International Paper reported third quarter 2016 net earnings attributable to International Paper of $312 million ($0.75 per share) compared with net earnings of $40 million ($0.10 per share) in the second quarter of 2016 and net earnings of $220 million ($0.53 per share) in the third quarter of 2015.
Net earnings in all periods include the impact of special items, if any, non-operating pension expense and discontinued operations.
Adjusted operating earnings in the third quarter of 2016 totaled $380 million ($0.91 per share) compared with $379 million ($0.92 per share) in the second quarter of 2016 and $407 million ($0.97 per share) in the third quarter of 2015.
Quarterly net sales were $5.3 billion in the third quarter of 2016 compared with $5.3 billion in the second quarter of 2016 and $5.7 billion in the third quarter of 2015. The year-over-year revenue decline was primarily due to the sale of the IP-Sun joint venture and the Asian Corrugated Packaging business, as well as the sale of the CarolinaCoated Bristols business.
Business segment operating profits in the third quarter of 2016 were $613 million, compared with $628 million in the second quarter of 2016 and $579 million in the third quarter of 2015.
Cash provided by operations was $341 million in the third quarter of 2016. Free cash flow (non-GAAP) was $575 million for the quarter.
"I'm pleased with our strong cash generation this quarter despite an uneven global economy and rising input costs," said Mark Sutton, Chairman and Chief Executive Officer. "We continue to see stable to improved market demand across most of our businesses, particularly North American Industrial Packaging.
We have begun to implement the NA containerboard and box price increases and we remain focused on a fourth quarter close of the Weyerhaeuser pulp business acquisition. These key efforts, along with others, will increase shareholder value and give us confidence in our continued ability to generate strong and sustainable cash from operations and free cash flow."
Segment Information
The performance of the Company's business segments is measured quarter to quarter without variations caused by special items, as management focuses on business segment operating profits excluding those items. Third quarter 2016 business segment operating profits and business trends compared with the prior quarter are as follows:
Industrial Packaging operating profits in the third quarter of 2016 were $424 million ($429 million excluding special items) compared with $459 million ($487 million excluding special items) in the second quarter of 2016. In North America, the negative impacts of box price erosion, increased input costs for recycled fiber and energy were only partially offset by lower planned maintenance costs. InBrazil, earnings improved primarily due to higher sales volumes and lower outage costs. Earnings in EMEA decreased due to seasonally lower sales volumes.
Printing Papers operating profits were $128 million ($135 million excluding special items) in the third quarter of 2016 versus $96 million($101 million excluding special items) in the second quarter of 2016. Earnings in North America and Brazil benefited from lower maintenance outage costs. Operating costs improved, but commercial pressures negatively impacted price/mix. In Europe and Russia, improved operating costs were offset by lower sales prices.
Consumer Packaging operating profits were $61 million in the third quarter of 2016 compared with $73 million in the second quarter of 2016. The earnings decrease in North America was primarily due to unfavorable sales prices and mix, as well as higher costs. In Europeand Russia, higher sales volumes were more than offset by lower prices and higher costs.
International Paper recorded Ilim joint venture equity earnings of $46 million in the third quarter of 2016 compared with $46 million in the second quarter of 2016. EBITDA for Ilim was in-line with the prior quarter. Primarily due to Ilim's U.S. dollar denominated net debt, the Company recognized a non-cash after-tax foreign exchange gain of $3 million in the third quarter of 2016 ($0.01 per share), compared with a gain of $6 million in the second quarter of 2016 ($0.01 per share).
Corporate Expenses
Net corporate expenses, excluding non-operating pension expense, were $11 million for the third quarter of 2016, compared with $26 million in the second quarter of 2016.
Effective Tax Rate
The effective tax rate before special items and non-operating pension expense for the third quarter of 2016 was 30.5%, compared with an effective tax rate of 34% in the second quarter of 2016. The lower rate in the third quarter was due to lower U.S. earnings, adjustments to tax reserves, and the inclusion in the second quarter of an increase in valuation allowance for state income taxes.
EFFECTS OF SPECIAL ITEMS
Special items in the third quarter of 2016 included a pre-tax charge of $46 million ($29 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $29 million ($18 million after taxes) for debt extinguishment costs and a pre-tax charge of $17 million ($11 million after taxes) to write-off costs associated with the India Packaging business evaluation.
Special items also included a pre-tax charge of $8 million ($5 million after taxes) for the write-off of certain regulatory pre-engineering costs, pre-tax charges of $7 million ($4 million after taxes) for costs associated with the announced agreement to purchase the Weyerhaeuser pulp business and pre-tax charges of $5 million ($4 million after taxes) for costs associated with the sale of our Asia corrugated packaging business.
Special items in the second quarter of 2016 included a pre-tax charge of $28 million ($20 million after taxes) for costs associated with the sale of our Asia corrugated packaging business, a pre-tax charge of $5 million ($3 million after taxes) for costs associated with the announced agreement to purchase the Weyerhaeuser pulp business, a tax expense of $23 million associated with 2016 cash pension contributions and a tax benefit of $6 million related to an international legal entity restructuring.
Special items in the third quarter of 2015 included a pre-tax loss of $25 million ($16 million after taxes) for Restructuring and other charges. Included within Restructuring and other charges were a pre-tax charge of $17 million ($11 million after taxes) related to the restructuring of our 2006 timber monetization, net pre-tax charges of $7 million ($4 million after taxes) related to the sale of the CarolinaCoated Bristols brand and costs associated with the conversion of the Riegelwood, North Carolina facility to 100% pulp production, and a charge of $1 million (before and after taxes) for other items. Special items also included a pre-tax charge of $186 million ($125 million after taxes) for the impairment of goodwill and other assets of the IP-Sun JV.
