International Paper 3rd-quarter net income slips

(Recasts, adds details on results, background, analyst comment, CEO comment)

By Euan Rocha

NEW YORK, Nov 2 (Reuters) - International Paper (IP.N), one of the world's largest paper and packaging makers, said on Friday quarterly net profit slipped as gains from land sales fell sharply from a year ago.

Shares of the company declined about 1 percent as the Memphis, Tennessee-based company's outlook fell short of Wall Street's expectations.

"I think the number for the quarter came in as expected, but the issue -- similar to other companies -- is the fourth quarter, where guidance is coming down again," noted Longbow Research analyst Joshua Zaret.

The company expects fourth-quarter earnings to benefit from price increases for its printing paper and corrugated boxes, but cautioned that costs for wood, energy and transportation will continue to weigh.

Third-quarter net income was $217 million, or 51 cents a share, compared with a year-ago profit of $224 million, or 46 cents a share, which included a $185 million gain from the sale of U.S. forest lands.

Excluding items, the company earned 57 cents a share, in-line with Wall Street's expectations and above year-ago earnings of 45 cents a share.

The company's average shares outstanding were 425.6 million as of Sept 30, compared with 484.9 million a year earlier.

Quarterly sales rose slightly to $5.54 billion, from $5.43 billion a year earlier. Wall Street was expecting revenue of $5.36 billion.

WEAK OUTLOOK

"We expect the fourth quarter will be better than the fourth quarter last year and slightly better than the third quarter," said Chief Executive John Faraci, on a conference call.

Analysts, on average, have forecast fourth-quarter earnings of 70 cents a share, while the company's forecast indicates that earnings will be only slightly higher than the 57 cents it posted in the third-quarter.

In a note to clients, Banc of America analyst George Staphos said the fourth-quarter outlook was somewhat disappointing.

Forest products companies on both sides of the Atlantic have been plagued by overcapacity issues, rising raw material costs, lagging paper prices and weak land sales.

Earlier this week, Weyerhaeuser Co (WY.N) warned that deteriorating conditions in the housing market will cause results from its timberlands, wood products and real estate businesses to worsen on a sequential basis.

European peers like UPM-Kymmene (UPM1V.HE) and Stora Enso (STERV.HE) have also been hurt by rising wood costs and further burdened with a strong euro that has hurt exports.

MIXED SEGMENT RESULTS

"Volumes were flat quarter-to-quarter, but we saw overall price improvement, which more than offset some increases in raw material and distribution costs," said Faraci, in a statement.

The latest quarterly results were boosted by a 22 percent increase in operating profit at its printing papers business that helped offset weakness in its industrial packaging business.

The industrial packaging unit was impacted by lower U.S. box volumes, restructuring costs and a seasonal slowdown in Europe.

Earlier this month, International Paper said weak land sales would push third-quarter earnings below Wall Street expectations. At the time, analysts had forecast earnings of 62 cents a share.

Last year, the company sold the bulk of its forest lands for about $6.6 billion. The company is selling its remaining 390,000 acres of forest lands in smaller deals, in a bid to maximize the value of the land.

The company expects full-year 2007 earnings from land sales of about $450 million.

International Paper has also sold its coated papers, kraft papers and other businesses in a bid to focus on its uncoated paper, packaging and North American distribution businesses.

Shares of the company fell 1 percent to $35.72 in midday trade on the New York Stock Exchange.

Shares of International Paper, which have risen about 1.8 percent in the last three months, have lagged the Standard & Poor's Paper and Forest Products Index .GSPAFP, which has risen about 5 percent in the same period.

(Editing by Steve Orlofsky, editing by Phil Berlowitz)

((euan.rocha@reuters.com; 1 646 223 6026)) Keywords: INTERNATIONALPAPER RESULTS/

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