International Paper Reports First Quarter 2023 Results

International Paper (NYSE: IP) today reported first quarter 2023 financial results.

First Quarter 2023 Highlights

• First quarter net earnings (loss) of $172 million ($0.49 per diluted share); First quarter adjusted operating earnings* (non-GAAP) of $185 million ($0.53 per diluted share)
• Building a Better IP initiatives delivered $65 million of incremental year-over-year earnings benefit in the first quarter 2023
• First quarter cash provided by operations of $345 million; First quarter free cash flow of $4 million included a $193 million final payment to the IRS for the timber monetization restructuring settlement
• Returned $319 million to shareholders through $157 million share repurchases and $162 million in dividends in the first quarter 2023

“International Paper operated well in the first quarter, while navigating a challenging and dynamic macro environment,” said Mark Sutton, Chairman of the Board and Chief Executive Officer. “We successfully executed our highest maintenance outage quarter and realized additional benefits from our Building a Better IP initiatives and lower input costs. We also returned $319 million to shareowners.”

“Looking ahead,” Sutton added, “we expect the demand environment to improve throughout the year as customer inventory destocking runs its course.  We remain focused on serving our customers’ needs, while optimizing our system to drive out high marginal costs and maximizing value for our stakeholders.”

Diluted Net EPS and Adjusted Operating EPS
		First Quarter 2023		Fourth Quarter 2022		First Quarter 2022
Net Earnings (Loss)		$0.49		$(0.90)		$0.95
Less – Discontinued Operations (Gain) Loss, Net of Taxes		—		1.38		(0.25)
Net Earnings (Loss) from Continuing Operations		0.49		0.48		0.70
Add Back – Non-Operating Pension Expense (Income)		0.04		(0.13)		(0.13)
Add Back – Net Special Items Expense (Income)		0.01		0.41		(0.12)
Income Tax Effect – Non-Operating Pension and Net Special Items Expense		(0.01)		0.11		0.06
Adjusted Operating Earnings*		$0.53		$0.87		$0.51

*

Adjusted operating earnings (non-GAAP) is defined as net earnings (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
(In millions)		First Quarter 2023		Fourth Quarter 2022		First Quarter 2022
Net Sales		$5,020		$5,133		$5,237
Net Earnings (Loss)		172		(318)		360
Business Segment Operating Profit		306		451		348
Adjusted Operating Earnings		185		309		195
Cash Provided By (Used For) Operations		345		761		588
Free Cash Flow**		4		439		403

**	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.

Segment Information

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 (e) below under “Sales and Earnings by Business Segment”. First quarter 2023 net sales by business segment and operating profit (loss) by business segment compared with the fourth quarter of 2022 and the first quarter of 2022 are as follows:

Business Segment Results
(In millions)		First Quarter 2023		Fourth Quarter 2022		First Quarter 2022
Net Sales by Business Segment
Industrial Packaging		$4,083		$4,169		$4,406
Global Cellulose Fibers		811		842		710
Corporate and Inter-segment Sales		126		122		121
Net Sales		$5,020		$5,133		$5,237
Operating Profit (Loss) by Business Segment
Industrial Packaging		$322		$416		$397
Global Cellulose Fibers		(16)		35		(49)
Total Business Segment Operating Profit		$306		$451		$348

Industrial Packaging operating profits (losses) in the first quarter of 2023 were $322 million compared with $416 million in the fourth quarter of 2022. In North America, earnings decreased as lower input costs, primarily for recovered fiber and energy, were more than offset by lower revenue and higher planned maintenance outage expenses. Sequentially, revenue decreased as a result of lower sales prices for corrugated boxes and containerboard offset by some additional volume benefit from four more shipping days. Operating costs were higher in the first quarter of 2023 due to the non-repeat of favorable one-time items for employee benefit costs and medical claims. In EMEA, earnings improved driven by lower energy and containerboard costs.

