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International Paper Reports Full-Year and Fourth Quarter 2019 Results

MEMPHIS, Tenn. , Jan. 30, 2020 /PRNewswire/ -- International Paper (NYSE: IP) today reported full-year and fourth quarter 2019 financial results.

International Paper logo. (PRNewsfoto/International Paper)

HIGHLIGHTS

  • Full-year and fourth quarter net earnings attributable to International Paper of $1.2 billion ( $3.07 per diluted share) and $165 million ( $0.42 per diluted share), respectively, compared with $2.0 billion ( $4.85 per diluted share) for full-year 2018, $344 million ( $0.87 per diluted share) in the third quarter of 2019 and $316 million ( $0.78 per diluted share) in the fourth quarter of 2018
  • Full-year and fourth quarter adjusted operating earnings* (non-GAAP) of $1.8 billion ( $4.43 per diluted share) and $430 million ( $1.09 per diluted share), respectively, compared with $2.2 billion ( $5.32 per diluted share) for full-year 2018, $431 million ( $1.09 per diluted share) in the third quarter of 2019 and $670 million ( $1.65 per diluted share) in the fourth quarter of 2018
  • Fourth quarter cash provided by operations of $928 million , bringing full-year 2019 to $3.6 billion compared with $3.2 billion for full-year 2018
  • Fourth quarter debt reduction of $582 million , bringing full-year 2019 to $973 million
  • Returned $1.3 billion to shareholders in 2019 through dividends of $796 million and share repurchases of $485 million

"International Paper delivered solid earnings and outstanding cash generation in the fourth quarter and full-year 2019," said Mark Sutton , Chairman and Chief Executive Officer. "We again demonstrated our flexibility to navigate through challenging market conditions by optimizing our full value chain. In 2019, we returned $1.3 billion to shareholders and reduced debt by $1.0 billion , while continuing to strengthen our packaging business through targeted investments. We are delivering commercial wins and will continue to tightly manage costs, capital spending and working capital to generate strong cash flows in 2020, despite earnings headwinds.  Additionally, we will continue to make choices consistent with our capital allocation framework to drive long-term value creation."

Diluted Net EPS Attributable to International Paper Shareholders and Adjusted Operating EPS




Fourth
Quarter
2019


Third
Quarter
2019


Fourth
Quarter
2018


Full-
Year
2019


Full-
Year
2018

Net Earnings


$

0.42



$

0.87



$

0.78



$

3.07



$

4.85


Less Discontinued Operations (Gain) Loss










(0.83)


Net Earnings (Loss) from Continuing Operations


0.42



0.87



0.78



3.07



4.02


Add Back Non-Operating Pension Expense


0.02



0.02



0.79



0.07



0.90


Add Back Net Special Items Expense (Income)


0.65



0.20



0.08



1.29



0.40


Adjusted Operating Earnings*


$

1.09



$

1.09



$

1.65



$

4.43



$

5.32



*

Adjusted operating earnings (non-GAAP) is defined as net earnings from continuing operations attributable to International Paper Company (GAAP) excluding special items and non-operating pension expense. 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 special items, net and non-operating pension expense, see the Consolidated Statement of Operations and related notes.

 

Key Financial Measures


(In millions)


Fourth
Quarter
2019


Third
Quarter
2019


Fourth
Quarter
2018


Full-
Year
2019


Full-
Year
2018

Net Sales


$

5,498



$

5,568



$

5,951



$

22,376



$

23,306


Net Earnings Attributable to International Paper


165



344



316



1,225



2,012


Business Segment Operating Profit


669



701



936



2,599



3,082


  Adjusted Operating Earnings


430



431



670



1,768



2,204


Cash Provided By (Used For) Operations


928



882



821



3,610



3,226


Free Cash Flow*


565



597



535



2,334



1,654



*

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. Full-year and fourth quarter 2019 business segment net sales and operating profits compared with the full-year 2018, the third quarter of 2019 and the fourth quarter of 2018 are as follows:

Business Segment Results


(In millions)


Fourth
Quarter
2019


Third
Quarter
2019


Fourth
Quarter
2018


Full-
Year
2019


Full-
Year
2018

Net Sales by Business Segment











Industrial Packaging


$

3,810



$

3,820



$

4,017



$

15,326



$

15,900


Global Cellulose Fibers


577



624



736



2,551



2,819


Printing Papers


1,067



1,071



1,160



4,291



4,375


Corporate and Inter-segment Sales


44



53



38



208



212


Net Sales


$

5,498



$

5,568



$

5,951



$

22,376



$

23,306


Operating Profit by Business Segment











Industrial Packaging


$

605



$

535



$

646



$

2,076



$

2,277


Global Cellulose Fibers


(45)



