International Paper ( IP) swung to a profit in the latest third quarter, but the forest products concern warned that it's feeling the pain of high energy and transportation expenses.

The Stamford, Conn., company posted third-quarter earnings Tuesday of $1.04 billion, or $2.07 a share, compared with a loss of $470 million, or 91 cents a share, a year ago.

The latest quarter includes a gain of $278 million from discontinued operations relating to the sale of the company's interest in Carter Holt Harvey and a benefit of $603 million, mainly from an audit agreement reached with the Internal Revenue Service. Last year's third quarter had a discontinued operations charge of $684 million, largely from the sale of Weldwood of Canada.

Earnings from continuing operations and before special items in the third quarter were $162 million, or 33 cents a share, down from $200 million, or 40 cents, last year.

International Paper had third-quarter sales of $6.0 billion, unchanged from the 2004 quarter. Analysts were looking for a profit of 24 cents a share and a top line of $6.38 billion in the quarter.

Going forward, the company offered cautious comments. "We estimate fourth-quarter earnings from continuing operations and before special items to be lower than third quarter predominantly because of skyrocketing raw material costs, particularly energy, and higher transportation costs," International Paper said in a press release.

Traders weren't bothered, as shares of International Paper rose $2.01, or 7.1%, to $30.38 in premarket activity.

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