Stora Enso sees growth from packaging board investments

27 July 2017

Stora Enso said on Wednesday its latest packaging board plant investments would help to boost earnings in the third quarter after the paper maker reported lower than expected second-quarter earnings.

Stora is one of the world's largest makers of graphic papers - such as newsprint and magazine paper - which have faced falling demand as publishing moves online.

The company has shifted focus towards pulp and packaging board and is in the process of bringing a new paperboard plant in China into full production. It has also converted a paper making business in Finland to produce container board.

Stora said it had separated its paper division's legal structure from other businesses, a move which one analyst said could signal a restructuring.

Stora's adjusted operating profit in the second quarter fell 3 percent from a year ago to 219 million euros ($255 million), missing analysts' average expectation for 228 million euros, in a Reuters poll of analysts.

"(Plant) Maintenance was more extensive than what we planned for," CEO Karl Sundstrom said, adding that the Chinese board mill was now ramping up ahead of original plans.

For the third quarter, Stora forecast flat sales and higher profits compared to the second quarter. Shares in the company rose 3.3 percent by 1059 GMT.

"The worst burden from investments is now over and the profit will start to grow. The outlook is rather good for the coming years," said Inderes analyst Antti Viljakainen, with a "reduce" rating on the stock.

Profits at the troubled paper division fell 74 percent from a year ago to 11 million euros due to low prices and maintenance breaks. In the second quarter, paper made up 28 percent of group sales, while paperboard represented in total 37 percent.

Following a review of its paper business, Stora said it had put in place a new legal structure for the division which would give it more operational independence.

"Differentiating the division like that could help in releasing the paper business easily, if a buyer showed up, or there was a restructuring move to be made," Viljakainen said.

Rival UPM said earlier this week that consolidation would make sense in the paper industry which has been closing capacity for years.

Other industry players include Norwegian paper maker Norske Skog, which is currently trying to restructure its debt, and Spanish Lecta, which last week cancelled a plan to list its shares.