International Paper became the latest company to beat earnings expectations Wednesday as the company reported strong profits and weak sales.

The Memphis-based company - the world's largest paper and pulp maker - said profit rose to $371 million, or 87 cents per share, in the July-September period, up from $149 million, or 35 cents per share, in the same period a year ago.

Excluding special items - namely a $525 million pretax alternative fuel credit - earnings were 37 cents a share compared with 84 cents a year earlier, when the company saw items including pretax charges of $107 million and $155 million.

Revenue fell 13 percent to $5.9 billion.

Analysts polled by Thomson Reuters forecast earnings of 24 cents a share on $5.89 billion in sales.

"At the end of the third quarter, we began to see some modest improvements in demand in some segments of our paper and packaging businesses," said IP chairman and CEO John Faraci. "We expanded margins year-over-year and continued to deliver strong cash flow and pay down debt, and I'm confident we're in position to benefit as the economy continues to slowly recover."

Faraci linked demand for paper products to overall economic recovery in the United States and said that the timetable for improvement remains a question mark.

Operating profits were $940 million, up from $788 million in the second quarter and $536 million in the third quarter of 2008.

The company has slashed spending, cut output and eliminated jobs in an effort to weather the deep recession. Last week, the company said it would permanently close three U.S. paper and packaging mills, cutting 1,600 jobs.

The company has used its cash to pay down debt, much of which is associated with the acquisition and integration of Weyerhaeuser Co., which IP bought in August 2008, doubling its industrial packaging segment.

"For the past year we've been putting the two businesses together, integrating them from a commercial standpoint, an operations standpoint, and an office standpoint," said chief financial officer Tim Nicholls. "At this point, it's fully integrated."

The company repaid $1.3 billion of debt during the quarter.

"We continue to generate a lot of free cash, continue to pay down debt, and we saw some modest demand recovery in certain segments," Nicholls said. "Other segments continue to be flat. There's a mixed view in terms of demand in the quarter, and now we're going into what's a seasonally slow time of year in the fourth quarter."

Of the company's business segments, printing papers reported the largest gains in operating profits with $138 million compared to $86 million in the second quarter of 2009. Consumer packaging also rose to $68 million from $38 million in the previous quarter and xpedx, IP's distribution business, reported $21 million over $10 million in the second quarter.

The company said that increased volume and lower annual maintenance outages resulted in the increases in profits rather than product prices, which have remained low.

"(IP) has been hit a lot by market pressures and that's not unexpected," said Dave Williams, founding director of Business Enhancement Associates LLC in Cordova. "But there is a lot of special- item income that adjusts the numbers."

IP's industrial packaging and forest products segments both reported decreases in operating profits from the second quarter.

"If I was a shareholder I would feel that on the surface, management is doing a lot," said Williams. "They have already dumped the flotsam and jetsam and the boat is riding higher. When the ocean rises, they will be in a much better position."

IP shares closed Wednesday at $21.83, a 3.54 percent drop.

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Originally published by Jonathan Devin Special to The Commercial Appeal .

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