Tim S. Nicholls
Senior Vice President and Chief Financial Officer at International Paper
Thank you, Mark. Good morning, everyone. I'm on slide six, which shows our year-over-year earnings bridge. Price and mix improved with strong price realization across all of our channels. Mix was also favorable driven by growth in higher margin US packaging channels and lower export containerboard volume. Volume was essentially flat versus last year. Significant operational and supply chain constraints limited our ability to capture the full benefits of a really solid demand backdrop. Our North American packaging business operated with depleted inventories throughout much of 2021 which increased our costs across the system. Across the company, supply chain operating costs increased $170 million or about $0.35 per share, representing more than half of the increase in operations and costs in 2021. The second half of 2021 was especially challenging due to the slow supply chain velocity and very poor logistics reliability putting additional cost pressure on our manufacturing system.
Maintenance outages increased as planned following deferrals we chose to make in 2020. Input costs rose sharply across just about every category. Cost increase throughout the year were $370 million of higher input costs just in the second half of 2021 resulting in significantly elevated input cost levels exiting 2021. Total corporate expenses decreased by $0.29 per share. Interest expense decreased by $0.21 per share benefiting from significant debt reduction. Tax expense was lower by $0.17 per share with an effective tax rate of 19% as compared to 25% in 2020. These benefits were partially offset by higher corporate costs following the recent spin off as expected. And lastly, equity earnings improved by $0.57 per share. Ilim equity earnings increased by $0.66 while equity earnings from Graphic Packaging decreased by $0.9o.
Moving to the quarter-over-quarter earnings bridge on slide seven. Fourth quarter operating earnings per share were $0.78 as compared to $1.10 in the third quarter. Price and mix improved by $0.22 per share with strong price realization in our North American packaging business partially offset by mix associated with labor challenges in our US box system. Volume improved less than we anticipated primarily due to the significant Omicron related labor and supply chain constraints late in the fourth quarter especially in the US box system. Many of our suppliers, customers and logistics providers have also reported labor impacts due to the ongoing COVID resurgence.
In our Global Cellulose Fibers business, fluff demand is solid. However vessel delays worsened in the fourth quarter and limited our volume potential. Operations and costs were a headwind in the quarter. The cost impact in the fourth quarter from the tape failure at the Prattville mill was less than we anticipated due to timing. Additionally, we received $40 million of insurance proceeds for Prattville. Operating and distribution costs were impacted by poor reliability from logistics providers across every mode of transportation. Maintenance costs increased sequentially as planned. Input costs increased by $0.22 per share or about $110 million with energy, fiber and chemicals rising in the fourth quarter. Corporate expenses and taxes increased sequentially and interest expense decreased. Ilim equity earnings were lower sequentially partly due to supply chain limitations resulting from increased health measures on rail shipments to China.
Turning to the segments and starting with Industrial Packaging on Slide 8. In North America, demand in the fourth quarter was solid across all our films including boxes, sheets and containerboard. However, Omicron intensified supply chain and labor constraints in the later part of the quarter which impacted box volume. The labor impact from Omicron [Indecipherable] costs the value chain is substantial and continues into January with labor constraints impacting our box plants, suppliers, customers and logistics providers. We're very proud of the IP team and their continued resilience and ability to adapt almost on a daily basis to deliver for our customers. We're experiencing very stretched supply chains and poor carrier reliability across just about every mode of transportation which put significant strain on our shipments and cost pressure on our mills and box plants. Our mill to box plant velocity for containerboard is running three to four days longer than our normalized flow and in some lanes even longer. The lost production in Prattville in the fourth quarter further stressed our network and operating cost. Production at the other mills are [Technical Issues] with 100%. Looking at the fourth quarter performance, price and mix was strong with very good progress on price realization of our August increase. This was partly offset by weaker mix related to higher export shipments in the fourth quarter as expected. Volume improved by $20 million sequentially on strong seasonal demand in North America and EMEA despite three fewer shipping days. As mentioned earlier, box shipments in North America were impacted by supply chain and labor constraints, especially in the latter part of the quarter due to the COVID Omicron variant.
