HARTFORD, Conn. (AP) – International Paper Co., the world’s largest paper company, said Tuesday that its third-quarter earnings rose sharply due to the sale of a New Zealand forest products company and a federal tax settlement.

Earnings of $1.04 billion or $2.07 per share compared with a loss of $470 million or 91 cents per share in the same quarter last year.

Third-quarter earnings included $278 million from discontinued operations related to the sale of the Stamford-based company’s interest in Carter Holt Harvey Ltd. They also included $603 million, primarily from a U.S. federal income tax audit agreement with the U.S. Internal Revenue Service, the company said.

Earnings from continuing operations and before special items were $162 million, or 33 cents a share, down from 40 cents per share in the third quarter of 2004. That beat estimates of 24 cents per share from analysts surveyed by Thomson Financial.

For the nine months that ended Sept. 30, earnings were nearly $1.2 billion, or $2.40 a share, up from a loss of $204 million and 42 cents per share loss in the same nine months of 2004.

Sales in the third quarter were $6 billion, unchanged from the same quarter last year.

John Faraci, chairman and chief executive, said International Paper’s mills “ran well and continued the aggressive improvement” that helped offset some of the impact of pricing pressure and energy costs.

In a conference call with investor analysts on Tuesday, Faraci said higher energy costs due to hurricanes Katrina and Rita created “extreme margin pressure.”

“Despite the margin squeeze, I’m frankly very pleased with the progress we’ve made on the cost side of this company,” he said.

International Paper reported that the hurricanes caused no direct damage to its facilities or “material damage” to its forest lands.

Steven Chercover, a research analyst at D.A. Davidson & Co. in Portland, Ore., said the company has successfully cut consumption to keep down energy costs.

Overall, the earnings results were a “little bit higher than anyone expected,” he said. The steep increase between the third quarter of this year and the third quarter of 2004 was “primarily via taxes,” he said.

Chercover said he believes International Paper had informally suggested that earnings would come in lower than they did.

“I think they were guiding down, post-Katrina,” Chercover said. “I think a lot of people expected lower.”

International Paper said the two hurricanes that hit the Gulf Coast in August and September caused significantly higher logging and transportation costs and a slow recovery that led to “skyrocketing prices” for natural gas and fuel oil.

The company estimates fourth-quarter earnings from continuing operations and before special items to be lower than the third quarter, primarily because of rising energy and transportation costs.

International Paper moved to Stamford from Purchase, N.Y., in 2001, after acquiring Stamford-based Champion International. It announced in August that it will relocate its global headquarters to Memphis, Tenn.

Shares of International Paper closed at $28, down 37 cents or about 11/2 percent, after trading on the New York Stock Exchange on Tuesday.

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On the Net: www.internationalpaper.com

AP-ES-10-25-05 1805EDT