International Paper Co.'s (IP) fourth-quarter profit fell 19% as lower sales and a decrease in income from a joint venture in Russia offset improved profit margins.

The company's results were better than analysts expected from a usually weak quarter for the Memphis company. IP anticipates modest improvement in demand in 2012 in the company's paper, cardboard and consumer packaging lines with the strongest demand coming from developing markets overseas.

"The U.S. economy is recovering, but is far from a recovered economy," said Chairman and Chief Executive John Faraci during a conference call Thursday with analysts.

Paper industry shipments of industrial packaging, which includes corrugated cardboard boxes, rose about 1% in North America last year. Shipments are up just 5% from the recessionary depths of a couple of years ago.

IP has attempted to take advantage of the market weakness by acquiring competitors, particularly rival Temple-Inland Inc. (TIN) last year for $3.48 billion. The U.S. Department of Justice is conducting an anti-trust review of the deal. IP said Thursday it expects the department's review to be completed during the first quarter.

International Paper has been emphasizing margin expansion from lower costs and improved operations to counter the modest sales growth in its developed markets. The company's operating margin for 2011 grew to 8.5% from 6.7% in 2010. IP's fourth-quarter operating margin climbed to 9% from 8.5% a year earlier. The fourth quarter is typically one of IP's weakest periods of the year following a third-quarter surge in demand for packaging for the back-to-school and holiday shopping periods.

Fourth-quarter sales of IP's industrial packaging slipped 2.3% from a year earlier to $2.51 billion. But the business' profit jumped 17% to $306 million on improved operations at mills and lower costs for recycled cardboard.

IP's printing papers business, which supplies office paper and specialty papers, reported a 0.6% increase in sales to $1.55 billion, while earnings fell 19% to $189 million because of higher manufacturing costs.

Income from IP's Ilim joint venture in Russia dropped to $1 million from $31 million as a result of unfavorable currency rate translations. IP executives stressed the negative currency effects are temporary and expect improving income from the venture in 2012. IP is counting on a pair of plants under construction in Russia to position IP for sales growth in Eastern Europe and increased exports to China.

For the quarter ended Dec. 31, IP reported an overall profit of $257 million, or 59 cents share, down from $316 million, or 73 cents a share, a year earlier. Excluding restructuring costs, tax adjustments and other items, adjusted earnings edged down to 66 cents a share from 68 cents as revenue decreased 2.5% to $6.37 billion. Analysts polled by Thomson Reuters were expecting 61 cents a share and $6.5 billion, respectively.

For 2011, the company's profit climbed to $1.34 billion, or $3.07 a share, from $644 million, or $1.48 a share in 2010. Sales increased 3.1% to $26 billion.

IP's stock was recently up 1.6% at $31.89 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

--Drew FitzGerald contributed to this article.

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