International Paper Reports Fourth Quarter and Full-Year 2018 Earnings

Jan. 31, 2019 - International Paper (NYSE: IP) today reported fourth quarter 2018 net earnings attributable to International Paper of $316 million ($0.78 per diluted share) compared with $562 million ($1.37 per diluted share) in the third quarter of 2018 and net earnings of $1.5 billion ($3.50 per diluted share) in the fourth quarter of 2017.

Full-year 2018 net earnings were $2.0 billion ($4.85 per diluted share) compared with net earnings of $2.1 billion ($5.13 per diluted share) for full-year 2017.

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.

"International Paper delivered very strong earnings and returns in the fourth quarter and full year 2018, driven by solid commercial and operational performance across our three businesses," said Mark Sutton, Chairman and Chief Executive Officer. "We returned $1.5 billion to shareholders through dividends and share repurchases, and we further strengthened our balance sheet. As we enter 2019, we are confident in our ability to continue to generate strong returns and grow cash flow to create value for our shareholders."

Adjusted operating earnings in the fourth quarter of 2018 were $670 million ($1.65 per diluted share) compared with $641 million ($1.56 per diluted share) in the third quarter of 2018 and $530 million ($1.27 per diluted share) in the fourth quarter of 2017. Full-year 2018 adjusted operating earnings totaled $2.2 billion ($5.32 per diluted share) compared with $1.5 billion ($3.49 per diluted share) in 2017.

Net sales were $6.0 billion in the fourth quarter of 2018 compared with $5.9 billion in the third quarter of 2018 and $5.7 billion in the fourth quarter of 2017. Annual net sales totaled $23.3 billion in 2018 compared with $21.7 billion in 2017.

Business segment operating profits were $930 million in the fourth quarter of 2018 compared with $738 million in the third quarter of 2018 and $824 million in the fourth quarter of 2017. Full-year business segment operating profits were $2.9 billion in 2018 compared with $2.1 billion in 2017.

Cash provided by (used for) operations was $3.2 billion for the full-year 2018 compared with $1.8 billion in 2017. Cash provided by (used for) operations was $821 million in the fourth quarter of 2018 compared with $1.2 billion in the fourth quarter of 2017. Free cash flow (non-GAAP) was $1.7 billion for the full-year 2018 and $2.0 billion in 2017. Free cash flow (non-GAAP) was $535 million in the fourth quarter of 2018 compared with $732 million in the fourth quarter of 2017.

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). Fourth quarter 2018 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the fourth quarter of 2018 were $647 million ($646 million excluding special items) compared with $472 million ($598 million excluding special items) in the third quarter of 2018. In North America, earnings improved due to lower planned maintenance outage expenses partially offset by two fewer shipping days for boxes, lower containerboard volume and higher raw material costs. Higher sales prices for boxes were partially offset by lower export containerboard prices and the impact of mix. In Europe, results were driven by seasonally higher volumes and higher sales margins for boxes and improved results related to the ramp-up at the Madrid mill.

Global Cellulose Fibers operating profits in the fourth quarter of 2018 were $91 million ($93 million excluding special items) compared with $83 million ($85 million excluding special items) in the third quarter of 2018. Earnings improved due to higher average sales prices and increased fluff pulp sales volumes partially offset by continued hurricane-related costs and higher raw material costs.

Printing Papers operating profits in the fourth quarter of 2018 were $192 million ($197 million excluding special items) versus $183 million ($188 million excluding special items) in the third quarter of 2018. In North America, higher operating profits were primarily due to continued price realization, partially offset by higher planned maintenance outage costs and higher raw material costs. In Brazil, earnings decreased as slightly higher sales prices and seasonally higher volumes were more than offset by higher raw material costs and unfavorable foreign currency impacts. In Europe and Russia, improved earnings were driven by higher average sales prices and seasonally higher volumes which were partially offset by higher raw material costs.

