International Paper Reports Third Quarter 2022 Results
International Paper today reported third quarter 2022 financial results.
Third Quarter 2022 Highlights
- Third quarter net earnings (loss) attributable to International Paper of $951 million ($2.64 per diluted share) compared with $511 million ($1.38 per diluted share) in the second quarter of 2022 and $864 million ($2.20 per diluted share) in the third quarter of 2021. Third quarter 2022 net earnings include a net after-tax benefit of $563 million ($1.56 per diluted share) related to the settlement of the previously announced timber monetization restructuring tax matter. Third quarter 2021 net earnings include a net after-tax gain of $350 million ($0.89 per diluted share) on the sale of our Kwidzyn, Poland mill.
- Third quarter adjusted operating earnings* (non-GAAP) of $364 million ($1.01 per diluted share) compared with $459 million ($1.24 per diluted share) in the second quarter of 2022 and $431 million ($1.10 per diluted share) in the third quarter of 2021.
- 10% year-over-year revenue growth based on strong price realization
- $70 million of earnings achieved from Building a Better IP initiatives, bringing year-to-date to $175 million
- Cash provided by operations of $435 million, bringing year-to-date to $1.4 billion
- Returned $434 million to shareholders through share repurchases of $269 million and dividends of $165 million, bringing year-to-date to $1.6 billion
“Our third quarter earnings were significantly impacted by the challenging macro environment,” said Mark Sutton, Chairman and Chief Executive Officer. “Lower consumer spending for goods and retail inventory destocking drove lower demand for packaging, and we also experienced significantly higher energy and distribution costs. As we enter the fourth quarter, we see packaging demand stabilizing at these lower levels and input costs providing some relief; however, we also expect seasonally higher operating costs. And for the year, we expect to exceed our $225 million target related to our Building a Better IP initiatives.”
Sutton added, “Looking ahead, while there is considerable geopolitical and macroeconomic uncertainty ahead of us, I am confident in our ability to navigate through various environments. We have a great team and a large system of mills and box plants that enables us to take care of our customers while optimizing our operations to reduce high marginal costs. We will also continue to invest in attractive cost reduction projects and accelerate our improvement initiatives to create value.”
|Diluted Net EPS Attributable to International Paper Shareholders and Adjusted Operating EPS|
|Net Earnings (Loss) Attributable to International Paper||$ 2.64||$ 1.38||$ 2.20|
|Less – Discontinued Operations (Gain) Loss||—||—||(1.10)|
|Net Earnings (Loss) from Continuing Operations||2.64||1.38||1.10|
|Add Back – Non-Operating Pension Expense (Income)||(0.13)||(0.13)||(0.12)|
|Add Back – Net Special Items Expense (Income)||0.32||0.05||0.12|
|Income Tax Effect – Non-Operating Pension and Net Special Items Expense||(1.82)||(0.06)||—|
|Adjusted Operating Earnings*||$ 1.01||$ 1.24||$ 1.10|
|*||Adjusted operating earnings (non-GAAP) is defined as net earnings attributable to International Paper Company (GAAP) excluding discontinued operations, net special items and non-operating pension expense (income). 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 consolidated operating results. For discussion of discontinued operations, net special items and non-operating pension expense (income), see the disclosure under Effects of Net Special Items, Discontinued Operations and Consolidated Statement of Operations and related notes included later in this release.|
|Select Financial Measures|
|Net Sales||$ 5,402||$ 5,389||$ 4,914|
|Net Earnings (Loss) Attributable to International Paper||951||511||864|
|Business Segment Operating Profit||464||585||490|
|Adjusted Operating Earnings||364||459||431|
|Cash Provided By (Used For) Operations||435||390||645|
|Free Cash Flow*||197||204||519|
|*||Free cash flow is a non-GAAP financial measure. A reconciliation of free cash flow to the most comparable GAAP measure, cash provided by (used for) operations, and disclosure regarding why we believe that free cash flow provides useful information to investors, is included later in this release.|
Business segment operating profits are used by International Paper’s management to measure the earnings performance of its businesses and is calculated as set forth in footnote (g) below under “Sales and Earnings by Business Segment”. As a result of the spin-off of our global Printing Papers business on October 1, 2021, the Printing Papers business segment has been eliminated and all prior year amounts have been adjusted to reflect this business as a discontinued operation. For discussion of discontinued operations, see the disclosure under Discontinued Operations included later in this release. Third quarter 2022 net sales by business segment and operating profit (loss) by business segment compared with the second quarter of 2022 and the third quarter of 2021 are as follows:
|Business Segment Results|
|Net Sales by Business Segment|
|Industrial Packaging||$ 4,385||$ 4,491||$ 4,111|
|Global Cellulose Fibers||887||788||740|
|Corporate and Inter-segment Sales||130||110||63|
|Net Sales||$ 5,402||$ 5,389||$ 4,914|
|Operating Profit (Loss) by Business Segment|
|Industrial Packaging||$ 369||$ 560||$ 414|
|Global Cellulose Fibers||95||25||76|
|Total Business Segment Operating Profit||$ 464||$ 585||$ 490|
Industrial Packaging operating profits (losses) in the third quarter of 2022 were $369 million compared with $560 million in the second quarter of 2022. In North America, earnings decreased as higher sales prices for corrugated boxes and containerboard and lower planned maintenance outage expenses were more than offset by lower sales volumes for corrugated boxes and containerboard, higher operating and distribution costs and higher input costs, primarily for energy. Sales volumes for corrugated boxes were adversely impacted by the macroeconomic environment and reflect lower consumer spending on goods and retailer inventory destocking. Operating and distribution costs increased driven by economic downtime and inflation. Second quarter 2022 results were impacted by some favorable one-time items that did not repeat in the third quarter. In EMEA, earnings were impacted by significantly higher energy costs and seasonally lower sales volumes in Morocco.
