 2018 (Press Release) - International Paper (NYSE: IP) today reported full-year 2017 net earnings attributable to International Paper of $2.1 billion ($5.13 per diluted share) compared with net earnings of $904 million ($2.18 per diluted share) for full-year 2016. In the fourth quarter of 2017, the Company reported net earnings of $1.5 billion ($3.50 per diluted share) compared with $218 million ($0.53 per diluted share) in the fourth quarter of 2016.

Fourth quarter and full-year 2017 net earnings included a provisional net tax benefit of $1.2 billion ($2.93 per diluted share) related to the U.S. enactment of the Tax Cuts and Jobs Act of 2017 reported as a special item. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.

Full-year 2017 adjusted operating earnings were $1.5 billion ($3.49 per diluted share) compared with $1.3 billion ($3.09 per diluted share) in 2016. Adjusted operating earnings in the fourth quarter of 2017 totaled $530 million ($1.27 per diluted share) compared with $279 million ($0.67 per diluted share) in the fourth quarter of 2016.

Annual net sales totaled $21.7 billion in 2017 compared with $19.5 billion in 2016. The year-over-year revenue increase was primarily due to the pulp business that was acquired from Weyerhaeuser in late 2016. Quarterly net sales were $5.7 billion in the fourth quarter of 2017 compared with $5.0 billion in the fourth quarter of 2016.

Full-year business segment operating profits were $2.1 billion in 2017 compared with $2.1 billion in 2016. Business segment operating profits in the fourth quarter of 2017 were $824 million compared with $442 million in the fourth quarter of 2016.

Cash provided by (used for) operations was $1.8 billion for the full-year 2017 and $1.2 billion in the fourth quarter of 2017. Free cash flow (non-GAAP) was $2.0 billion for the full-year 2017 and $732 million in the fourth quarter of 2017.

"In 2017, we delivered on our commitment of strong cash generation and value creation, enabling us to strengthen our balance sheet and increase our dividend," said Mark Sutton, Chairman and Chief Executive Officer. "We made outstanding progress integrating the Global Cellulose Fibers business and delivering synergies, while also making an important strategic move in consumer packaging that further enables us to focus on growing meaningful value in our core businesses. Looking at the fourth quarter, the company delivered its best results in a decade, driven by healthy demand and excellent commercial performance in Industrial Packaging and Global Cellulose Fibers. All in, the momentum we've built throughout 2017 positions us well for another year of strong earnings growth in 2018."

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 pulp business acquired in 2016 is now called Global Cellulose Fibers and reported as a separate business segment. Prior periods have been restated to reflect this change. Industrial Packaging results, for all periods presented, include the EMEA Coated Paperboard Packaging business, which was previously reported as part of the Consumer Packaging segment. The Consumer Packaging segment was eliminated in connection with the transfer of the North American Consumer Packaging business. Fourth quarter 2017 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the fourth quarter of 2017 were $609 million ($614 million excluding special items) compared with $490 million ($505 million excluding special items) in the third quarter of 2017. In North America, overall market conditions remain healthy. Increased earnings reflect record box shipments for the quarter, partly driven by e-commerce, higher average sales prices and volumes in the export channel and lower input costs, primarily for recycled fiber, partially offset by mill operating costs. In EMEA, the benefit from seasonally higher sales volumes was more than offset by higher operating costs and the impact of higher containerboard costs not being fully passed through to box pricing.

Global Cellulose Fibers operating profits in the fourth quarter of 2017 were $79 million ($98 million excluding special items) compared with $49 million ($57 million excluding special items) in the third quarter of 2017. The improvement in earnings was driven by higher average sales prices, record volume and strong synergy realization.

Printing Papers operating profits in the fourth quarter of 2017 were $136 million versus $135 million in the third quarter of 2017. In North America, earnings decreased due to higher maintenance outage costs, along with higher operating and distribution costs. In Brazil, earnings benefited from higher sales volumes and a more favorable geographic mix due to seasonally stronger domestic demand. In Europe and Russia, higher average sales prices for uncoated freesheet paper were offset by higher operating and input costs.

