Jefferson Smurfit has produced a strong set of results for the year to the end of last December with pre-tax profits trebling to €485 million, the second highest profit figure produced by the packaging group.
Sales for the year rose 24 per cent to €4.56 billion, pre-tax profits were 190 per cent higher on €485 million while shareholders are getting some consolation for the group's poor share price performance with a 10 per cent increase in the total dividend to 6.94 cents per share.
But while the market welcomed the results, which were well ahead of consensus forecasts, analysts have warned that there is a serious danger of linerboard prices falling in the next few months, a price cut that could seriously undermine forecasts for the current year.
Stronger containerboard prices and the impact of a number of small to medium-sized acquisitions were the main factors behind the strong 2000 performance from Smurfit. But the group warned: "The industry is in the midst of its weakest seasonal period compounded by the effects of a slowing global economy. While the direction of product pricing may be downward, stock prices already reflect recessionary levels."
Analysts were divided on whether the packaging industry would have to cut the price of containerboard again after the small $15 cut in prices to $460 a ton introduced by some small players last month. They added that it would probably be late March or early April before the situation regarding pricing becomes clear.
"The amount of supply that has been taken out of the system would appear to be sufficient to keep prices at current levels," said analyst Mr Liam Igoe at Goodbody Stockbrokers. "The company is likely to manage its supply side very carefully in the months ahead," he added. He said Goodbody expected to leave forecasts unchanged.
Mr John Clarke of ABNAmro said the 2000 figures were very good but "They're history." He added: "It's hard to get a fix on what the industry is going to do. The current situation has been exacerbated by buyers holding back in anticipation of lower prices."
Chief financial officer Mr Ian Curley does not expect the company to cut paper prices despite weaker demand and a flat to negative market in the US.
The uncertainty over current year product pricing was the main reason for a muted reaction to the good 2000 results from Smurfit. While the shares traded in substantial volume - almost six million shares traded including a single block of 1.5 million shares - the price only rose five cents to €2.02.
This still leaves Smurfit shares trading on a huge discount to most American packaging companies, including its 29 per cent associate Smurfit Stone. While the American sector has risen by more than 40 per cent since last October as investors switched back from tech, media and telecom stocks to more traditional investments, Smurfit shares are up only 3 per cent in the period. This is partly down to the lack of support for the shares in the Dublin market where Irish institutions are sellers of the stock.