Global Cellulose Fibers operating profits (losses) in the first quarter of 2023 were $(16) million compared with $35 million in the fourth quarter of 2022. Higher sales prices for fluff pulp was more than offset by overall lower sales volumes and a less favorable mix of lower fluff volumes and higher commodity volumes. Lower input costs, primarily for energy, were offset by higher planned maintenance outage expenses. Operating costs in the first quarter of 2023 were higher reflecting the impact of increased economic downtime and inflation and the non-repeat of favorable one-time items for employee benefit costs and medical claims in the fourth quarter of 2022.

Equity Method Investment – Ilim Joint Venture

On January 24, 2023, the Company announced an agreement to sell its investment in the Ilim joint venture, subject to regulatory approvals. The Company recognized a $533 million impairment charge including $375 million of foreign currency cumulative translation adjustment loss in the fourth quarter of 2022. In the first quarter of 2023, the Company recognized an additional $43 million impairment charge including approximately $43 million of foreign currency translation adjustment loss. Equity earnings (losses), excluding impairment, were $43 million in the first quarter of 2023 compared with $44 million in the fourth quarter of 2022. The current period and historical results have been adjusted to reflect Ilim as a discontinued operation and our investment balance, following the adjustment to fair value and resulting impairment charges, is included in Assets Held for Sale.

Corporate Expenses

Corporate expenses, net was an expense of $8 million for the first quarter of 2023, compared with a benefit of $(20) million in the fourth quarter of 2022.

Effective Tax Rate

The reported effective tax rate for the first quarter of 2023 was 22%, compared to a fourth quarter of 2022 reported effective tax rate of 46%. The higher tax rate in the fourth quarter reflects tax expense related to increases in foreign and state deferred taxes as well as the non-deductible goodwill impairment charge recognized in the fourth quarter of 2022 as set forth in the special items table below.

Excluding special items and non-operating pension expense, the operational effective tax rate for the first quarter of 2023 was 22%, compared with 25% for the fourth quarter of 2022. The higher operational effective tax rate in the fourth quarter was primarily due to an increase in state deferred taxes.

Effects of Special Items

Net special items in the first quarter of 2023 amount to a net after-tax charge of $2 million ($0.01 per diluted share) compared with a charge of $174 million ($0.49 per diluted share) in the fourth quarter of 2022 and a gain of $35 million ($0.09 per diluted share) in the first quarter of 2022. Net special items in all periods include the following charges (gains):

		First Quarter 2023		Fourth Quarter 2022		First Quarter 2022
(In millions)		Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax
Restructuring and other charges, net:
Other		$ —		$ —		$(4)		$(3)		$ —		$ —
Total restructuring and other charges, net		—		—		(4)		(3)		—		—
EMEA Packaging goodwill impairment		—		—		76		76		—		—
Environmental remediation reserve adjustment		—		—		48		36		—		—
Legal reserve adjustments		—		—		11		8		—		—
Foreign currency cumulative translation loss related to sale of equity method investment		—		—		10		10		—		—
Sylvamo investment (a)		—		—		—		—		(46)		(35)
Interest related to the timber monetization settlement (b)		3		2		3		2		—		—
Foreign deferred tax valuation allowance		—		—		—		45		—		—
Total special items, net		$3		$2		$144		$174		$(46)		$(35)

(a)	See note (c) on the Consolidated Statement of Operations included later in this release.
(b)	See note (a) on the Consolidated Statement of Operations included later in this release.

Discontinued Operations, Net of Taxes

Discontinued operations, net of taxes include the equity earnings associated with our Ilim joint venture. Discontinued operations, net of taxes also includes the following special items charges (gains):

		First Quarter 2023		Fourth Quarter 2022
(In millions)		Before Tax		After Tax		Before Tax		After Tax
Ilim equity method investment impairment		$43		$43		$533		$533
Total		$43		$43		$533		$533

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 2022 were $21.2 billion. Additional information can be found by visiting InternationalPaper.com.

Source: International Paper Company