IP: Profits down, job cuts inevitable

STAMFORD, Conn. – International Paper Co., the world’s largest paper company, with mills in Bucksport and Jay, Maine, may eliminate jobs in the coming months to reduce operating costs by $500 million.

On Thursday, John Dillon, IP’s chairman and chief executive officer, announced the inevitability of layoffs throughout the company during an Internet discussion with analysts on IP’s second-quarter earnings.

“The cost drive is just going to continue and it will come from every part of the company,” Dillon said. “We are now going through every part of International Paper, looking at our organizational structure, looking at our initiatives, at our programs, and making a determination of what else do we have to do to accomplish in total this $5 million number.

“Obviously there will be personnel changes associated with it,” he added.

How many people will be laid off was not discussed during the Webcast with analysts.

“We don’t forecast those numbers,” said Chris Liddell, senior vice president and chief financial officer.

Dillon said he could not predict how much production downtime the company’s mills could expect in the third quarter.

“We don’t forecast downtime,” he said. “We match our production to our orders. We have to leave that at that.”

International Paper employs 900 people at its Bucksport mill, which produces uncoated paper for magazines. The company recently promoted Dennis Castonguay to mill manager from operations manager.

Earlier this month, the company announced plans to strengthen its operations at its Androscoggin mill in Jay, which also produces paper for magazines. IP plans to invest $112 million to rebuild the No. 3 coated-paper machine and perform other improvements.

The investment was buoyed by a vote by townspeople to give the company a 20-year tax break. Under the tax increment financing package, IP will retain 60 percent of the taxes it would pay on the new investment while the town would keep 40 percent.

On Thursday, Dillon called the recent TIF at the Androscoggin mill in Jay a “cost opportunity that we have to take advantage of.”

During the conference with analysts, Dillon blamed higher energy costs and declining prices for paper products for a 59 percent slump in second-quarter profits.

IP reported net income of $88 million, or 19 cents per share, down from profits of $215 million, or 45 cents per share, during the same period last year.

The results beat the consensus estimate of analysts surveyed by Thomson First Call by 2 cents per share.

“Energy and weather-related wood costs remained high, volumes were slightly lower than the first quarter and prices declined in uncoated paper, linerboard and boxes,” Dillon said. “We continue to overcome these external pressures to improve our profitability through manufacturing excellence, creating customer value and streamlining our cost structure.”

Second-quarter revenue fell to $6.2 billion from $6.3 billion a year ago. First-half sales were flat at $12.3 billion.

For the first half, IP reported net income of $132 million, or 28 cents per share, compared with a loss of $895 million, or $1.86 per share, in the first half of 2002.

The year-ago figures reflect a $1.2 billion charge related to a change in goodwill accounting. The six-month figures for this year reflect a $10 million charge related to a change in asset accounting.

IP’s stock fell 71 cents Thursday to $37.87.