Stora, SCA may say profit gained as paper prices rose

Stora, based in Helsinki, will probably post net income of €106 million ($134 million) after a year-earlier loss, according to the median estimate in a survey of 17 analysts by SME Direkt. Stockholm-based SCA may say profit gained 29% to Swedish kronor 1.29 billion ($177 million), analysts said. European papermakers and North American rivals such as International Paper Co. have closed mills to counter higher raw-material costs and overcapacity. Prices, which had slumped 20% over five years in Europe, are climbing as supplies decline and economic growth spurs spending on packaging and advertising. „The direction is right,” said Evli Bank analyst Teemu Salonen in Helsinki, who has a „reduce” rating on Stora and an „accumulate” on SCA. „The industry has finally understood that demand won't pick up enough to match supply and that capacity has to be adjusted.” Shares of Stora, scheduled to report results on July 26, yesterday rose 2.2% to € 11.73, taking the gain this year to 2.5% and giving a market value of €9.3 billion. SCA, whose results are due today, added 3.4% to Swedish kronor 316 for a value of Swedish kronor 74.3 billion and a 6.4% improvement this year.
Stora posted its biggest quarterly profit for two years in the first three months of the year. SCA reported a 76% jump, helped by demand in Europe and North America and savings from the first of 3,600 jobs cuts. The Swedish company derives most its revenue from tissue products and packaging boards, Stora from printing and writing papers. Expense reductions at UPM-Kymmene Oyj, the world's third-biggest papermaker, include the elimination of 3,000 jobs by 2008 and the removal of 17% of the company's European coated magazine-paper capacity. The Helsinki-based company may report a loss of € 62 million, or 12 cents a share, compared with a profit of € 23 million, or 5 cents a share, SME said. UPM said on July 3, it would have a loss on costs from job cuts and revaluing assets. Closures announced since the fourth quarter of last year will wipe out 2 to 7% of European paper production, said Credit Suisse analyst Lars Kjellberg, who has a „market weight” rating on the industry. UPM said today its Voikkaa and Kymi mills ceased to operate earlier this month as planned. The stock rose 1.7% to € 17.60.
Analysts and investors said they'll be looking for evidence that price increases in other grades can be sustained. „This sector has been out of fashion for years,” said Petri Ukkola, a fund manager at Tresor Investment Management in Helsinki, which oversees about €500 million. „It needs restructuring and we will see more of that. It's essential that prices go up.” Revenue may have jumped 13% to €3.6 billion. Nine analysts advise that investors buy Stora shares, four say „sell” and five „hold.” Eleven analysts suggest buying SCA stock and three say „hold,” according to data compiled by Bloomberg. „We expect the companies to remain cautiously positive, with the current focus being on cost cutting and capacity,” Myles Allsop, an analyst UBS London, wrote in a note. CEO’s message says in SCA’s Interim report 1 January–30 June 2006: “Second-quarter earnings provided the highest operating profit for three years. Continued strong volume growth for Personal Care contributed to this improvement in earnings with sales of incontinence products to the retail sector performing particularly well. The publication papers business also contributed to this earnings improvement through high production and increased prices. The same applies to solid-wood products.”
 (Bloomberg, SCA.com)