International Paper Sees Weak Packaging Demand In Brazil Before Olympics

By Imani Moise 

International Paper Co. isn't seeing a rise in packaging demand in Brazil ahead of next month's Olympic Games, a marked contrast to two years ago, when demand surged as the country hosted the World Cup soccer tournament.

"For the Olympics, we see virtually nothing in terms of packaging demand, " Chief Executive Mark Sutton told The Wall Street Journal.

International Paper makes packaging for a wide range of goods and is an early indicator of consumer spending. Brazil has been mired in a deep recession and is hoping to get a lift from the Olympics, which start Aug. 5 in Rio de Janeiro.

Mr. Sutton said demand is easing in China but picking up momentum slightly in the U.S. He reiterated the company expects to close its $2.2 billion acquisition of Weyerhaeuser Co.'s pulp business in the fourth quarter.

The Memphis, Tenn.-based company reported earlier Wednesday its second-quarter profit fell to $40 million, or 10 cents a share, from $227 million, or 54 cents a share, a year earlier. Results were weighed down by pension expenses.

Revenue dropped 6.8% to $5.32 billion from $5.71 billion, primarily related to the sale of businesses in China and the U.S.

Mr. Sutton said International Paper saw a significant rise in Brazilian demand ahead of the World Cup in 2014, when several cities in the South American country hosted games.

"We joke internally that people just got new TVs a couple of years ago for the World Cup, so they probably don't need another one," said Mr. Sutton. "But in reality the economy is in a pretty deep recession and hopefully it comes out of it as we move into 2017."

Mr. Sutton said demand in China is rising about 5% this year, down from a 7% to 8% growth. International Paper supplies China's market from Russia after selling its Chinese joint venture last year. It says there is no real benefit to having local production in China because raw materials such as fiber are imported.

Packaging demand in the U.S. is growing around 1.5% this year. That is at the high-end of a 1% to 1.5% growth range in recent years, but below 2% growth rates that were more common before the recession.

"It's a slow, steady improvement," said Mr. Sutton, adding that demand from e-commerce was up nearly 11% in the second quarter.

International Paper booked an after-tax charge of $270 million in the second quarter after reaching an agreement to pay a lump sum to about 25,000 former employees to settle pension obligations. The company made a separate contribution of $250 million to the pension plan and will make another $500 million contribution by the end of the year.

Mr. Sutton said the contributions are voluntary and that it made more financial sense than paying off other debts. He added the company probably won't have to make any mandatory contributions before 2019.

He said International Paper is still seeking antitrust clearance from regulators including the U.S. Department of Justice to complete the Weyerhaeuser deal, but that the company hasn't encountered any roadblocks.

--Mike Esterl contributed to this article.

(END) Dow Jones Newswires

July 28, 2016 17:29 ET (21:29 GMT)

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