Operations and costs were a headwind. Operating and distribution costs in our mills and box plants increased. We operated with very lean containerboard inventories and higher distribution costs throughout most of the fourth quarter to compensate for lost production at the Prattville mill. The cost impact of Prattville in the fourth quarter was about $40 million, and we did receive $40 million in insurance in late December. We are currently in the process of restarting the second Prattville machine and expect additional cost in the first quarter. Input costs increased by $90 million in the quarter. Energy accounted for $40 million of that total, including $15 million in Europe where energy prices rose to historically high levels. Wood and OCC accounted for another $35 million despite modest relief in OCC cost in the latter part of the fourth quarter. Wood fiber cost rose sharply in the third and fourth quarters due to the challenging operating conditionally -- conditions, especially in southern regions as well as inbound transportation constraints. We expect difficult operating conditions and elevated cost in the first quarter.
Let me turn to slide 9. Earlier in the month, we announced plans to build a new corrugated box plant in Eastern Pennsylvania. The new box plant will complement our Northeast box plant network and support customers growth across multiple customers [Indecipherable] We inspect the new plant to start early 2023 and deliver returns of about 20%. We plan to further invest in our US box system to build out needed capabilities and capacity. Investing in our US box system is one of the elements of building a better IP to accelerate profitable growth in our most attractive business. We have some regions where we are limited on box capacity. We have plans to increase capital investments at existing plants as well as invest in new box plants in the next few years. We will ensure we have the right capabilities and capacity to grow earnings and cash.
Moving to Cellulose Fibers on Slide 10. I'll start with a few comments on our performance in 2021. Progress on our commercial initiatives with price, mix and volume contributing about $450 million of improvement. Demand for fluff pulp was solid throughout the year. However, the operating and supply chain environment was extremely challenging which affected shipments and costs. We also experienced distribution and input cost pressure of more than $200 million with inputs rising in just about every category. For the full year 2021, our earnings improved about $230 million versus 2020 and we expect further improvement in 2022. Taking a look at the fourth quarter, demand for fluff pulp is strong globally and our backlogs are healthy.
Looking at our sequential earnings, product mix impacted earnings by about $5 million. Volume decreased by $10 million due to shipment delays. Our shipments continue to be negatively impacted by port congestion and vessel delays which worsened in the fourth quarter. Keep in mind that we export about 90% of our volume in this business. Operations and costs decreased earnings by about $10 million driven by higher distribution costs, lower energy sales and the non-repeat of nitrogen credit sales in the third quarter. These headwinds were partially offset by a favorable LIFO adjustment of $10 million in the fourth quarter. Planned maintenance outage costs increased sequentially and input costs increased primarily due to higher chemicals and energy costs.
Turning to Ilim results on slide 11. The joint venture delivered equity earnings of $66 million with an EBITDA margin of 39% in the fourth quarter. Volume and costs were impacted by distribution constraints related to COVID health measures on rail shipments to China. Ilim expects these conditions to continue into early February. For the full year, Ilim delivered outstanding earnings performance with adjusted EBITDA of $1.1 billion and an average margin of 40%. Ilim's strong operational performance and low cost system make it a powerful cash generator. We received dividends of $154 million in 2021 and expect to receive about $200 million of dividends in 2022.
Turning to slide 12. I want to take a moment to update you on our capital allocation actions in 2021 to provide clarity on what you can expect from international Paper in 2022. Let's start with the balance sheet. We will maintain a strong balance sheet and investment credit -- and investment-grade credit rating. As we've said previously we're comfortable taking our leverage below our target range of 2.5 to 2.8 times debt to EBITDA on a Moody's basis. We reduced debt by $2.5 billion in 2021 and more than $4 billion over the last few years. Looking ahead, we have limited near term maturities with about $900 million due over the next 5 years. Taking a look at pension, we're very pleased with the performance of our plan. Our qualified pension plan is fully funded with a surplus of about $600 million at year-end. We feel really good about the actions that we've taken to improve performance and derisk the plan. All in, we closed 2021 with a leverage of 2.5 times on a Moody's basis.
