International Paper 2012 Annual Report Download - page 58

Foodservice sales volumes increased in 2012
compared with 2011. Average sales margins were
higher reflecting the realization of sales price
increases for the pass-through of earlier cost
increases. Raw material costs for board and resins
were lower. Operating costs and distribution costs
were both higher.
The U.S. Shorewood business was sold December 31,
2011 and the non-U.S. business was sold in January
2012.
Looking ahead to the first quarter of 2013, Coated
Paperboard sales volumes are expected to increase
slightly from the fourth quarter of 2012. Average
sales price realizations are expected to be slightly
lower, but margins should benefit from a more
favorable product mix. Input costs are expected to be
higher for energy and wood. No planned main-
tenance outages are scheduled in the first quarter. In
January 2013 the Company announced the perma-
nent shutdown of a coated paperboard machine at
the Augusta mill with an annual capacity of 140,000
tons. Foodservice sales volumes are expected to
increase. Average sales margins are expected to
decrease due to the realization of sales price
decreases effective with our January contract open-
ers. Input costs for board and resin are expected to
be lower and operating costs are also expected to
decrease.
European Consumer Packaging net sales in
2012 were $380 million compared with $375 million
in 2011 and $345 million in 2010. Operating profits in
2012 were $99 million compared with $93 million in
2011 and $76 million in 2010. Sales volumes in 2012
increased from 2011. Average sales price realizations
were higher in Russian markets, but were lower in
European markets. Input costs decreased, primarily
for wood, and planned maintenance downtime costs
were lower in 2012 than in 2011.
Looking forward to the first quarter of 2013, sales
volumes are expected to decrease in both Europe and
Russia. Average sales price realizations are expected
to be higher in Russia, but be more than offset by
decreases in Europe. Input costs are expected to
increase for wood and chemicals. No maintenance
outages are scheduled for the first quarter.
Asian Consumer Packaging net sales were
$830 million in 2012 compared with $855 million in
2011 and $705 million in 2010. Operating profits in
2012 were $4 million compared with $35 million in
2011 and $34 million in 2010. Sales volumes
increased in 2012 compared with 2011 partially due
to the start-up of a new coated paperboard machine.
Average sales price realizations were significantly
lower, but were partially offset by lower input costs
for purchased pulp. Start-up costs for a new coated
paperboard machine adversely impacted operating
profits in 2012.
In the first quarter of 2013, sales volumes are
expected to increase slightly. Average sales price
realizations for folding carton board and bristols
board are expected to be lower reflecting increased
competitive pressures and seasonally weaker market
demand. Input costs should be higher for pulp and
chemicals. However, costs related to the ramp-up of
the new coated paperboard machine should be
lower.
Distribution
xpedx, our distribution business, is one of North
America’s leading business-to-business distributors
to manufacturers, facility managers and printers,
providing customized solutions that are designed to
improve efficiency, reduce costs and deliver results.
Customer demand is generally sensitive to changes
in economic conditions and consumer behavior,
along with segment specific activity including corpo-
rate advertising and promotional spending,
government spending and domestic manufacturing
activity. Distribution’s margins are relatively stable
across an economic cycle. Providing customers with
the best choice for value in both products and supply
chain services is a key competitive factor. Addition-
ally, efficient customer service, cost-effective logis-
tics and focused working capital management are
key factors in this segment’s profitability.
Distribution
In millions 2012 2011 2010
Sales $6,040 $6,630 $6,735
Operating Profit 22 34 78
Distribution’s 2012 annual sales decreased 9%
from 2011, and decreased 10% from 2010. Operating
profits in 2012 were $22 million ($71 million exclud-
ing reorganization costs) compared with $34 million
($86 million excluding reorganization costs) in 2011
and $78 million in 2010.
Annual sales of printing papers and graphic arts
supplies and equipment totaled $3.5 billion in 2012
compared with $4.0 billion in 2011 and $4.2 billion in
2010, reflecting declining demand and the exiting of
unprofitable businesses. Trade margins as a percent
of sales for printing papers were relatively even with
both 2011 and 2010. Revenue from packaging prod-
ucts was flat at $1.6 billion in both 2012 and 2011 and
up slightly compared to $1.5 billion in 2010. Pack-
aging margins increased in 2012 from both 2011 and
2010, reflecting the successful execution of strategic
sourcing initiatives. Facility supplies annual revenue
was $0.9 billion in 2012, down compared to $1.0 bil-
lion in 2011 and 2010.
Operating profits in 2012 included $49 million of
reorganization costs for severance, professional
services and asset write-downs compared with $52
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