UPDATE 2-IP profit beats as sales inch higher in U.S., Europe

Tue Jul 29, 2014 8:29am EDT

(Adds comments on weak World Cup demand, Russia)

July 29 (Reuters) - International Paper Co, the largest corrugated box maker in North America, posted a higher-than-expected profit on Tuesday, citing returning demand in the United States and Europe.

The results reflect a slowly improving U.S. and global economy that has not yet reached its full potential, IP Chief Executive Officer John Faraci said in an interview.

"I remain pretty bullish that the U.S. economy can grow 3 to 4 percent a year, but it's still not reaching its potential," he said. "There just seems to be one slow step at a time."

U.S. government sanctions on Russia have not affected IP's paper mills in that country, Faraci said. The Russian mills, the largest of which is Siberia, primarily sell to China, and demand has been steady, he said.

"There hasn't been an impact on businesses doing business in Russia that aren't Russian," Faraci said. "But we'd much rather see Russia's relations with the U.S. and Western Europe on better footing than they are."

For the second quarter, the company posted net income of $161 million, or 37 cents per share, compared with $259 million, or 57 cents per share, a year earlier.

Excluding a charge to repay debt early, a charge to close an Alabama paper mill and other one-time items, earnings were 95 cents per share.

By that measure, analysts expected a profit of 83 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell to $7.21 billion from $7.34 billion. Analysts expected $7.35 billion.

Demand actually slipped in Brazil despite the World Cup as the government declared four holidays that cut productivity and shipping time, Faraci said.

"We all thought the World Cup would be a positive for results, but it wasn't," he said.

Shares of IP have gained nearly 2 percent so far this year, closing Monday at $49.97. (Reporting by Ernest Scheyder; Editing by Bernadette Baum and Lisa Von Ahn)