Stora Enso sees weaker demand after second-quarter profits drop

(Reuters) - Finnish paper firm Stora Enso STERV.HE reported a bigger than forecast fall in quarterly profits on Friday and said it expected demand to deteriorate due to global trade tensions and Britain potentially crashing out of the European Union.

FILE PHOTO: The Stora Enso company logo is seen near a packaging mill in Riga, Latvia September 18, 2012. REUTERS/Ints Kalnins/File Photo

The pulp, paper and packaging board maker said its adjusted operating profit in the quarter fell 12% from a year earlier to 287 million euros ($323 million), missing an average forecast of 307 million from a Refinitiv analyst poll.

“The decrease was due to lower volumes and prices, but was partially offset by the profit protection program with an impact of 45 million euros,” the company said.

Stora forecast third-quarter adjusted operating profit would slip further, to 200–280 million euros from 358 million in the year earlier period. It declined to give a sales forecast, citing global uncertainties.

“Further deteriorating trading conditions caused by geopolitical uncertainties related to trade wars and a possible hard Brexit are expected to impact Stora Enso negatively,” it said. Slower cross-border trading may cut demand for packaging to wrap goods.

“Demand growth is forecast to slow down for Stora Enso’s businesses in general and demand decline is escalating for European paper.”

Stora Enso raised its cost-cutting target to 200 million euros from an originally planned 120 million, and 60 million of the savings have been achieved so far.

“The focus on profit protection and cash generation is an opportunity to make us more fit for the future,” Chief Executive Karl-Henrik Sundstrom said in the statement.

Shares in Stora dropped in early trading, but quickly recovered to trade up 1.6% by late morning, valuing the company at 8.24 billion euros.

Separately, Stora said it would invest 10 million euros in building a pilot plant to produce carbon materials for energy storage.

“Wood-based carbon can be utilized as a crucial component in batteries typically used in consumer electronics, the automotive industry and large-scale energy storage systems,” it said.

Reporting by Tarmo Virki in Tallinn; Additional reporting by Boleslaw Lasocki in Gdynia; Editing by Jan Harvey and Emelia Sithole-Matarise