NEW YORK (Reuters) - International Paper Co. , the world's No. 1 forest products company, on Friday posted a net profit for the first time in nearly two years as aggressive cost-cutting helped it overcome weak demand for paper products. The company, which is in the midst of a restructuring of its business that is expected to take several years, recorded net income of $65 million, or 13 cents per share. In the year-ago period, when it took $108 million in charges as part of the overhaul of its operations and an accounting change, it posted a net loss of $44 million, or 9 cents per share. Wall Street reacted to the surprise net earnings, sending shares up as much as 3 percent on the New York Stock Exchange (news - web sites) early in the day. They eased off in late afternoon trade, rising 84 cents, or about 2 percent, to close at $42.17. The stock's rise bolstered the Dow Jones industrial average <.DJI>, of which it is a component. IP has now divested more than $3 billion of non-core assets. Last year, IP set a goal of selling up to $5 billion of such assets to pay down debt, which increased significantly after its 2000 purchase of paper company Champion International. It cut 3,000 management jobs and closed or downsized several paper mills in the last year. IP closed a packaging mill in Oswego, New York earlier this year and last year closed a paper mill in Erie, Pennsylvania and another one in Mississippi. "We have seen costs going down on a regular basis at IP so I think that (the restructuring) is working well," said Herve Carreau, an analyst with CIBC World Markets. SPOTTY POCKETS The divestments and its aggressive cost-cutting come as the paper industry is struggling with a more than 18-month long slump in paper and building materials demand, combined with depressed commodity prices. IP's printing papers segment was hardest hit during the quarter as pulp prices remained under pressure, hurting the Stamford, Connecticut-based company's overall sales. Net sales for the quarter fell 13 percent to $6 billion from $6.9 billion a year ago. "There are spotty pockets where demand is better but overall we don't see any signs yet that our business is getting stronger," IP Chief Financial Officer John Faraci told investors on a conference call. Still, prices on wood products and some paper grades have moved up and an increase in pulp prices is expected some time in the second quarter, Faraci said. In the meantime, however, the company's move to cut costs and refocus its business is paying off more quickly than many analysts had expected. Mark Wilde, an analyst with Deutsche Bank Securities, said it now appeared that the "lion's share" of the restructuring charges had been taken. Excluding a one-time gain of a penny per share, IP reported a profit of 12 cents per share, surpassing most expectations on Wall Street. Analysts had forecast the company to earn in a range of breakeven to 14 cents per share, with an average estimate of 7 cents per share, according to research firm Thomson Financial/First Call. "Domestic demand does show some signs of starting to pick up for the first time in two years," Wilde said. "And the fact that we are starting to see some weakness in the dollar those both bode well for IP."