International Paper Reports Third Quarter 2023 Results

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

Third Quarter Highlights

• Net earnings of $165 million ($0.47 per diluted share); Adjusted operating earnings (non-GAAP) of $224 million ($0.64 per diluted share)
• $75 million of earnings achieved from Building a Better IP initiatives, bringing year-to-date to $195 million, exceeding full-year targets
• Cash provided by operations of $468 million, bringing year-to-date to $1.3 billion
• Returned $160 million to shareholders in dividends, bringing year-to-date to $679 million in share repurchases and dividends
• Completed the sale of our Ilim Joint Venture interest for $508 million

“Our third quarter results came in as expected, and we are encouraged by continuing demand recovery across our portfolio,” said Mark Sutton, Chairman and Chief Executive Officer. “We exceeded our full-year target for Building a Better IP through commercial and process improvement initiatives. Our operations continue to perform reliably with a focus on controlling costs. However, in this challenging macro environment, we are not satisfied with our absolute results. We are taking actions to structurally reduce fixed costs in our mill system, while optimizing our supply chain and investing in our box capabilities to grow with customers.”

Diluted Net EPS and Adjusted Operating EPS
		Third Quarter 2023		Second Quarter 2023		Third Quarter 2022
Net Earnings (Loss)		$ 0.47		$0.68		$2.64
Less – Discontinued Operations (Gain) Loss, Net of Taxes		0.08		(0.04)		(0.18)
Net Earnings (Loss) from Continuing Operations		0.55		0.64		2.46
Add Back – Non-Operating Pension Expense (Income)		0.04		0.03		(0.13)
Add Back – Net Special Items Expense (Income)		0.08		(0.02)		0.32
Income Taxes – Non-Operating Pension and Special Items		(0.03)		(0.06)		(1.82)
Adjusted Operating Earnings*		$0.64		$0.59		$0.83

*

Adjusted operating earnings (non-GAAP) is defined as net earnings (loss) (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 from continuing operations. 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, Net of Taxes and Consolidated Statement of Operations and related notes included later in this release. A reconciliation of net earnings (loss) to adjusted operating earnings is included later in this release.

Select Financial Measures
(In millions)		Third Quarter 2023		Second Quarter 2023		Third Quarter 2022
Net Sales		$4,613		$4,682		$5,402
Net Earnings (Loss)		165		235		951
Business Segment Operating Profit (Loss)		352		334		464
Adjusted Operating Earnings		224		204		300
Cash Provided By (Used For) Operations		468		528		435
Free Cash Flow**		240		261		197

**	Free cash flow is a non-GAAP financial measure. The most directly comparable GAAP measure is cash provided by (used for) operations. A reconciliation of cash provided by (used for) operations to free cash flow and explanation of 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 the Company’s businesses and are calculated as set forth in footnote (f) below under “Sales and Earnings by Business Segment”. Third quarter 2023 net sales by business segment and operating profit (loss) by business segment compared with the second quarter of 2023 and the third quarter of 2022 are as follows:

Business Segment Results
(In millions)		Third Quarter 2023		Second Quarter 2023		Third Quarter 2022
Net Sales by Business Segment
Industrial Packaging		$3,787		$3,884		$4,385
Global Cellulose Fibers		725		698		887
Corporate and Inter-segment Sales		101		100		130
Net Sales		$4,613		$4,682		$5,402
Operating Profit (Loss) by Business Segment
Industrial Packaging		$325		$304		$369
Global Cellulose Fibers		27		30		95
Total Business Segment Operating Profit (Loss)		$352		$334		$464

Industrial Packaging operating profits (losses) in the third quarter of 2023 were $325 million compared with $304 million in the second quarter of 2023. In North America, earnings improved despite lower sales prices for containerboard and corrugated boxes and an unfavorable geographic mix. The earnings improvement was driven by higher sales volumes for containerboard, lower planned outage costs and favorable adjustments related to employee benefit costs. Economic downtime was lower, improving mill operating costs. Input costs increased, primarily for energy, freight and recovered fiber. In EMEA, earnings were lower, driven by seasonally lower volumes, an unfavorable product mix and lower containerboard sales prices.

Global Cellulose Fibers operating profits (losses) in the third quarter of 2023 were $27 million compared with $30 million in the second quarter of 2023. Earnings were slightly lower as lower pulp pricing was mostly offset by lower distribution, input and operating costs, including favorable adjustments related to employee benefit costs. Sales volumes improved as seasonality was more than offset by an improving market environment.

Equity Method Investment – Ilim Joint Venture

The Company completed the sale of its investment in the prior Ilim joint venture in the third quarter of 2023 for proceeds of $508 million ($472 million net of transaction costs). All current period and historical results have been adjusted to reflect Ilim as a discontinued operation. 

Corporate Expenses

Corporate expenses, net was expense of $20 million for the third quarter of 2023 compared with expense of $8 million in the second quarter of 2023.

Effective Tax Rate

The reported effective tax rate for the third quarter of 2023 was 17%, compared to 13% in the second quarter of 2023. The lower tax rate in the second quarter reflects a tax benefit related to the closure of the 2015-2016 IRS audit.

The operational effective tax rate was 18% for the third quarter of 2023 compared to 22% in the second quarter of 2023. The lower operational effective tax rate in the third quarter was primarily due to increased U.S. research and development tax credits and lower than estimated U.S. income taxes on foreign earnings.

The operational effective tax rate is a non-GAAP financial measure and is calculated by adjusting the income tax provision from continuing operations and rate to exclude the tax effect of net special items and non-operating pension expense (income). Management believes that this presentation provides useful information to investors by providing a meaningful comparison of the income tax rate between past and present periods.

Effects of Special Items

Net special items in the third quarter of 2023 amount to a net after-tax charge of $22 million ($0.06 per diluted share) compared with a benefit of $27 million ($0.08 per diluted share) in the second quarter of 2023 and a benefit of $551 million ($1.53 per diluted share) in the third quarter of 2022. Net special items in all periods include the following charges (gains):

		Third Quarter 2023		Second Quarter 2023		Third Quarter 2022
(In millions)		Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax
Restructuring and other charges, net:
Debt extinguishment costs		$ —		$ —		$ —		$    —		$93		$70
Total restructuring and other charges, net		—		—		—		—		93		70
Environmental remediation reserve adjustment		29		22		—		—		—		—
Sylvamo investment (a)		—		—		—		—		(16)		(12)
Legal reserve adjustments		—		—		—		—		(15)		(11)
Tax benefit and interest related to settlement of tax audits (b)		—		—		(6)		(27)		—		—
Tax benefit related to timber monetization, net of interest (c)		—		—		—		—		55		(563)
Tax benefit related to exchange of Sylvamo shares (a)		—		—		—		—		—		(35)
Total special items, net		$29		$22		$(6)		$(27)		$117		$(551)

(a)	See notes (g) and (i) on the Consolidated Statement of Operations included later in this release.
(b)	See notes (b) and (c) on the Consolidated Statement of Operations included later in this release.
(c)	See notes (h) and (i) 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):

		Third Quarter 2023		Second Quarter 2023
(In millions)		Before Tax		After Tax		Before Tax		After Tax
Ilim equity method investment impairment and transaction costs		$59		$50		$33		$33
Total		$59		$50		$33		$33

For the complete press release, click here.

About International Paper

International Paper (NYSE: IP) is a global producer of planet-friendly packaging, pulp and other fiber-based products, and one of North America’s largest recyclers. Headquartered in Memphis, Tenn., we employ approximately 39,000 colleagues globally who are committed to creating what’s next. 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