Returning cash to shareholders is a meaningful part of our capital allocation framework. In 2021 we returned $1.6 billion to shareholders through dividends and share repurchases. And over the past 5 years, we've returned $6 billion to shareholders or about 63% of free cash flow. Looking ahead, we're committed to a competitive and sustainable dividend with a payout of 40% to 50% of free cash flow, which we will continue to review annually as earnings and cash flow grow. With regard to share repurchases, as of the end of 2021 we had $2.9 billion of available authorization. We will continue to execute on these authorizations in a manner that balances the investment needs of the business and maximizes value for our shareholders.
Investment excellence is essential to growing earnings and cash. Capex in 2021 was $550 million which was less than we planned due to the timing on equipment delivery and a challenging contract labor environment. Turning to 2022, we are targeting capital spending of $1.1 billion. The planned increase is primarily for strategic projects in our packaging business to build out capabilities and capacity in our box system to drive profitable growth. We also plan to increase funding for cost reduction projects with expected returns in excess of 25%. We will continue to assess disciplined and selective M&A opportunities to 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 value for our shareholders.
We turn to slide 13. Before we get into the details of our outlook, let me frame of how we're thinking about this year. First and foremost, we're confident in our ability to grow earnings in 2022 and we project our full-year EBITDA to be in the range of $3.1 billion to $3.4 billion. Having said that, we expect first quarter earnings to be impacted by a very challenging operating condition and -- related to the Omicron variant and our highest maintenance outage quarter. As we said earlier, Omicron intensified supply chain and labor constraints in December which impacted volume and costs. That impact intensified in January as cases increased impacting our workforce, suppliers, customers and logistics providers. Our assumption is that continued -- conditions will begin to improve late in the first quarter as Omicron cases begin to subside. Looking at the full year, we expect a solid demand environment for corrugated packaging in Pulp with demand growth normalizing as we recover from the near-term Omicron constraints. We are also making good progress on our building a better IP set of initiatives which ramp up as the year progresses. Lastly, we are positioned to optimize our mill and box plant from the various disruptions of 2021 which will further improve our operating and distribution costs. We understand the challenges of the first quarter and how we will navigate these near term headwinds to ensure the company delivers on our full year outlook.
So if you turn to slide 14 we'll take a look at the first quarter. Given the heightened level of near term noise, the first quarter outlook we provide a range of those items where the timing of Omicron recovery presents greater uncertainty. So we'll start with Industrial Packaging. We expect price and mix to improve by $65 million on the realization of our August 2021 price increase. Volume is expected to decrease by $15 million to $35 million with a gradual recovery in the first quarter. Operations and costs are expected to decrease by $60 million to $75 million which includes additional costs related to Prattville. Staying with Industrial Packaging, maintenance outage expense is expected to increase by $118 million. The first quarter will be our highest outage quarter this year, representing about 40% of total planned outage costs in 2022. First quarter maintenance expense includes the Riverdale Printing Papers machine. This cost will be fully recovered as part of the transfer price to Sylvamo over the course of the year. Lastly, input costs are expected to decrease by $30 million to $40 million. In Cellulose Fibers we expect price and mix to be stable. We expect volume to decrease by $5 million due to ongoing vessel delays. Operations and costs are expected to decrease earnings by $45 million related to the higher seasonal cost and non-repeat of LIFO benefits in the fourth quarter. Maintenance outage expense is expected to increase by $11 million. The first quarter will be our highest maintenance outage quarter this year, also representing about 40% of total planned outages in 2022. First quarter maintenance expense includes Georgetown this cost will be fully recovered as part of the transfer price to show bottom over the course of the year. Lastly, input costs are expected to increase by $5 million, mostly due to higher energy costs.
Moving to our full year outlook on Slide 15, we are projecting full-year 2022 EBITDA for the company of $3.1 billion to $3.4 billion. I would note that our outlook only includes the impact from previously published price increases. Free cash flow is expected to be $1.3 to $1.5 billion, and as a reminder, our 2021 free cash flow included about $300 million generated by the Printing Papers business which was part of International Paper through the third quarter. We are targeting capex of $1.1 billion with increased investments in our US box system. Our free cash flow projection also includes about $100 million of cash used for the execution of our build a better IP set of initiatives as well as $60 million of payroll taxes related to the CARES Act. Lastly, the slide includes our outlook for corporate items and our expected tax rate of 25%. With that, I'll turn it back over to Mark.
