Higher Costs and Restructuring Charges Lower International Paper's 3Q Profit by 31%

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Researched by Industrial Info Resources (Sugar Land, Texas)--The International Paper Company (NYSE:IP) (Memphis, Tennessee) has reported a third-quarter profit of $149 million, down 31% from $217 million in the same period last year. The decline is attributed to higher costs and charges related to restructuring. For more information, see September 18, 2008, news article - "New" International Paper Focuses on Continued Improvement After Acquiring Weyerhaeuser Unit. "Input costs for energy and recycled fibers have fallen recently, but costs for wood and some key chemicals are still rising," Chairman and CEO John Faraci said. "Currently in aggregate, input and transportation costs remain high." Global input costs increased by $286 million during the quarter, he said.

Operating Sales

Printing Papers: $103 million, including a $107 million charge to write down the assets of a mill in Scotland

Industrial Packaging: $95 million, including a $58 million charge related to the Weyerhaeuser (NYSE:WY) (South Federal Way, Washington) packaging acquisition

Consumer Packaging: a loss of $2 million, including an $8 million charge related to reorganization of the Shorewood packaging unit's operations in Canada

Xpedx (distribution): $35 million

Forest products: $305 million, including $261 million from a mineral rights sale.

"There is no question from my perspective that the world changed in the third quarter, and International Paper was not immune from these changes," Faraci said. "If you ever wanted to make a case for how Wall Street is connected to Main Street, I think the impact of the credit markets freezing up, as ultimate impact on what has happened to economies around the world, is a good indication of how close the connection is." He said that for now, the company is taking 350,000 tons of downtime in the Industrial Packaging business to balance supply and demand.

Looking forward, Faraci said the company expects to see improvement in some prices in the fourth quarter; however, he said volumes are expected to continue to decline. "Since mid-September demand in our core businesses has weakened, and as a result, we will continue to manage our capacity to meet our customers' needs and continue our cost-reduction initiatives," he said.

Industrial Info is tracking 19 active International Paper projects worth $85 million. Ten of the projects are maintenance shutdowns, ranging from $2 million to $3 million each.

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