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International Paper reported an adjusted third-quarter profit Wednesday that easily beat Wall Street's expectations as costs fell and demand improved.
Demand for IP's packaging and paper products had waned in the past year due to anemic sales of basic consumer goods and construction materials, although the company said it anticipates results steadily improving sequentially.
"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," Chief Executive John Faraci said in a release.
Costs fell 27 percent during the period.
The Memphis, Tennessee-based company's results were also boosted by an alternative fuel credit originally intended for the transportation sector.
By mixing diesel with biomass, which the company already uses to produce power, IP secured a $320 million credit.
"That's a phenomenal amount of money," RBC Capital Markets analyst Paul Quinn said. "It just blows me away that companies can get this kind of (credit), but that's what it is."
Ironically, federal stipulations required the use of diesel to get the credit. Previously, IP had not mixed the fuel with its biomass to produce power.
The credit is set to expire at year's end.
A 'Very Impressive Quarter'
Longbow Research analyst Joshua Zaret praised the company's modest jump in demand, lower costs and fewer maintenance outages during the period.
"For the results they produced in this very weak economy, it was very good," he said. "It was a very impressive quarter relative to expectations."
Net income rose to $371 million, or 87 cents per share, from $149 million, or 35 cents per share, in the year-earlier period.
Excluding the $320 million alternative fuel credit, restructuring charges and other one-time items, the company posted earnings of 37 cents per share.
By that measure, analysts had expected earnings of 24 cents per share, according to Thomson Reuters I/B/E/S estimates.
Sales fell 13 percent to $5.92 billion, but beat the $5.89 billion analysts had expected.
IP [IP
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] also cut its debt by $1.3 billion during the quarter, a move that was likely helped by the alternative fuel credit, RBC Capital Markets' Quinn said.
Its shares rose about 53 cents, or 2.3 percent, to $23.16 in early New York Stock Exchange trading. The stock has traded between $3.93 and $24.50 in the past 52 weeks.
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Data is a real-time snapshot *Data is delayed at least 15 minutes