Oct 30, 2008. /Lesprom.com/. International Paper reported preliminary 3Q 2008 net earnings of $149 million ($0.35 per share), compared with net earnings of $227 million ($0.54 per share) in the 2Q 2008 and $217 million ($0.51 per share) in the 3Q 2007. 3Q 2008 amounts include the operating results of the packaging business acquired from Weyerhaeuser Co. on Aug. 4, 2008. Amounts in all periods include special items. Earnings from continuing operations and before special items in the 3Q 2008 were $356 million ($0.84 per share), compared with $235 million ($0.56 per share) in the 2Q 2008 and $243 million ($0.57 per share) in the 3Q 2007. Quarterly net sales were $6.8 billion, up from $5.8 billion in the 2Q and $5.5 billion in the 3Q 2007. Industry segment operating profits were $536 million for the 2008 3Q, up from $393 million in the 2Q 2008 and $478 million in the 3Q 2007. The quarter-to-quarter increase reflects the realization of previously announced price increases, a significant gain from a mineral rights sale, two months worth of earnings after the successful completion of the Weyerhaeuser packaging acquisition on Aug. 4 and benefits from cost reductions. "While our 3Q results were solid, our higher prices did not offset higher input costs which negatively impacted our net earnings," said Chairman and CEO John Faraci. "Input costs for energy and recycled fibers have fallen recently, but costs for wood and some key chemicals are still rising. Currently, in aggregate input and transportation costs remain high." Commenting on the recent acquisition of the Weyerhaeuser packaging business, he noted, "The integration is going smoothly, quicker than planned and the first two months of results have met our expectations." Looking at the 4Q 2008, Faraci said, "We are focused on managing our business in this significantly weaker economy and achieving the synergy targets we established for our industrial packaging business. Since mid-September, demand in our core businesses has weakened and as a result, we will continue to manage our capacity to meet our customers' needs, and continue our cost reduction initiatives." During 2008, in order to facilitate performance comparisons with other companies, the company changed its method of allocating corporate overhead expenses to attribute additional expense to its business segments. Accordingly, business segment operating profits for all periods have been restated to reflect this change. 3Q 2008 segment operating profits and business trends compared with the previous quarter are as follows: Operating profits for Printing Papers were $103 million (including a $107 million impairment charge to write down the assets of the Inverurie, Scotland, mill to its estimated fair value), down from second-quarter operating profits of $226 million. Prices improved and volumes were steady except for some decline in the pulp business. High input costs and annual outages negatively impacted quarter-over-quarter earnings. Industrial Packaging operating profits were $95 million (including charges totaling $58 million related to the Weyerhaeuser packaging acquisition), up from $87 million in the prior quarter. Volume was higher, mainly due to the acquisition, and pricing improved. High input costs negatively impacted earnings, but annual outage costs were much lower than in the second quarter. The Vicksburg mill recovery boiler is still being repaired after the second- quarter accident, and net of business interruption insurance recoveries, its impact on results was relatively flat quarter over quarter. Containerboard inventory levels remain low. Both the U.S. and European box volumes remain under pressure due to weak economic conditions. Consumer Packaging lost $2 million (including a special $8 million charge relating to the reorganization of Shorewood's Canadian operations) compared with a $13 million profit in the 2Q 2008 (including a $13 million charge related to Shorewood's Canadian reorganization). Improved pricing did not offset high input costs. Volumes in the Foodservice business weakened with the slowing economy. The company's distribution business, xpedx, reported operating profits of $35 million, up from $26 million in the prior quarter because of increased revenue and cost management. While printing paper and packaging volumes did realize seasonal improvement, markets weakened near the end of the quarter. Forest Products operating profits were $305 million, compared with 2Q operating profits of $41 million largely due to $261 million of earnings from a mineral rights sale. While land and mineral rights sales are difficult to forecast within a quarter, the company's objective continues to be to maximize net present value for shareholders. Equity earnings, net of taxes, in Ilim Holding S.A. were $5 million for the quarter, down from $32 million reported in the 2Q 2008, which included a $14 million after-tax foreign exchange gain and a $3 million option write-off charge. During the quarter, Ilim incurred a small after-tax foreign exchange loss and performed annual outages at two of its mill sites. Operations were solid, but pulp prices started to flatten and come under pressure. (Ilim's results are reported on a one-quarter lag.) Net corporate expenses totaled $40 million for the quarter, up from $21 million in the 2Q 2008, but well below the $56 million recorded in the 3Q 2007. The increase compared with the 2Q 2008 reflects a $10 million settlement of a multi-employer pension fund liability during the quarter and an $11 million gain on the sale of the former Natchez, Miss., mill site that was recorded in the 2Q. Lower pension expenses were the principle factor in the year-to-year quarterly decline. The effective tax rate from continuing operations and before special items for the 3Q 2008 was 32.5 %, the same as in the 2Q of 2008 and higher than the 29% rate in the 3Q 2007.