In the less-than-exciting world of paper products, International Paper (NYSE:IP) actually had a quarter to get excited about. The company reported an increase in first-quarter earnings and its highest first-quarter sales in four years. Sales and earnings were up nearly across the board, with its printing-papers and industrial-packaging businesses soaring.
For the first quarter, net income rose to $77 million, or $0.16 per share, up from $75 million, or $0.15 per share, a year ago. Excluding special items, earnings jumped to $0.34 per share from $0.12 per share in the first quarter of 2004. Sales increased 6.7% to $6.55 billion from $6.14 billion last year.
Earnings got a big boost from a 118% increase in the printing-papers segment, which brought in $183 million, and a 128% jump in industrial packaging, which generated $105 million. Bringing those results down somewhat, though, was a 26% decrease in its consumer-packaging business.
But all is well with International Paper, right? Well, not exactly. Despite the plethora of seemingly good news, the company continues to be hindered by increasingly expensive raw-materials costs. The company is paying more for wood, energy, and chemicals, and it doesn't foresee a price decline any time soon.
Demand for its products also seems to be down in some markets. In one of my favorite quotes from a company executive, Chairman John Faraci said, "During the quarter, we took downtime at some of our mills to balance our production with customer demand." I can just picture all the happy employees relaxing and enjoying the work day. But in reality, if mills are slowing production to keep pace with demand, it's not the sign of a strong business.
Despite the apparently strong quarter, I think there are some underlying issues that will continue to hinder growth. The company can't continue to raise prices to offset the higher costs of doing business. So until there are any signs of a drop in materials costs, this business is just too exciting for me.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of International Paper.
