UPDATE 2-Stora Enso to shut more mills as paper demand falls

Tue Oct 23, 2012 9:10am EDT

* Plans to close capacity, cut 520 jobs

* Q3 operating profit 175 mln euros vs 150 mln in poll

* Sees Q4 profit in line or a bit lower than in Q3

* Shares rise 5.6 pct (Adds analyst's comments, background, updates shares)

By Jussi Rosendahl

HELSINKI, Oct 23 (Reuters) - Finnish forestry company Stora Enso said it plans to shut and sell more mills to cut costs and cope with falling demand for paper in Europe.

Shares in the company jumped 5.6 percent on Tuesday after it said the planned closures are expected to reduce 520 jobs in Finland, Sweden and Poland and cut costs by 36 million euros ($47 million).

Stora Enso, which also posted a smaller-than-expected drop in third-quarter profit on Tuesday, said its capacity cuts will include closure of a paper machine in Sweden and a paperboard plant in Finland.

It also said it is considering the sale of its Corbehem mill in France, which has an annual capacity of 330,000 tonnes in magazine paper.

Stora and other paper makers like Finnish rival UPM-Kymmene have been cutting costs and production capacity in Europe for years to deal with a shift in consumers from paper to online media.

"It is the right thing to do, to react like this," said Katja Keitaanniemi, the head of investment bank in Swedbank Finland, adding that the European publication paper industry needs more restructuring.

Since 2006, Stora Enso had already shut down paper and paperboard mills or machines accounting for about 2.5 million tonnes capacity in Europe, or 15 percent of its previous capacity.

Stora Enso said it expects demand in European paper markets to fall at a pace of 4-6 percent annually in the coming years.

REFOCUSING

"We cannot afford to wait for a transformation in our markets, we need to act as we have done previously," said Stora CFO Karl-Henrik Sundstrom in a statement on Tuesday.

The company is looking to reform itself by shifting focus from the ailing European paper industry to packaging board and low-cost pulp in emerging markets.

A recovery at its existing packaging board unit helped to offset weak paper demand and pulp prices in the third quarter, so operating profit fell less than expected by analysts.

Total group operating profit fell to 175 million euros from 224 million euros a year earlier, but ahead of the market's average forecast of 150 million euros.

Stora also said it expected fourth quarter underlying earnings to be in line or slightly lower than in the third quarter. On average, analysts in Reuters poll had expected a clear fall. ($1 = 0.7651 euros) (Reporting By Jussi Rosendahl; Editing by Ritsuko Ando and Hans-Juergen Peters)