International Paper reports earnings loss in Q4 of 2021

International Paper, a Memphis, Tennessee-based producer of fiber-based packaging, pulp and paper products, has reported an earnings loss in the fourth quarter of 2021 compared with the same time period in 2020 arising from maintenance outages, supply chain issues and poor logistics reliability.

The 2021 fiscal year also posed some challenges. “For much of 2021, we operated with a suboptimized system, which limited our ability to capture the full opportunity that comes with a strong demand backdrop,” said Mark Sutton, CEO of International Paper, during the company’s fourth-quarter 2021 earnings call Jan. 27.  

According to a news release from International Paper, the company’s fourth-quarter net earnings were $107 million compared with $864 million in the third quarter of 2021 and $153 million in the fourth quarter of 2020. Third-quarter 2021 net earnings include a net after-tax gain of $350 million on the sale of the company’s Kwidzyn, Poland, mill. The fourth quarter had adjusted operating earnings of $301 million compared with $431 million in the third quarter of 2021 and $206 million in the fourth quarter of 2020.

For fiscal 2021, International Paper reported full-year net earnings of $1.8 billion compared with $482 million for fiscal 2020. The company also achieved full-year adjusted operating earnings of $1.3 billion compared with $848 million for full-year 2020.

The company’s revenue in the fourth quarter increased by about $650 million or 15 percent compared with the same time period last year. Its earnings before income, tax, depreciation and amortization (EBITDA) were $645 million for the fourth quarter of 2021. Equity earnings were $313 million driven by the company’s joint venture with Ilim, a pulp and paper manufacturing company in St. Petersburg, Russia, which delivered an EBITDA of $1.1 billion in 2021. The company had a free cash flow was $1.5 billion.

According to a news release from International Paper, its Industrial Packaging business segment achieved operating profits of $414 million in the fourth quarter of 2021, which was the same level achieved in the third quarter of 2021. In North America, International Paper says earnings for this business segment increased, reflecting higher sales prices for corrugated boxes and containerboard. The company says volumes were stable for corrugated boxes and increased for containerboard. The company reports that these benefits were partially offset by increased distribution, wood fiber, recovered fiber and energy costs. In Europe, earnings for this business segment slightly improved reflecting seasonally higher volumes primarily in Morocco, mostly offset by higher energy costs. Average sales margins improved driven by an improved product mix.

During the earnings call, Tim Nicholls, senior vice president and chief financial officer of International Paper, said the company’s North American Industrial Packaging business operated with depleted inventories throughout much of 2021, which increased costs across the system. He said supply chain operating costs increased $170 million or about 35 cents per share, representing more than half of the increase in operations and cost in 2021.

“The labor impact from omicron across the value chain is substantial and continues into January, with labor constraints impacting our box plants, suppliers, customers and logistics providers,” Nicholls said.

He continued, “We’re experiencing very stretched supply chains and poor carrier reliability across just about every mode of transportation, which put significant strain on our shipments and cost pressure on our mills and box plants. Our mill-to-box plant velocity for containerboard is running three to four days longer than our normalized flow and in some lanes even longer.”

He added that lost production at International Paper’s mill in Prattville, Alabama, in the fourth quarter also stressed the company’s network and operating costs. The company temporarily shut down that mill in November due to structural failures. Nicholls said, “We operated with very lean containerboard inventories and higher distribution costs throughout most of the fourth quarter to compensate for lost production at the Prattville mill.”

In 2022, the company plans on investing $1.1 billion primarily for projects in the Industrial Packaging business to help grow capabilities and capacity in the company’s box system to drive profitable growth.

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“We're confident in our ability to grow earnings in 2022, and we project our full-year EBITDA to be in the range of $3.1 billion to $3.4 billion,” Nicholls said during the call.