4



93



(6)



262


Printing Papers


109



162



197



529



543


Total Business Segment Operating Profit


$

669



$

701



$

936



$

2,599



$

3,082


Industrial Packaging  operating profits in the fourth quarter of 2019 were $605 million compared with $535 million in the third quarter of 2019. In North America , earnings increased due to improved demand for export containerboard, lower planned maintenance outage expenses and lower input costs, primarily for wood. Earnings were negatively impacted by lower average sales prices for export containerboard and boxes. Earnings benefited from a favorable inventory valuation adjustment in the fourth quarter of 2019.  In Europe, earnings improved driven by seasonally higher volumes, primarily in Morocco , improved margins and continued performance improvements at the Madrid, Spain mill, slightly offset by unfavorable foreign currency impacts, primarily in Turkey .

Global Cellulose Fibers operating profits in the fourth quarter of 2019 were $(45) million compared with $4 million in the third quarter of 2019. Fourth quarter results were impacted by lower prices across all regions on very challenging supply and demand conditions.

Printing Papers  operating profits in the fourth quarter of 2019 were $109 million compared with $162 million in the third quarter of 2019. In North America , earnings decreased due to lower average sale prices, an unfavorable geographic mix and increased operating costs partially offset by lower planned maintenance outage expenses and input costs, primarily for wood.  Earnings were negatively impacted by an unfavorable inventory valuation adjustment in the fourth quarter of 2019.  In Brazil , earnings decreased slightly due to lower average sales prices in export markets and increased operating costs mostly offset by seasonally stronger domestic demand and lower input costs.  In Europe and Russia , earnings decreased primarily due to higher planned maintenance outages in Europe and lower average sales margins in both regions.

EQUITY METHOD INVESTMENTS
Ilim joint venture  equity earnings were $21 million in the fourth quarter of 2019 compared with $18 million in the third quarter of 2019. Operationally, earnings increased slightly as improved sales volumes were mostly offset by lower export sales prices for hardwood pulp, softwood pulp and containerboard to China and other export markets. The Company recognized a non-cash after-tax foreign exchange gain of $8 million in the fourth quarter of 2019 ( $0.02 per diluted share), compared with a loss of $4 million in the third quarter of 2019 ( $0.01 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.

Graphic Packaging equity earnings on our then 21.6% ownership position were $9 million in the fourth quarter of 2019, compared with $10 million in the third quarter of 2019.

CORPORATE EXPENSES
Corporate expenses were $9 million for the fourth quarter of 2019, compared with $21 million in the third quarter of 2019.

EFFECTIVE TAX RATE
The reported effective tax rate for the fourth quarter of 2019 was 66%, compared to a 2019 third quarter reported effective tax rate of 30%. The higher tax rate in the fourth quarter reflects tax expense related to a foreign deferred tax valuation allowance, that was partially offset by a tax benefit from internal investment restructuring, both of which are included as special items. This non-cash valuation allowance was recorded as a result of tax law changes in foreign jurisdictions impacting future utilization of deferred tax assets of $203 million .

Excluding special items and non-operating pension expense, the operational effective tax rate for the fourth quarter of 2019 was 26%, compared with 27% for the third quarter of 2019. The lower operational effective tax rate in the fourth quarter is primarily due to the U.S. taxation of foreign earnings and related tax adjustments to the U.S. Federal tax provision recorded in the third quarter.

EFFECTS OF SPECIAL ITEMS
Special items in the fourth quarter of 2019 amount to a net after-tax charge of $258 million ( $0.65 per diluted share) compared with $80 million ( $0.20 per diluted share) in the third quarter of 2019 and $32 million ( $0.08 per diluted share) in the fourth quarter of 2018.  Special items in all periods include the following charges (gains):

...


Fourth Quarter
2019


Third Quarter
2019


Fourth Quarter
2018

(In millions)


Before Tax


After Tax


Before Tax


After Tax


Before Tax


After Tax

 Restructuring and other charges, net:













Debt extinguishment costs


$

21



$

16



$



$



$

10



$

7


EMEA Packaging business optimization


15



12







(1)



(1)


Overhead cost reduction initiative






21



16






Gain on sale of investment in Liaison Technologies










(31)



(23)


Riverdale mill conversion severance










3



2


Total restructuring and other charges, net


36



28



21



16



(19)



(15)


Global Cellulose Fibers goodwill impairment


52



42










Litigation reserves


19



14



22



17






Environmental remediation reserve adjustment


10



8



15



11






Abandoned property removal


15