International Paper Reports First Quarter 2017 Earnings

MEMPHIS, Tenn., April 27, 2017 -- International Paper (NYSE: IP) reported first quarter 2017 net earnings attributable to International Paper of $209 million ($0.50 per share) compared with net earnings of $218 million ($0.53 per share) for the fourth quarter of 2016 and net earnings of $334 million ($0.81 per share) in the first quarter of 2016. Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.

Adjusted operating earnings in the first quarter of 2017 were $249 million ($0.60 per share) compared with $303 million ($0.73 per share) in the fourth quarter of 2016 and $330 million ($0.80 per share) in the first quarter of 2016.

Quarterly net sales were $5.5 billion in the first quarter of 2017 compared with $5.4 billion in the fourth quarter of 2016 and $5.1 billion in the first quarter of 2016. The year-over-year revenue increase was primarily due to the pulp business that was acquired in late 2016.

Business segment operating profits in the first quarter of 2017 were $428 million, compared with $464 million in the fourth quarter of 2016 and $497 million in the first quarter of 2016.

Cash provided by operations was $633 million in the first quarter of 2017 and $620 million in the first quarter of 2016. Free cash flow (non-GAAP) was $259 million for the first quarter of 2017 and $311 million in the first quarter of 2016.

"International Paper delivered a solid first quarter in the face of several challenges, including the digester incident at our Pensacola mill and higher input costs driven by a significant rise in OCC prices," said Mark Sutton, Chairman and Chief Executive Officer. "Given the market fundamentals across most of our businesses in combination with several IP commercial and operational initiatives, we expect improved results pointing to a particularly strong second half as well as positive momentum entering 2018. I remain very confident in IP's ability to generate significant year-over-year earnings growth and continued strong cash flow in 2017."

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 acquired pulp business in 2016, will now be called Global Cellulose Fibers and reported as a separate business segment (previously reported in Printing Papers). Prior periods have been restated to reflect this change. First quarter 2017 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the first quarter of 2017 were $365 million ($360 million excluding special items) compared with $372 million ($379 million excluding special items) in the fourth quarter of 2016. In North America, sales price increase realizations for containerboard and boxes were more than offset by seasonally lower box demand, higher OCC costs and higher mill outage expenses, along with the impact from the Pensacola mill digester incident.

Global Cellulose Fibers operating profits in the first quarter of 2017 were a loss of $70 million (a loss of $51 million excluding special items) compared with a loss of $70 million (a loss of $32 million excluding special items) in the fourth quarter of 2016. Results for the quarter reflect $50 million in maintenance outage expenses, which include a major energy optimization project at the Port Wentworth mill. Operations and costs were impacted by the Pensacola mill digester incident and a delayed start up at Port Wentworth following its outage. The business is beginning to see benefits from announced price increases, along with synergies of $14 million in the quarter from the pulp business acquisition.

Printing Papers operating profits were $100 million in the first quarter of 2017 versus $121 million in the fourth quarter of 2016. Earnings in North America were impacted by higher input costs and maintenance outage expenses. Seasonally lower domestic sales volumes and an associated unfavorable mix led to lower earnings in Brazil. Operating profits in EMEA were higher due to lower maintenance outage expenses and lower operating costs, partially offset by seasonally lower sales volumes and higher wood costs in Russia.

Consumer Packaging operating profits were $33 million in the first quarter of 2017 compared with $41 million in the fourth quarter of 2016. The earnings decrease in North America reflects modestly lower sales prices and a less favorable mix, partially offset by seasonally higher volume and lower planned maintenance outage expense.

International Paper recorded Ilim joint venture equity earnings of $50 million in the first quarter of 2017 compared with $45 million in the fourth quarter of 2016. Operationally, sales volumes were seasonally lower, but average sales prices increased. The Company recognized a non-cash after-tax foreign exchange gain of $23 million in the first quarter of 2017 ($0.06 per share), compared with a gain of $6 million in the fourth quarter of 2016 ($0.01 per share), primarily due to Ilim's U.S. dollar denominated net debt.

CORPORATE EXPENSES

Net corporate expenses, excluding non-operating pension expense, were $11 million for the first quarter of 2017, compared with $11 million in the fourth quarter of 2016.

EFFECTIVE TAX RATE

The reported effective tax rate for the first quarter of 2017 was 34.0% compared to a 2016 fourth quarter effective tax rate of 38.6%. Excluding special items and non-operating pension expense, the effective tax rate for the first quarter of 2017 was 30.5%, compared with an effective tax rate of 29.0% in the fourth quarter of 2016. The lower rate of 29.0% in the fourth quarter was due to the inclusion of a decrease in the Company's valuation allowance for state income taxes.

EFFECTS OF SPECIAL ITEMS

Special items in the first quarter of 2017 included a pre-tax charge of $14 million ($8 million after taxes) to amortize the inventory fair value step-up of the pulp business acquired in December 2016, pre-tax charges of $4 million ($2 million after taxes) for costs associated with the acquisition of that business, a net bargain purchase gain of $6 million (before and after taxes) on the June 2016 acquisition of the Holmen Paper newsprint mill in Madrid, Spain and a charge of $2 million (before and after taxes) for other items. Also included in special items is a $15 million tax expense associated with an international investment 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 newly acquired pulp business, 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.

Special items in the first quarter of 2016 included a loss of $1 million (before and after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $9 million ($6 million after taxes) related to costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production and a pre-tax gain of $8 million ($5 million after taxes) for the sale of our remaining investment in Arizona Chemical. Special items also included a pre-tax charge of $37 million ($34 million after taxes) for an impairment of the assets of our Asia Box business and costs associated with the sale of the business, a tax benefit of $57 million associated with the legal restructuring of our Brazil Packaging business and a tax benefit of $14 million related to the closure of a U.S. federal income tax audit.

DISCONTINUED OPERATIONS

Discontinued operations in the first quarter of 2016 included a pre-tax charge of $8 million ($5 million after taxes) for a legal settlement related to the xpedx business which was spun off in the third quarter of 2014.

EARNINGS WEBCAST

The company will host a webcast to discuss earnings and current market conditions, beginning at 10 a.m. ET (9 a.m. CT). All interested parties are invited to listen to the webcast via the company's Internet site at http://www.internationalpaper.com by clicking on the Performance/Investors tab and going to the Presentations and Events/Webcasts page. A replay of the webcast will also be on the web site beginning approximately two hours after the call. Parties who wish to participate in the webcast via teleconference may dial +1 (706) 679-8242 or, within the U.S. only, (877) 316-2541, and ask to be connected to the International Paper first-quarter earnings call. The conference ID number is 3134070. Participants should call in no later than 9:45 a.m. ET (8:45 a.m. CT). An audio-only replay will be available for ninety days following the call. To access the replay, dial +1 (404) 537-3406 or, within the U.S. only, (855) 859-2056 or (800) 585-8367, and when prompted for the conference ID, enter 3134070.

ABOUT INTERNATIONAL PAPER

International Paper (NYSE: IP) 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. We produce packaging products that protect and promote goods, and enable world-wide commerce; pulp for diapers, tissue and other personal hygiene products that promote health and wellness; papers that facilitate education and communication; and paper bags, cups and food containers that provide convenience and portability. We are headquartered in Memphis, Tenn., and employ approximately 55,000 colleagues located in more than 24 countries. Net sales for 2016 were $21 billion.

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