International Paper recorded Ilim joint venture equity earnings of $64 million in the fourth quarter of 2017 compared with $48 million in the third quarter of 2017. Operationally, sales prices increased, primarily for export shipments, and sales volumes increased coming off a third quarter impacted by maintenance outages. The Company recognized a non-cash after-tax foreign exchange gain of $3 million in the fourth quarter of 2017 ($0.01 per diluted share), compared with a gain of $7 million in the third quarter of 2017 ($0.02 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.

CORPORATE EXPENSES

Net corporate expenses, excluding non-operating pension expense, were $18 million for the fourth quarter of 2017, compared with $32 million in the third quarter of 2017. Corporate expenses in the third quarter were higher due to other corporate reserves and a decline in the fair value of an energy hedging contract.

EFFECTIVE TAX RATE

The reported effective tax rate for the fourth quarter of 2017 was (613)% compared to a 2017 third quarter reported effective tax rate of 30%. In the fourth quarter of 2017, the Company recorded a provisional net benefit of $1.2 billion related to the enactment of the U.S. Tax Cuts and Jobs Act. The net benefit is comprised of a non-cash $1.45 billion benefit related to the remeasurement of the Company's U.S. deferred taxes and additional tax expense of $229 million related to the deemed repatriation of earnings of its foreign subsidiaries. The Company continues to analyze the Tax Cuts and Jobs Act and the provisional amounts will be finalized in 2018.

Excluding special items, non-operating pension expense and discontinued operations, the effective tax rate for the fourth quarter of 2017 was 32%, compared with an effective tax rate of 28% in the third quarter of 2017. The higher effective tax rate in the fourth quarter is primarily due to income tax credits related to both biomass investments and foreign taxes recorded in the third quarter.

EFFECTS OF SPECIAL ITEMS

Special items in the fourth quarter of 2017 included a pre-tax charge of $83 million ($51 million after taxes) for debt extinguishment costs included in Restructuring and other charges. Special items also included pre-tax charges of $18 million ($11 million after taxes) for integration costs associated with the 2016 acquisition of the Weyerhaeuser pulp business, pre-tax charges of $6 million ($4 million after taxes) related to removal of abandoned property at our mills and a gain of $1 million (before and after taxes) for interest income associated with amended tax returns. Also included in special items is a provisional net tax benefit of $1.2 billion related to the enactment of the Tax Cuts and Jobs Act, a tax benefit of $28 million for investment tax credits and a tax expense of $9 million associated with an international tax law change.

Special items in the third quarter of 2017 included pre-tax charges of $6 million ($4 million after taxes) for integration costs associated with the pulp business acquisition, a pre-tax charge of $10 million ($7 million after taxes) for accelerated amortization of an intangible asset in Brazil packaging and pre-tax charges of $7 million ($4 million after taxes) related to removal of abandoned property at our mills. Also included in special items is a net tax expense of $19 million due to international legal entity restructuring.

Special items in the fourth quarter of 2016 included a pre-tax charge of $7 million ($6 million after taxes) for Restructuring and other charges for costs associated with the closure of a mill in Turkey. Special items also included a pre-tax charge of $19 million ($14 million after taxes) for costs associated with the pulp business acquisition, a pre-tax charge of $19 million ($11 million after taxes) to amortize the acquired pulp business inventory fair value step-up and a tax expense of $31 million associated with a tax rate change in Luxembourg.

DISCONTINUED OPERATIONS

As a result of the transfer of the North American Consumer Packaging business, all current and prior year amounts have been adjusted to reflect this business as a discontinued operation.

Discontinued operations in the fourth quarter of 2017 included the operating earnings of the North American Consumer Packaging business, pre-tax charges of $17 million ($10 million after taxes) for costs associated with the divestiture and pre-tax charges of $45 million ($28 million after taxes) for non-operating pension expenses related to curtailment charges and termination benefits. Discontinued operations in the third quarter of 2017 and the fourth quarter of 2016 included the operating earnings of the North American Consumer Packaging business.

International Paper is a leading global producer of renewable fiber-based packaging, pulp and paper products with manufacturing operations in North America, Latin America, Europe, North Africa, Asia and Russia. To learn more, please visit: internationalpaper.com.

SOURCE: International Paper