Tim S. Nicholls
Senior Vice President and Chief Financial Officer at International Paper
Great. Thank you, Mark, and good morning, everyone. I'm on Slide 7, which shows our year-over-year earnings bridge. Price and mix improved significantly with strong price realization across all channels and benefits from our commercial initiatives. Volume was lower in 2022, as consumer shifted priorities towards non-discretionary goods and services while dealing with high inflation, following a period of demand-pull forward during the pandemic.
Operating costs were negatively impacted by high inflation on materials and services, and significantly higher supply chain cost across all of our businesses, as well as lower volumes in our Industrial Packaging business. This was partially offset by improved mill performance and reliability.
Maintenance outages increased as planned, impacted by high inflation on equipment, parts and contracted services. Input costs rose sharply across just about every category with more than half of the increase directly related to higher energy and fuel costs.
Total corporate expenses and other items decreased by $0.33 per share as follows. Corporate expenses declined by $0.19 per share and benefited from our Building a Better IP initiatives as well as some FX. Interest expense was lower by $0.14 per share, benefiting from significant debt reduction in the prior year. Tax expense was $0.20 higher per share with a normalized effective tax rate of 24% as compared to 19% in 2021. Lastly, share repurchases impact earnings by $0.20 per share year-over-year.
Moving to the fourth quarter sequential earnings bridge on Slide 8. Fourth quarter operating earnings per share were $0.87 as compared to $0.83 in the third quarter. Price and mix improved by $0.06 per share from better mix in our Industrial Packaging business and additional price realization in our Global Cellulose Fibers business. Volume was lower in Industrial Packaging as a result of softer demand across all channels.
In Global Cellulose Fibers, demand was stable. However, volume was lower sequentially due to higher pull-through of shipments in the third quarter as supply chain velocity began to improve. Operations and cost were impacted by the lower volume resulting in higher economic downtime and unabsorbed fixed cost as well as seasonality.
Some of the downtime in our Global Cellulose Fibers business was caused by winter storm Elliott, and also some isolated reliability issues. Ops and costs also benefited from favorable one-time items in the quarter related to lower employee benefit costs, workers' compensation expenses and medical claims. These favorable one-time items added about $71 million or $0.15 per share, which is not expected to repeat in the first quarter.
Maintenance outages were higher in the fourth quarter, as planned. As Mark mentioned earlier, we saw a significant relief from input costs, which were $144 million or $0.31 per share lower in the fourth quarter, driven by lower energy and OCC costs. Corporate and other items include benefits from lower interest expense, favorable FX and other corporate items, partially offset by a sequentially higher tax expense.
Turning to the segments, and I'll start with Industrial Packaging on Slide 9. Price and mix improved in the quarter primarily from commercial mix initiatives focused on margin improvement. The recent publication changes did not have a material impact on the fourth quarter. As Mark mentioned earlier, demand for packaging was in line with our expectations.
Fourth quarter volumes remained at lower levels due to constrained consumer demand and ongoing retailer inventory destocking. Sequentially, volume was also impacted by four fewer shipping days. However, in this dynamic demand environment, International Paper is well positioned due to our diverse portfolio of products and services, and our strategic relationships with a large number of national and local customers across a broad range of attractive end-use segments.
Overall, our mill system ran well and we managed through winter storm Elliott very effectively. The lower demand environment impacted operations and costs in the quarter as we adjusted our system to align our production with our customer demand. These actions resulted in approximately 530,000 tons of economic downtime across the system, resulting in higher unabsorbed fixed cost. Ops and costs were also seasonally higher. However, this segment benefited from approximately $57 million of favorable one-times items I mentioned earlier.
Input costs were significantly lower and improved earnings by $139 million sequentially. About half of the benefit was from lower energy costs in North America and Europe and the remainder was primarily from lower OCC cost. Overall, we continue to face elevated supply-chain cost as well as the impact from high inflation on materials and services during the past couple of years. In a lower-demand environment, when we aren't running at full capacity, we believe there is a large opportunity to further optimize our system and take out high marginal costs. This remains a key lever in 2023.
Turning to Cellulose Fibers on Slide 10. Taking a look at the fourth quarter performance, price and mix improved by $17 million due to the previously-announced price increases. Volume was sequentially -- was lower sequentially due to higher pull-through of shipments in the third quarter as supply chain velocity began to improve.
Operations and costs were negatively impacted by disruptions from winter storm Elliott and some reliability incidents at two of our mills. These were partially offset by approximately $14 million of favorable one-time items I mentioned earlier. Planned maintenance outages were higher by $39 million sequentially, coming off of the third quarter which represented the lowest outage quarter of the year. In addition, input costs were lower by $5 million.
As we look forward, feedback from our customers indicates they are seeing in-transit inventory pull-through at a faster pace due to the improvements in supply-chain velocity from less port congestion and improved vessel reliability. Combined with seasonal demand decline related to the Chinese New Year, we expect some customer inventory destocking to impact demand through the first quarter.
With that said, fluff pulp inventories remain below historical levels and we believe fluff demand will continue to grow. This is due to the essential role that absorbent personal care products play in meeting consumer needs.
Turning to Slide 11. Our Global Cellulose Fibers business continues to make significant progress, growing earnings and executing on our strategy to deliver value-creating returns over the business cycle. The business increased earnings by approximately $100 million in 2022 and was near cost of capital returns in the second half of the year, despite significant supply chain cost headwinds.
Our team successfully deployed a commercial strategy focused on building strategic relationships with key global and regional customers and aligning with most attractive regions and segments. We are focused on creating value for our customers by delivering products that meet their stringent product safety standards and deliver innovative value. In addition, we are driving structural margin improvement by ensuring we get paid for the value we provide.
