Smurfit Stone, the US packaging firm 29 per cent owned by Jefferson Smurfit, has signalled an upswing in its fortunes after reporting a sharp drop in profits for the first quarter of the year.

In a statement with the first quarter results, chief executive Mr Pat Moore said: "We expect the quarter was the trough from a demand standpoint and we have begun to see some signs of a seasonal upturn." He added that, with inventories at low levels, any sustained pick-up in demand could support price improvement.

The first quarter results were in line with forecasts after the trading statement from the group two weeks ago, with earnings - after an exceptional charge of $0.02 a share - of $0.02 a share. This compares with first-quarter earnings of $0.07 a share in the same quarter of 2001. Sales in the quarter fell to $1.9 billion (€2 billion) from $2.2 billion a year ago.

Mr Moore said the main reason for the fall in profits to $6 million from $12 million was persistent weakness in demand for packaging and weaker prices. Shipments of corrugated containers and folding cartons - the firm's main products - fell from the previous quarter and the same quarter last year. Smurfit Stone's debt rose slightly to $5 billion. The first-quarter results make no reference to the speculation on Smurfit's 29 per cent stake in Smurfit Stone. But analysts said the firm had indicated its focus was on North America. This has been interpreted as eliminating the prospect of a merger between Smurfit and Smurfit Stone and increasing the likelihood of a sale by Smurfit of its 29 per cent stake.

Smurfit holds its annual meeting on Friday and there has been speculation that the firm might announce then its intentions on the Smurfit Stone stake. But that is now seen as unlikely and it is likely to be later in the year before a decision is made.