Global Cellulose Fibers operating profits (losses) in the third quarter of 2022 were $95 million compared with $25 million in the second quarter of 2022. Earnings increased driven by higher sales prices for both fluff pulp and market pulp and lower planned maintenance outage expenses, partially offset by higher input costs, primarily for wood and chemicals, and higher distribution costs. Sales volumes increased, reflecting a favorable demand/supply environment for fluff pulp and some improvement in supply chain conditions. Second quarter 2022 results were impacted by some favorable one-time items that did not repeat in the third quarter.
Equity Method Investments
Ilim joint venture equity earnings (losses) were $64 million in the third quarter of 2022 compared with $95 million in the second quarter of 2022. Operationally, earnings decreased driven by lower sales prices for containerboard and higher operating costs. The Company continues to actively explore strategic options with respect to the Ilim joint venture, including a sale of its 50% ownership interest.
Corporate expenses were $15 million for the third quarter of 2022, compared with $27 million in the second quarter of 2022.
Effective Tax Rate
The reported effective tax rate for the third quarter of 2022 was (184)%, compared to a 2022 second quarter reported effective tax rate of 19%. The effective tax rate for the third quarter of 2022 was significantly lower due to the tax-free exchange of the Company’s remaining shares of Sylvamo Corporation and a one-time deferred tax benefit resulting from the settlement of the timber monetization restructuring tax matter with the Internal Revenue Service.
Excluding special items and non-operating pension expense, the operational effective tax rate for the third quarter of 2022 was 21%, compared with 25% for the second quarter of 2022. The lower operational effective tax rate in the third quarter is due to a reduction in the forecasted annual effective tax rate including additional tax credits available through the Inflation Reduction Act.
Effects of Special Items
Net special items in the third quarter of 2022 amount to a net after-tax gain of $551 million ($1.53 per diluted share) compared with a gain of $17 million ($0.05 per diluted share) in the second quarter of 2022 and a charge of $37 million ($0.09 per diluted share) in the third quarter of 2021. Net special items in all periods include the following charges (gains):
|Third Quarter 2022||Second Quarter 2022||Third Quarter 2021|
|(In millions)||Before Tax||After Tax||Before Tax||After Tax||Before Tax||After Tax|
|Restructuring and other charges, net:|
|Debt extinguishment costs||$ 93||$ 70||$ —||$ —||$ 35||$ 26|
|Total restructuring and other charges, net||93||70||—||—||39||29|
|Environmental remediation reserve adjustment||—||—||15||11||5||4|
|Sylvamo investment (a)||(16)||(12)||(3)||(2)||—||—|
|Tax benefit related to timber monetization settlement, net of interest (b)||55||(563)||—||—||—||—|
|Tax benefit related to exchange of Sylvamo shares (c)||—||(35)||—||(31)||—||—|
|Total special items, net||$ 117||$ (551)||$ 18||$ (17)||$ 49||$ 37|
|(a)||See note (c) on the Consolidated Statement of Operations included later in this release.|
|(b)||See notes (d) and (e) on the Consolidated Statement of Operations included later in this release.|
|(c)||See note (e) on the Consolidated Statement of Operations included later in this release.|
Discontinued operations include the operating earnings of our former Printing Papers segment and EMEA Coated Paperboard and Pulp business including the Kwidzyn, Poland mill, divested in the third quarter of 2021. Discontinued operations also includes the following special items charges (gains):
|Third Quarter 2021|
|(In millions)||Before Tax||After Tax|
|Printing Papers spin-off||52||47|
|Foreign value-added tax credit (including interest)||15||10|
|Gain on sale of Kwidzyn, Poland mill||(360)||(350)|
|Gain on sale of La Mirada, CA distribution center||(86)||(65)|
|Foreign and state taxes related to Printing Papers spin-off||—||27|
|Total||$ (379)||$ (331)|
For the complete press release, click here.
About International Paper
International Paper (NYSE: IP) is a leading global supplier of renewable fiber-based products. We produce corrugated packaging products that protect and promote goods, and enable worldwide commerce, and pulp for diapers, tissue and other personal care products that promote health and wellness. Headquartered in Memphis, Tenn., we employ approximately 38,000 colleagues globally. We serve customers worldwide, with manufacturing operations in North America, Latin America, North Africa and Europe. Net sales for 2021 were $19.4 billion. Additional information can be found by visiting InternationalPaper.com.
Source: International Paper Company