In the fourth quarter, we made solid progress in our fluff pulp contract negotiations, which will provide additional commercial benefits going forward. We are committed to building on this momentum and expect to deliver significant earnings growth in 2023.
On Slide 12, I'd like to update you on Building a Better IP set of initiatives. We're making solid progress and delivered $75 million of earnings in the fourth quarter for a total of $250 million in 2022, which exceeded our target for the year. About half of the benefits today are from our lean effectiveness initiative by rapidly streamlining our corporate and staff functions to realign with our more simplified portfolio, we have offset 100% of the dis-synergies from the Printing Papers spin-off. Although most of these benefits have been achieved, we will continue to pursue additional opportunities.
Another significant driver of full-year results was strategy acceleration as we delivered profitable growth through commercial and investment excellence. Going forward, we continue to focus on getting our Global Cellulose Fibers business to deliver value-creating returns. We are also focused on profitably growing our Industrial Packaging business by improving margins and investing for organic growth.
Finally, the process optimization initiative has the potential to reduce costs across areas such as maintenance and reliability, distribution and logistics and sourcing as we leverage advanced technology and data analytics. We believe these initiatives will deliver benefits going forward as we finish implementing new capabilities across our business.
Turning to Slide 13, I want to take a moment to update you on our capital allocation actions. As Mark mentioned earlier, we have a very strong balance sheet, which we will preserve because we believe it is core to our capital allocation framework. Our 2022 year-end leverage was 2.1 times on a Moody's basis, which is below our target range of 2.5 times to 2.8 times. Looking ahead, we have limited medium-term debt maturities with about $1.6 billion due during the next 10 years. And finally, even in this environment, our pension plan remains fully funded.
Returning cash to shareowners is a meaningful part of our capital allocation framework. In the fourth quarter, we returned $355 million to shareowners, including $191 million through share repurchases which represents 5.4 million shares or about 1.5% of shares outstanding. As a result, we've returned approximately $1.9 billion of cash to shareowners in 2022. In October, our Board of Directors authorized an additional $1.5 billion of share repurchases.
At year-end, our total authorization was approximately $3.2 billion. Going forward, we are committed to returning cash through maintaining our dividend and through opportunistic share repurchases. Investment excellence is essential to growing earnings and cash. We invested $931 million in our businesses in 2022, which includes funding for cost-reduction projects with attractive returns and for strategic projects to build-out capabilities and capacity in our box system.
As an example of this, the successful start-up of our new corrugated box plant in Eastern Pennsylvania, which has an expected return on investment of 20%. And going forward, we plan to make additional investments across our box system to support long-term profitable growth.
We will continue to be disciplined and selective when assessing M&A opportunities that may supplement our goal of accelerating profitable growth. You can expect M&A to focus primarily on bolt-on opportunities in our packaging businesses in North America and Europe. Any potential opportunity we pursue must create compelling long-term value for our shareowners.
So, turning to Slide 14, we'll look at our first quarter outlook. I'll start with Industrial Packaging. We expect price and mix to decrease earnings by $65 million as a result of prior index movement in North America and lower average export prices based on declines in the fourth quarter. Volume is expected to increase earnings by $20 million due to four more days sequentially in North America, partially offset by the normal seasonal decline in daily shipments in North America.
Operations and costs are expected to decrease earnings by $65 million due to the non-repeat of favorable one-time items in the fourth quarter. In addition, we expect seasonally higher energy consumption and some additional inflation on materials and services. Ops and costs will also benefit from lower unabsorbed fixed costs due to higher volumes and more planned maintenance outages.
Maintenance outage expense is expected to increase by $91 million. The first quarter will be our highest outage quarter of this year, representing approximately 40% of planned outage cost in 2023. And lastly, input costs are expected to decrease by $70 million from lower average cost for energy, fuel and fiber.
Switching to Global Cellulose Fibers, we expect price and mix to improve by $15 million on the realization of prior increases. Volume is expected to decrease earnings by $15 million based on seasonally lower demand and customer inventory destocking in response to increased supply chain velocity.
Operations and costs are expected to decrease by $30 million due to the non-repeat of favorable one-time items in the fourth quarter. In addition, ops and costs will be impacted by higher unabsorbed fixed costs due to lower volumes, as well as seasonally higher energy consumption and some additional inflation on materials and services.
Maintenance outage expense is expected to increase by $13 million, which is largely associated with the Georgetown mill Printing Papers outage. This cost will be fully recovered as part of the transfer price to Sylvamo over the course of the year. Again, the first quarter will be our highest maintenance outage quarter this year, representing almost 40% of total planned outages in 2023. Lastly, input costs are expected to decrease by $15 million, mostly due to lower energy and fiber.
Moving to our full year outlook on Slide 15. We are projecting full year 2023 EBITDA for the Company of approximately $2.8 billion. As I mentioned earlier in this presentation, we believe we have significant opportunities to reduce high marginal costs across our system and capture more benefits from our Building a Better IP set of initiatives. This includes meaningful earnings growth in our Global Cellulose Fibers business as a result of our commercial strategy execution. I would also note that our outlook includes only the impact from previously published price changes.
Free cash flow is expected to be between $900 million and $1.1 billion, which includes a one-time tax payment of $190 million related to our timber monetization settlement. In addition to free cash flow, we expect to receive approximately $500 million of cash proceeds from the Ilim sale. Regarding this transaction, for reporting purposes, the Ilim JV has been classified as discontinued operations. And in the fourth quarter, we took an impairment charge, which was treated as a non-cash special item.
For 2023, we are targeting capital spending of between $1 billion and $1.2 billion, with increased investments in our U.S. box system to build additional capabilities and support profitable growth with our customers. We will also focus on high-cost cost-reduction projects across our system.
And with that, I'll turn it back over to Mark.