Ilim joint venture equity earnings were $67 million in the fourth quarter of 2018 compared with $74 million in the third quarter of 2018. Operationally, sales volumes increased as production capacity returned following the third-quarter maintenance outages. Average sales prices declined for sales of export softwood and hardwood pulp. The Company recognized a non-cash after-tax foreign exchange loss of $19 million in the fourth quarter of 2018 ($0.05 per diluted share), compared with a loss of $23 million in the third quarter of 2018 ($0.06 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.

Graphic Packaging equity earnings on our 20.5% ownership position were $10 million in the fourth quarter of 2018 compared with $19 million in the third quarter of 2018.

Net corporate expenses were $8 million for the fourth quarter of 2018, compared with $20 million in the third quarter of 2018.

The reported effective tax rate for the fourth quarter of 2018 was 37% compared to a third quarter of 2018 reported effective tax rate of 15%. The fourth quarter tax rate reflects tax expense of $25 million related to foreign tax audits and tax expense of $19 million related to international investment restructuring. The third quarter tax rate includes a $36 million tax benefit primarily related to an adjustment of the one-time deemed repatriation of earnings of our foreign subsidiaries under Tax Reform. In the fourth quarter we finalized our 2017 estimate of the impacts of Tax Reform, and there were no changes recorded in the fourth quarter.

Excluding special items, non-operating pension expense and discontinued operations, the effective tax rate for the fourth quarter of 2018 was 26%, compared with an effective tax rate of 24% in the third quarter of 2018. The higher effective tax rate in the fourth quarter is primarily due to state taxes and a tax benefit recorded in the third quarter related to U.S. Federal provision to return adjustments.

Special items in the fourth quarter of 2018 amount to a net after tax charge of $32 million ($0.08 per diluted share). Special items included a pre-tax gain of $19 million ($15 million after taxes) for Restructuring and other charges, net. Included within Restructuring and other charges, net is a pre-tax gain of $31 million ($23 million after taxes) related to the sale of our investment in Liaison Technologies, Inc., a pre-tax charge $10 million ($7 million after taxes) for debt extinguishment costs, a pre-tax charge of $3 million ($2 million after taxes) for a severance reserve associated with the announced conversion of a paper machine at our Riverdale mill to containerboard production and income of $1 million (before and after taxes) related to the optimization of our EMEA Packaging business. Special items also included pre-tax charges of $8 million ($6 million after taxes) related to the removal of abandoned property at our mills, pre-tax income of $5 million ($4 million after taxes) for a litigation settlement recovery and a charge of $1 million (before and after taxes) for accelerated depreciation associated with the paper machine conversion at our Riverdale mill. Also included in special items is tax expense of $25 million related to foreign tax audits and tax expense of $19 million related to international investment restructuring.

Special items in the third quarter of 2018 amount to a net after tax charge of $60 million ($0.14 per diluted share). Special items included a pre-tax charge of $122 million ($81 million after taxes) related to the impairment of fixed assets and an intangible asset in our Brazil Packaging business, a pre-tax charge of $9 million ($7 million after taxes) for an adjustment to an environmental remediation reserve, pre-tax charges of $6 million ($4 million after taxes) related to the removal of abandoned property at our mills and a pre-tax charge of $5 million ($4 million after taxes) for accelerated depreciation associated with the paper machine conversion at our Riverdale mill. Also included in special items is a tax benefit of $36 million related to updates to our provisional estimates of the impacts of Tax Reform.

Special items in the fourth quarter of 2017 amount to a net after tax gain of $1.2 billion ($2.82 per diluted share). Special items included a pre-tax charge of $83 million ($51 million after taxes) for debt extinguishment costs included in Restructuring and other charges, net. 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 the removal of abandoned property at our mills and income 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.

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. There were no discontinued operations in the fourth quarter of 2018 or the third quarter of 2018. There was a loss of $8 million in the fourth quarter of 2017 which 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 transfer of the business and pre-tax charges of $45 million ($28 million after taxes) for non-operating pension expenses related to curtailment charges and termination benefits.

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, India and Russia. To learn more, please visit: internationalpaper.com.