Big Story 10

Paper maker Stora Enso beats profit forecasts on price hikes, cost control

HELSINKI (Reuters) - Pulp, paper and packaging board maker Stora Enso on Friday reported better than expected quarterly profit, thanks to price increases and cost control at its troubled paper business.

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 Finnish company, known for supplying paperboard boxes for Apple iPhones, has shifted its focus away from paper production in the wake of digital devices, but it remains one of Europe’s largest makers of paper used in newspapers, magazines and books.

While paper demand in Europe has declined for more than a decade, biggest producers Stora and UPM have still been able to generate profit while smaller rivals like Norske Skog are going through tough restructuring.

Shares in Stora rose 3.8 percent on Friday as its adjusted operating profit for the first quarter came in at 369 million euros ($455 million), surpassing the average market forecast of 334 million euros.

UPM also rose 2.1 percent.

“The (Q1) result was better than expected, mainly due to the good pricing environment in paper and containerboard, higher volumes at the consumer board division’s European mills and continued strong operational performance,” Stora said in a statement ahead of its full interim report due on April 27.

The company had forecast in February that profit would be “somewhat higher” than 280 million euros that it generated in the previous quarter.

“Paper business was the real surprise. They managed to raise prices and also manage costs there despite higher pulp prices,” said Antti Viljakainen, analyst at research firm Inderes, who has a “reduce” rating on the stock.

The majority of Stora’s profit comes from pulp and packaging board. Pulp is needed in making not only paper but also tissues and packaging board, products that are growing on the back of Chinese demand.

Paperboard demand has also been boosted by increasing global online shopping.

For the second quarter, Stora forecast a flat or lower profit than the first quarter due to maintenance shutdowns.

Reporting by Jussi Rosendahl; Editing by David Goodman and David Evans