Corrugated packaging and containerboard demand remained “very strong” in the second quarter of the year, according to International Paper (IP), a Memphis, Tennesse-based global producer of fiber-based packaging, pulp and paper products.
“In our papers business, demand recovery accelerated in the second quarter across our key geographies,” said Mark Sutton, chairman and chief executive officer of International Paper, during the company’s second-quarter earnings call July 29. “We grew revenue by 15 percent as compared to the second quarter of last year with price realization accelerating in all of our business segments. Our mills and converting system performed well.”
IP reports that it achieved second-quarter net earnings of $432 million, about $1.09 per diluted share, compared with $349 million, 88 cents per diluted share, in the first quarter of the year and $266 million, or 67 cents per diluted share, in the second quarter of 2020. Second-quarter adjusted operating earnings were at $421 million, or $1.06 per diluted share, compared with $299 million in the first quarter of the year and $305 million in the second quarter of 2021.
“We see the rise in OCC cost as a reflection of the underlying strength in global demand for corrugated packaging.” — Tim Nicholls, senior vice president and chief operating officer, International Paper
Second-quarter cash provided by operations was $766 million, and year to date cash totaled $1.3 billion compared with $1.5 billion in the same time frame of 2020. Additionally, the company had a debt reduction of $796 million in the quarter, bringing its debt reduction to date to $904 million.
Demand for packaging was strong, but Sutton added that IP operated with “extremely low containerboard inventory” across the company’s packaging network due to lingering effects of a winter storm that adversely affected the business in the first quarter of the year and a planned maintenance outage that took place within the quarter.
“These operating conditions severely stressed—along with severely stressed transportation environments, adversely affected volume and operating costs in the second quarter,” he said. “Input costs and freight were a significant headwind in just about every category. I would call out the sharp rise in recovered fiber cost in North America and Europe. Although it certainly had a significant cost impact, it is another indication of the strong demand environment.”
Tim Nicholls, senior vice president and chief financial officer at International Paper, added that old corrugated containers (OCC) represented about half of the sequential increase in the company’s input costs.
“We see the rise in OCC cost as a reflection of the underlying strength in global demand for corrugated packaging,” Nicholls said. “We expect OCC costs to rise further in the third quarter even as seasonal generation improves.”
IP reports that its Ilim joint venture equity earnings were at $101 million in the second quarter of the year, bringing year-to-date earnings for that business segment to $150 million. The increased earnings for this segment were driven by higher export and domestic sales prices for softwood pulp, hardwood pulp and containerboard.
The company also monetized its remaining investment in Graphic Packaging for about $400 million.
“Commercially, we achieved strong revenue growth, while executing well in a very challenging supply chain and input cost environment,” Sutton concludes in the company’s earnings release on its second-quarter results. “Looking ahead to the third quarter, we expect demand to remain strong and margins to expand meaningfully as realization of prior price movements outpaces input and transportation costs, and we step down from our highest maintenance outage quarter. We continue to make excellent progress on the spin-off of our papers business, which we expect to complete on Oct. 1.”
In the second quarter of the year, IP’s Industrial Packaging operating profits were at $408 compared with $447 million in the first quarter of the year. The company says higher sales prices for boxes and export containerboard were offset by higher planned maintenance outage expenses and input costs, driven mostly by higher recovered fiber and chemicals costs. IP says operating costs were impacted severely by low containerboard inventories and a stressed transportation environment.
Nicholls said he expects input costs for this business segment to increase in the third quarter of the year by $85 million with OCC representing about 60 percent of the expected increase.
In Europe, the company’s Industrial Packaging segment earnings were lower, which reflects seasonally lower volumes in Morocco and lower average sales margins driven by higher containerboard costs.
IP’s Printing Papers operating profits were $76 million in the second quarter of the year compared with $80 million in the first quarter of the year. In North America, higher average sales prices, higher volumes and lower economic downtime were offset by higher planned maintenance outage expenses, IP says.
In Brazil, IP’s Printing Papers segment earnings were stable as higher average sales prices and an improved geographic mix were offset by higher input costs and the nonrepeat of favorable foreign currency impacts.
In Europe and Russia, the Printing Papers segment saw earnings decrease in the second quarter because of higher average sales prices and lower economic downtime costs, which IP says were more than offset by higher planned maintenance outage expenses.
“The Printing Papers business carries strong momentum from its first half 2021 performance as we approach the Oct. 1 spin-off,” IP states in its earnings report.