International Paper Reports First Quarter 2018 Earnings

MEMPHIS, Tenn., April 26, 2018 -- International Paper (NYSE: IP) reported first quarter 2018 net earnings attributable to International Paper of $729 million ($1.74 per diluted share) compared with $1.5 billion ($3.50 per diluted share) in the fourth quarter of 2017 and net earnings of $209 million ($0.50 per diluted share) in the first quarter of 2017.

Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.

* Adjusted operating earnings (non-GAAP) is defined as net earnings from continuing operations attributable to International Paper Company (GAAP) excluding special items and non-operating pension expense. Non-operating pension expense in the fourth quarter of 2017 included a non-cash pre-tax charge of $376 million ($232 million after taxes or $0.56 per diluted share) for a settlement accounting charge associated with an annuity purchase and related transfer of pension obligations for approximately 45,000 retirees.

Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present operating results.

Adjusted operating earnings in the first quarter of 2018 were $395 million ($0.94 per diluted share) compared with $530 million ($1.27 per diluted share) in the fourth quarter of 2017, and $232 million ($0.56 per diluted share) in the first quarter of 2017. Quarterly net sales were $5.6 billion in the first quarter 2018 compared with $5.7 billion in the fourth quarter of 2017 and $5.1 billion in the first quarter of 2017.

Business segment operating profits were $512 million in the first quarter of 2018 compared with $824 million in the fourth quarter of 2017 and $414 million in the first quarter of 2017.

Cash provided by (used for) operations was $663 million in the first quarter of 2018 and $633 million in the first quarter of 2017. Free cash flow (non-GAAP) was $174 million for the first quarter of 2018 and $259 million in the first quarter of 2017.

\"International Paper delivered a solid first quarter and strong year-over-year earnings growth, as we continue to see healthy global demand and solid fundamentals across our global businesses,\" said Mark Sutton, Chairman and Chief Executive Officer. \"Price realization momentum continues across our three businesses and we continue to drive commercial excellence and innovative solutions that deliver superior value to our customers. Operationally, we executed well in a heavy outage quarter and managed through weather related disruptions, distribution challenges and other unusual events. Our Ilim joint venture in Russia delivered record equity earnings. Looking forward, we are confident in our outlook 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). First quarter 2018 business segment operating profits and business trends compared with the prior quarter are as follows:

Industrial Packaging operating profits in the first quarter of 2018 were $437 million ($464 million excluding special items) compared with $609 million ($614 million excluding special items) in the fourth quarter of 2017. In North America, strong demand in box and export containerboard markets, along with price realization, were more than offset by seasonally lower sales volume, production constraints due to weather related disruptions and maintenance outage costs.

Global Cellulose Fibers operating profits in the first quarter of 2018 were $11 million ($15 million excluding special items) compared with $79 million ($98 million excluding special items) in the fourth quarter of 2017. Higher sales price realizations were partially offset by seasonally lower sales volume, while planned maintenance outage costs increased significantly as 40% of the 2018 annual outages were completed in the first quarter.

Printing Papers operating profits in the first quarter of 2018 were $64 million versus $136 million in the fourth quarter of 2017. In North America, the benefits from increased sales prices and a favorable mix were more than offset by higher planned maintenance outages and higher input costs related to transportation and energy. In Brazil, seasonally lower sales volumes and an unfavorable geographic and product mix exceeded the benefits from higher sales price realizations. In Europe and Russia, earnings decreased due to higher planned maintenance outage costs, higher input costs and lower sales volumes, partially offset by improved pricing.

EQUITY METHOD INVESTMENTS

Ilim joint venture equity earnings were a record $92 million in the first quarter of 2018 compared with $64 million in the fourth quarter of 2017. Operationally, sales prices increased significantly, but were partially offset by seasonally lower sales volumes. The Company received cash dividends from the joint venture of $116 million in the first quarter.

International Paper recorded equity earnings of $2 million on its 20.5% ownership position in Graphic Packaging.

CORPORATE EXPENSES

Corporate expenses were $9 million for the first quarter of 2018, compared with $18 million in the fourth quarter of 2017.

EFFECTIVE TAX RATE

The reported effective tax rate for the first quarter of 2018 was 25%,which reflects the impact of the U.S. Tax Cuts and Jobs Act (\"Tax Reform\"), compared to a 2017 fourth quarter reported effective tax rate of (613)%. In the fourth quarter of 2017, the Company recorded a provisional net benefit of $1.2 billion related to the enactment of Tax Reform in December of 2017. 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 approximately $230 million related to the deemed repatriation of earnings of its foreign subsidiaries. The Company continues to analyze Tax Reform 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 first quarter of 2018 was 25%, compared with an effective tax rate of 32% in the fourth quarter of 2017. The lower effective tax rate in the first quarter is primarily due to Tax Reform.

EFFECTS OF SPECIAL ITEMS

Special items in the first quarter of 2018 included a pre-tax charge of $22 million ($17 million after taxes) included in Restructuring and other charges related to the optimization of our EMEA Packaging business. Special items also included pre-tax charges of $9 million ($7 million after taxes) related to the removal of abandoned property at our mills and a pre-tax charge of $9 million ($7 million after taxes) for a legal settlement.

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 the 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 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 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.

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 first quarter of 2018 was income of $368 million ($0.88 per diluted share) compared with a loss of $8 million ($0.02 per diluted share) in the fourth quarter of 2017, and income of $17 million ($0.04 per diluted share) in the first quarter of 2017. Discontinued operations in the first quarter of 2018 included a pre-tax gain on the transfer of the business of $516 million ($385 million after taxes) and pre-tax charges of $23 million ($17 million after taxes) for costs associated with the transfer. 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 transfer 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 first quarter of 2017 included the operating earnings of the North American Consumer Packaging business.

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 6584787. 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 6584787.

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, India and Russia. We produce corrugated packaging products that protect and promote goods, and enable worldwide commerce; pulp for diapers, tissue and other personal hygiene products that promote health and wellness and papers that facilitate education and communication. We are headquartered in Memphis, Tenn., and employ approximately 52,000 colleagues located in more than 24 countries. Net sales for 2017 were $22 billion. For more information about International Paper, our products and global citizenship efforts, please visit internationalpaper.com.

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