International Paper's 3Q profit soars on tax item

International Paper, the world's biggest wood products company, said Wednesday its third-quarter profit more than doubled as a huge federal tax credit more than offset falling sales of cardboard box materials.

The 13 percent sales decline shows retailers who depend on consumer spending for their profits have yet to resume large-scale purchases of the cardboard boxes that are made from materials made by IP, which is based in Memphis, Tenn.

But CEO John V. Faraci said that at the end of the latest quarter, the company "began to see some modest improvements in demand in some segments of our paper and packaging businesses."

The company also is seeing its Asian and Latin American initiatives make increasingly key contributions as demand in those economies recovers more quickly than elsewhere.

Asian sales are expected to be up this year about 26 percent over last year's level and to exceed $1 billion for the first time.

"Our Asian operations are starting to build a critical mass," Chief Financial Officer Tim S. Nicholls said, noting that IP's consumer packaging joint venture in China is that nation's largest such operation.

Further, a Russian joint venture achieved a $30 million profit improvement this quarter, and volumes of printing and office paper jumped nearly a third in Brazil, where operating costs and inventories are low.

International Paper's profit rose to $371 million, or 87 cents per share, in the July-September period from $149 million, or 35 cents per share, a year ago.

But the latest results included special items, primarily a $525 million federal alternative fuel tax credit, which amounted to $320 million after-tax.

Without special items, IP said it would have earned 37 cents per share from continuing operations versus 84 cents a share a year ago. The latest figure is 13 cents a share better than Wall Street analysts polled by Thomson Reuters expected. They typically exclude special items from their estimates.

Sales fell 13 percent to $5.92 billion from $6.81 billion a year ago.

IP shares fell 70 cents, or 3.1 percent, to $21.93 in afternoon trading.

Operating profit in IP's largest segment, industrial packaging, fell to $214 million from $255 million as lower box prices offset modestly higher volumes and lower annual maintenance outages.

At the printing paper segment, operating profit climbed to $138 million from $86 million as volumes rose and materials costs fell.

Consumer packaging's operating profit jumped to $68 million from $38 million as lower annual maintenance outages, modest volume improvements and cheaper materials costs offset pricing pressure.

The company also generated $1.3 billion in free cash flow and repaid debt by the same amount.

IP, which does not issue specific guidance, expects a seasonal slowdown in revenue and earnings in the fourth-quarter.

Next year's results will depend on stronger North American demand, which isn't expected to develop quickly, said Faraci. Also, the U.S. law authorizing the fuel tax credit that boosted third-quarter earnings is set to expire in December.