UPDATE 2-Strong paperboard gives Stora Enso surprise Q3 boost
* Q3 core EBIT 180 mln euros vs market view of 129 mln
* Packaging board business strong, in contrast to paper
* Stora warns of Q4 weakness due to weak paper demand
* Shares rise across the sector (Recasts with market reaction, adds details on packaging board and company comment)
By Jussi Rosendahl
HELSINKI, Oct 9 (Reuters) - Finnish pulp and paper company Stora Enso's core profit rose a surprise 2.8 percent in the third quarter as a recovering global economy boosted its packaging board business, lifting shares in the troubled sector.
Stora Enso, which has been planning heavy cost cuts due to a steep decline in demand for paper in Europe, said its third-quarter core operating profit was around 180 million euros ($245 million) compared with 175 million a year earlier, beating the consensus market expectation by 40 percent.
Stora itself had forecast earnings at best slightly higher than the 124 million euros it reported in the second quarter.
Stora warned, however, that profit in the fourth quarter would be clearly lower than the 158 million euros recorded a year earlier due to prolonged weakness in both demand and prices for paper in Europe, where many consumers are shifting from print to online media. Paperboard sales are traditionally weak in the fourth quarter.
Acting chief financial officer Jyrki Tammivuori declined to forecast how the paper market would develop but said that, after the strong third quarter, Stora had given a conservative Q4 forecast "to prevent the kind of assumption that we would be going to the moon here".
Shares in the company rose 2.0 percent to 6.24 euros by 1215 GMT. Analysts said that, even with the expected weakness in the final quarter, the market's consensus full-year forecast, for operational EBIT to fall 27 percent to 504 million euros, may be too low given the strength in the packaging board business.
Shares in Metsa Board, which also makes packaging board, were up 1.1 percent, while Stora's biggest paper rival, UPM-Kymmene, rose 1.3 percent.
Analysts said the strength in packaging board appeared to validate Stora's recent strategy of shifting its focus to packaging board and pulp, including an expansion to emerging markets, from the traditional paper business in Europe.
Henri Parkkinen, head of research at Pohjola Markets, said the rising profitability of Stora's packaging unit, its new "core" business, was encouraging.
The packaging board market is seen as benefiting from the expansion of the middle class in emerging markets, as well as the growing popularity of online shopping and a shift from plastic and glass packaging to wood-based materials.
"The packaging market has been rather strong, and in general it's a lot more stable than the paper business," Parkkinen said.
The packaging unit, which produces paperboard for items such as milk cartons and cigarette packages, contributed 60 percent of Stora's core operating profit of 242 million euros in the first half, making it the most important business area in the company.
The division also registered a 12.2 percent return on operating capital, the highest in the company.
Metsa Board last month announced it would raise the price of folding boxboards (FBB), used for packages of cereals and chocolates, for the first time since January 2011.
Stora Enso announces full third-quarter results on Oct. 22. ($1 = 0.7355 euros) (Additional reporting by Ritsuko Ando; Editing by Kevin Liffey)
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