International Paper Co., the world's largest paper company, said Tuesday second-quarter profit fell 60 percent because of discontinued operations as well as weaker demand and higher costs that have hurt the paper industry.
The Stamford-based company said challenging market conditions will continue in the third quarter, but said it expects to boost profits with a major transformation announced last week that includes the sale of billions of dollars in assets.
Second-quarter income fell to $77 million, or 16 cents per share, from $193 million, or 40 cents per share, last year. The year-ago results included $131 million, or 27 cents per share, of earnings from discontinued operations. Earnings from continuing operations, excluding one-time items, were 31 cents per share, down from 33 cents per share a year earlier.
Revenue grew 5 percent to $6.5 billion from $6.2 billion last year. On average, analysts expected earnings of 27 cents per share on revenue of $6.52 billion.
"Our second-quarter performance was not where we wanted it to be," Chairman and Chief Executive John Faraci said in a conference call with analysts. "The second-quarter market conditions were challenging. Demand was lower than we expected."
Last month, the company warned that second-quarter earnings would fall far below expectations because of weak sales of printing paper. Then, just weeks later, it announced a huge restructuring aimed at shedding sluggish businesses.
"We anticipated some modest improvement in the second quarter following our strongest first quarter in years," Faraci said in a statement. "However, while pricing was up slightly from the first quarter, sales volumes in our printing papers and industrial packaging businesses were lower than we expected."
The restructuring involves selling $8 billion to $10 billion in assets, closing mills and possibly moving its headquarters. Substantial job cuts are expected. Earnings per share should be 30 percent higher by 2007 because of the strategy.
Company officials said during the call they expect the plan to boost profits by $400 million annually.
International Paper did not provide specific third-quarter projections, but Wall Street expects earnings of 31 cents per share on revenue of $6.81 billion, according to a Thomson Financial survey.
Faraci told analysts the company expects third-quarter operating earnings to be similar to the second quarter and possibly modestly better because of the potential for higher forestland sales.
"I don't think IP is going to be an earnings story for a long time," said Steven Chercover, research analyst with D.A. Davidson and Co. in Portland, Ore.