One look my own office tells me that the paperless office will never happen. Paper is here to stay, though as International Paper (NYSE:IP) and others in its cyclical industry have illustrated, the profits may come and go.

Facing rising costs and sluggish growth, IP announced a plan in 2005 to slim down and focus on just two of its stronger segments, packaging and uncoated paper. IP is a leader in the latter field, and wanted to capitalize on its "growing worldwide platform in packaging." But more than two years into the program, there's still work to do.  

The company announced on Friday that third-quarter sales rose 2% to $5.5 billion, but overall operating profits fell 11% to $610 million. Those results would have been worse without a strong performance in the printing papers division, where higher prices pushed operating income 22% higher, to $307 million.

The industrial packaging division saw operating income plunge by 24% year over year, because of a seasonal drop in Europe and lower volumes in the U.S. Consumer packaging posted a 21% decline in operating income.

International Paper is not alone in its struggles. The whole industry is reshuffling, discarding unprofitable units, picking up others that strengthen their hands in particular segments, and taking other steps to improve results. Weyerhaeuser (NYSE:WY) may reorganize as a real estate investment trust to get tax benefits. Finland's Stora Enso (NYSE:SEO) has divested itself of its North American holdings, while rival UPM-Kymmene (NYSE:UPM) is delisting its shares from the NYSE. Meanwhile, the merger that created Abitibibowater (NYSE:ABH) earlier this year made the combined company a giant in the newsprint world, with a market share of more than 50%.

International Paper's latest quarter suggests that its makeover is still a work in progress. While the paper group appears to be improving, mostly because of booming sales in Brazil, the packaging business remains a problem. Operating margin runs in the 7% to 8% range, in line with industry averages. But IP is concentrated in slow-growth markets. IP has made investments in packaging operations in China, but these have yet to significantly boost the bottom line.

International Paper has sold off more than $11 billion in assets since 2005, using the proceeds to pay off debt and launch a $3 billion share repurchase plan. That has transformed the company into one of the least indebted players in the industry, and it's put more money in the hands of shareholders. The company also continues to pay a nice dividend, currently around 2.8%.

Yet since 2000, IP hasn't been able to move its stock price upward. Fools looking for big gains might want to see more progress in the global packaging business before taking a flyer on this one.

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Fool contributor Ron Vlieger doesn't own shares in any of the companies mentioned, but does welcome your questions or comments. The Motley Fool's disclosure policy actually is worth the paper it's printed on, and then some.