International Paper Co. (IP) shares jumped Thursday as the company's first-quarter net income climbed 89% and the paper-products maker again alleviated fears about liquidity by raking in fist-loads of cash and paying down more debt.

While revenue was flat and volumes were down, cost cutting and savings at its industrial-packaging unit, which it bought last year from Weyerhaeuser Co. (WY), improved margins for International Paper, helping it beat earnings expectations.

Shares rose 14% to $12.44 in recent trading, after earlier hitting a high of $12.99, the highest it has traded since early December. The shares had been beaten up on falling demand and concerns it had too much debt after the Weyerhaeuser deal.

But Thursday, the company was able to put many of those fears to rest, at least for this year, saying it had $666 million in free cash flow and paid down $550 million in debt. It says it currently has enough cash on hand to handle all the debt maturities through 2010 and some of 2011's.

Chief Financial Officer Timothy Nicholls told Dow Jones Newswires the company had originally said it would pay off $2 billion in debt over two years after making the purchase from Weyerhaeuser. As of the end of March, International Paper already had paid down $1.6 billion over the past eight months, and payments remain the focus.

"We are carrying more [debt] today than obviously we want to carry," Nicholls said in an interview. "It has been and it will be our main focus."

International Paper reported first-quarter net income of $261 million, or 61 cents a share, up from $138 million, or 31 cents a share, a year earlier. Excluding items like a $540 million alternative-fuel tax credits, earnings slumped to 8 cents a share from 41 cents a share, but were still well ahead of the 4-cent loss Wall Street had predicted, according to a survey by Thomson Reuters.

Revenue remained flat at $5.67 billion, however, falling short of the $6.28 billion analysts polled by Thomson Reuters had been expecting.

Its gross margin rose to 34.2% from 24.8%, despite increased overhead and write-downs hurting the bottom line.

Revenue from the printing paper division fell 23%, but profit surged 64% as strong mill operations and lower costs were met with continued weak demand in the global paper and pulp markets. Except for pulp, International Paper said pricing remained fairly steady in North America. Industrial packaging revenue surged 51% as its profit more than tripled.

Chief Executive John Faraci said on a conference call with analysts that the company felt a bottom had been hit in the market and that it now appeared as if they were "bouncing along the bottom." While the company remained cautious and said it couldn't offer guidance, it did leave open the possibility that there could be an uptick in demand because customer inventories had fallen so much.

-By David Benoit, Dow Jones Newswires; 201-938-2472; david.benoit@dowjones.com

(Veronica Dagher and John Kell contributed to this report.)