International Paper Reports First Quarter 2020 Results
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International Paper (NYSE: IP) reported first quarter 2020 financial results.
First Quarter 2020 Highlights
- First quarter net earnings (loss) attributable to International Paper of $(141) million ($(0.36) per diluted share), compared with $165 million ($0.42 per diluted share) in the fourth quarter of 2019 and $424 million ($1.05 per diluted share) in the first quarter of 2019. First quarter 2020 net earnings included an after-tax charge of $337 million ($0.85 per diluted share) for the impairment of the net assets and write-off of foreign currency translation adjustment following the announcement of the sale of our Brazil Packaging business.
- First quarter adjusted operating earnings* (non-GAAP) of $226 million ($0.57 per diluted share) compared with $430 million ($1.09 per diluted share) in the fourth quarter of 2019 and $447 million ($1.11 per diluted share) in the first quarter of 2019
- Cash provided by operations of $649 million
- Monetized $250 million of ownership position in Graphic Packaging
- Liquidity position was $3.5 billion at quarter end, which reflects cash and committed credit facilities
COVID-19 HIGHLIGHTS
Strong immediate demand for corrugated packaging and pulp; significant demand decline for printing papers
"International Paper had a solid first quarter in a rapidly changing environment as the impact of the COVID-19 pandemic and containment measures accelerated," said Mark Sutton, Chairman and Chief Executive Officer. "International Paper entered this crisis in a position of strength due to our committed employees, our diverse customer base, our world-class manufacturing and supply chain capabilities and solid financial footing. Given the unprecedented uncertainty regarding the ultimate economic impact of COVID-19, we are taking prudent steps to further strengthen the company's liquidity."
Sutton added, "I am especially grateful to our manufacturing, converting and supply chain frontline teams around the world - their health and safety is our most important responsibility as we provide essential products to our customers."
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 2020 business segment net sales and operating profits compared with the fourth quarter of 2019 and the first quarter of 2019 are as follows:
Industrial Packaging operating profits in the first quarter of 2020 were $470 million compared with $605 million in the fourth quarter of 2019. In North America, earnings decreased due to lower sales prices for boxes and export containerboard, higher planned maintenance outage expenses and higher operating costs driven by the Riverdale mill conversion. Demand for export containerboard improved and input costs were lower, primarily for energy. Earnings were negatively impacted by the non-repeat of a favorable inventory valuation adjustment in the fourth quarter of 2019. In Europe, earnings improved driven by seasonally higher volumes, primarily in Morocco and Turkey and continued performance improvements at the Madrid, Spain mill, slightly offset by unfavorable foreign currency impacts, primarily in Morocco.
Global Cellulose Fibers operating profits (losses) in the first quarter of 2020 were $(54) million compared with $(45) million in the fourth quarter of 2019. Earnings decreased driven by lower average sales prices and higher planned maintenance outage expenses partially offset by a favorable inventory valuation adjustment in the first quarter of 2020.
Printing Papers operating profits in the first quarter of 2020 were $96 million compared with $109 million in the fourth quarter of 2019. In North America, earnings decreased due to lower export and domestic sales volumes, seasonally higher operating costs and higher planned maintenance outage expenses. Earnings benefited from the non-repeat of an unfavorable inventory valuation adjustment in the fourth quarter of 2019. In Brazil, earnings decreased due to seasonally lower sales volumes and lower margins driven by geographic mix slightly offset by lower input costs and favorable foreign currency impacts. In Europe and Russia, earnings increased primarily due to lower operating costs in both regions, lower planned maintenance outage expenses and input costs in Europe, slightly offset by lower sales prices in both regions and lower sales volumes in Russia.
EQUITY METHOD INVESTMENTS
Ilim joint venture equity earnings (loss) were $(35) million in the first quarter of 2020 compared with $21 million in the fourth quarter of 2019. Operationally, earnings decreased slightly driven by lower sales prices for hardwood pulp, softwood pulp and containerboard to China and Russia. The Company recognized a non-cash after-tax foreign exchange loss of $51 million in the first quarter of 2020 ($0.13 per diluted share), compared with a gain of $8 million in the fourth quarter of 2019 ($0.02 per diluted share), primarily due to Ilim's U.S. dollar denominated net debt.
Graphic Packaging equity earnings on our 18.7% ownership position were $7 million in the first quarter of 2020, compared with $9 million in the fourth quarter of 2019.
CORPORATE EXPENSES
Corporate expenses were $32 million for the first quarter of 2020, compared with $9 million in the fourth quarter of 2019.
EFFECTIVE TAX RATE
The reported effective tax rate for the first quarter of 2020 was (588)%, compared to a 2019 fourth quarter reported effective tax rate of 66%. The reported effective tax rate in the first quarter reflects the impact of a non-deductible impairment of our Brazil packaging business, noted below as a special item. The tax rate in the fourth quarter reflects additional tax expense primarily related to a foreign deferred tax valuation allowance.
Excluding special items and non-operating pension expense, the operational effective tax rate for the first quarter of 2020 was 29%, compared with 26% for the fourth quarter of 2019. The higher operational effective tax rate in the first quarter is primarily related to the final measurement of the tax deduction for equity-classified awards, treated as a discrete period item.
EFFECTS OF SPECIAL ITEMS
Special items in the first quarter of 2020 amount to a net after-tax charge of $372 million ($0.94 per diluted share) compared with $258 million ($0.65 per diluted share) in the fourth quarter of 2019 and $15 million ($0.04 per diluted share) in the first quarter of 2019.
International Paper's complete first quarter 2020 financial results are available on the company's website: internationalpaper.com.
