Smurfit shares rise as Q2 figures beat expectations

SHARES in the Irish-headquartered paper and packaging group Smurfit Kappa (SKG) rose 8.24% (35c) to €4.60 yesterday, after the business reported a 73% year-on-year fall in pre-tax profits to €39m for the first half of the year.

The rising share price was mainly down to second quarter figures coming in slightly better than market expectations.

Smurfit’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the second three months of the year amounted to €184m — €8m higher than Davy Stockbrokers expected.

That second quarter earnings figure, however, was still down by 29% on a year-on-year basis.

Elsewhere, for the entire first half of the year, group revenue was down by 18% on the same period last year, to just above €3 billion.

First half EBITDA was also down by 29% at €363m. Operating profit fell by 46% to €170m and basic earnings per share were down by 88% year-on-year at 6.7c. Both EBITDA and operating profit in the second quarter of the year were marginally up on the first quarter’s figures.

Group chief executive, Gary McGann said: “The increasing number of capacity closures, across the industry, since the beginning of the year demonstrates the level of stress for higher cost and non-integrated producers.

“Against a backdrop of difficult business conditions, the resilience of our integrated operating model complemented the benefits of our continued cost reductions and ongoing actions to rationalise our less-efficient capacity.”

Mr McGann also pointed to SKG’s “comparatively strong” EBITDA margin of 12.1% in the first half of the year.

Of potential real significance to Smurfit Kappa’s future earnings, however, was the group’s secondary announcement that it is putting in place a €60 per tonne price increase on all its brown container-board grades from the beginning of next month.

While these changes will have little impact on the group’s profitability this year, it will influence price levels for early 2010, it said.

If this move succeeds, it will have a significant impact on sentiment towards SKG and the sector. The initiative should halt the fall in corrugated prices later this year, which would have a positive effect on our 2010 forecasts for SKG.

It is too early to make a call on the likely success of this initiative, but the fact that the company feels confident enough to announce it should have a positive impact on sentiment,” Barry Dixon at Davy Stockbrokers said yesterday.