International Paper Reports Second Quarter 2019 Results

"We continued to operate well and manage costs across our businesses. We also returned nearly $430 million to shareholders through dividends and share repurchases." – Mark Sutton, Chairman and CEO of International Paper.

July 25, 2019 - International Paper (NYSE: IP) today reported second quarter 2019 financial results.

HIGHLIGHTS

"International Paper delivered solid earnings and generated strong cash from operations in the second quarter," said Mark Sutton, Chairman and Chief Executive Officer. "We continued to operate well and manage costs across our businesses. We also returned nearly $430 million to shareholders through dividends and share repurchases. Looking ahead to the third quarter, we will leverage the strength and flexibility of International Paper to maximize performance as we manage through a challenging environment."

SEGMENT INFORMATION

Business segment operating profits are used by International Paper's management to measure the earnings performance of its businesses. Second quarter 2019 business segment net sales and operating profits compared with the first quarter of 2019 and the second quarter of 2018 are as follows:

Industrial Packaging operating profits in the second quarter of 2019 were $507 million ($515 million excluding special items) compared with $404 million ($421 million excluding special items) in the first quarter of 2019. In North America, earnings increased due to seasonally higher demand for boxes, strong manufacturing performance and favorable input costs. Earnings were negatively impacted by lower export containerboard prices and volumes. Planned maintenance outage expenses increased, with 80% of our annual planned outages now completed. In Europe, earnings increased driven by higher average margins and favorable manufacturing operations which benefited from improved performance at the Madrid mill, partially offset by seasonally lower volumes, primarily in Morocco.

Global Cellulose Fibers operating profits in the second quarter of 2019 were $(2) million ($0 million excluding special items) compared with $32 million ($35 million excluding special items) in the first quarter of 2019. Earnings decreased due to lower average sales prices for fluff and market pulp driven by weaker economic conditions. Planned maintenance outage expenses were also higher as we completed our largest planned maintenance outage quarter. Input costs were favorable, primarily for wood and chemicals.

Printing Papers operating profits in the second quarter of 2019 were $(33) million ($114 million excluding special items) versus $143 million ($144 million excluding special items) in the first quarter of 2019. Earnings were negatively affected by the net impairment of our India Papers business, included as a special item below. In North America, increased planned maintenance outages were partially offset by improved sales prices and improved manufacturing operations. In Brazil, earnings increased due to seasonally stronger demand, partially offset by unfavorable input costs. In Europe and Russia, earnings decreased primarily due to planned maintenance outages in both Europe and Russia.

EQUITY METHOD INVESTMENTS

Ilim joint venture equity earnings were $67 million in the second quarter of 2019 compared with $101 million in the first quarter of 2019. Operationally, earnings decreased due to lower export sales prices for hardwood and softwood pulp to Asia and containerboard to EMEA. The Company recognized a non-cash after-tax foreign exchange gain of $7 million in the second quarter of 2019 ($0.02 per diluted share), compared with a gain of $21 million in the first quarter of 2019 ($0.05 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt. The Company also received cash dividends of $239 million in the second quarter of 2019.

Graphic Packaging equity earnings on our 21% ownership position were $14 million in the second quarter of 2019, compared with $13 million in the first quarter of 2019.

CORPORATE EXPENSES

Corporate expenses were $3 million for the second quarter of 2019, compared with $21 million in the first quarter of 2019.

EFFECTIVE TAX RATE

The reported effective tax rate for the second quarter of 2019 was 38% compared with 25% for the first quarter of 2019. The higher reported effective tax rate reflects the impact of the net impairment of our India Papers business as well as a statutory tax rate change in Luxembourg, both included as special items below.

Excluding special items, non-operating pension expense and discontinued operations, the effective tax rate for the second quarter of 2019 was 25%, equal to the effective tax rate of 25% in the first quarter of 2019.

EFFECTS OF SPECIAL ITEMS

Special items in the second quarter of 2019 amount to a net after-tax charge of $162 million ($0.41 per diluted share) compared with $15 million ($0.04 per diluted share) in the first quarter of 2019 and $43 million ($0.10 per diluted share) in the second quarter of 2018.

DISCONTINUED OPERATIONS

Discontinued operations in the second quarter of 2018 included a pre-tax loss on the 2018 transfer of the North American Consumer Packaging business of $28 million ($21 million after taxes) to adjust the gain on the transfer of the business associated with the final post-closing adjustments and charges of $2 million (before and after taxes) for costs associated with the transfer.

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. Headquartered in Memphis, Tennessee, IP employs more than 52,000 colleagues. Net sales for 2018 were $23 billion. To learn more, please visit: internationalpaper.com.