International Paper Co., feeling the effects of the lagging economy and the unusually cold winter, had lower first-quarter earnings.

J. Stanford Smith, chairman of the world's largest paper company, told the annual meeting in Atlanta yesterday that profits during the first quarter dropped to $48.6 million ($1.04 a share) from the record $63.6 million (S1.43) on 2.4 million fewer shares last year.

He said the cold winter hurt production efficiency, delayed shipments and forced up fuel and transportation costs.

Smith also said "Lagging economy and customer inventory liquidation which had affected the company's business toward the end of 1978 continued in to the opening weeks of 1977." Customers still were reacting to price increases, cutting down on profits, he added.

Sales for the quarter were $850.1 million, down from $866-8 million in the year - earlier period.

However, by the middle of the quarter, business "picked up decidedly," Smith said.

He added that weakness continued in overseas sales and that newsprint sales are below those of last year.

Merill Lynch & Co., holding firm for the country's largest securities brokerage house, yesterday increased its quarterly dividend from 20 to 22 cents a share in spite of a sharp drop in first-quarter profit to 24 cents a share from $1.23 a year ago.

Chairman Donald C. Regan explained that the divided increase was voted on the basis Merill Lynch's record-breaking performance in 1976, the culmination of three years of growth.

He said the first-quarter earnings drop was due entirely to the big slump in both stock market and options trading activity in the initial quarter of 1976.

Net income for the quarter was $8.5 million compared with $43.7 million a year earlier on revenues of $317.9 million.