JAY – International Paper Co. had anticipated improvement in the second quarter after its strongest first quarter in years, but higher input costs and lower volumes offset pricing gains.
IP reported second-quarter earnings Tuesday, a week after the company announced a massive business restructuring, at $77 million or 16 cents a share, which is unchanged from the first quarter, according to a corporate news release.
Earnings from continuing operations were up from $62 million in the second quarter of 2004. However, the company earned $193 million in the 2004 second quarter, and of that, $131 million was from discontinued operations.
Earnings per share in continuing operations in the second quarter for 2005 dropped to 31 cents per share versus 34 cents per share in the first quarter of 2005 and 33 cents per share in the second quarter of 2004.
Quarterly net sales were $6.5 billion compared with first-quarter net sales of $6.6 billion and second-quarter 2004 net sales of $6.2 billion.
Operating profits of $501 million for the second quarter of 2005 were lower compared with first quarter 2005 operating profits of $551 million due to lower volumes in packaging and printing papers, higher input costs, and $31 million of organizational restructuring charges in the printing papers and forest products segments, the release stated.
“We anticipated some modest improvement in the second quarter following our strongest first quarter in years,” IP Chairman and Chief Executive Officer John Faraci stated in a release. “However, while pricing was up slightly from the first quarter, sales volumes … were lower than we expected.”
As a result, we took more lack of order downtime, including the indefinite shutdowns of uncoated printing papers machines” in Jay, Pensacola, Fla., and Bastrop, La., “bringing our total capacity closure through second quarter 2005 to 430,000 tons annually. These factors, combined with the higher input costs we’ve been experiencing for wood, chemicals and energy, impacted our margins.”
As far as the third quarter goes, Faraci stated: “Demand looks mixed and overall pricing appears flat. Our raw material costs remain at high levels and continue to impact our profit margins. As we announced last week, we are implementing a transformation plan that will focus the company on two global platform businesses, printing papers and packaging.”
The plan includes debt repayment, returning value to share owners and selective investments that will enable the company to earn cost of capital and provide solid returns to share owners even in today’s markets, Faraci said. The company also plans to continue to focus on its efforts to improve productivity, reduce costs and serve it customers, he said.
The restructuring plan includes selling billions of dollars in businesses and millions of acres of forestland and reducing its work force.
IP plans to either sell outright its coated paper and supercalendar business as a whole or to create a separate company. That business includes mills in Jay and Bucksport as well as mills in Michigan, Minnesota and Brazil.
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