SHARES IN Smurfit Kappa dropped 2.5 per cent yesterday after the packaging company said basic earnings per share fell 56 per cent in the third quarter of its fiscal year and warned of tough conditions in the final quarter and in 2009.

However, in spite of the worsening outlook, Smurfit Kappa said it remained on target to deliver €945 million to €950 million in full-year earnings before interest, tax, depreciation and amortisation (ebitda), excluding exceptional items and share-based payments.

This projection followed a 16 per cent drop to €231 million in ebitda in the three months to September and a 4 per cent drop in revenues to €1.75 billion.

Analyst Robert Eason at Goodbody said the ebitda outcome was “slightly ahead” of the broker’s forecast of €226 million and a consensus forecast of €229 million.

Basic earnings per share fell to 16.8 cent from 38.6 cent.

Smurfit Kappa stock, down 83.65 per cent in the last 12 months, finished five cent weaker at €1.95 last night.

“The demand outlook for our business is slowing down,” company chief executive Gary McGann said. “Basically, the real world is slowing down progressively. Consumers are getting more and more concerned and nervous. Discretionary spending is bearing the brunt of that.”

With the help of lower debt-servicing costs thanks to a 7 per cent year-on-year drop to €3.19 billion in net debt at the end of September, the company reported a 100 per cent rise to €226 million in free cash flow for the first nine months of the year. “In the current credit market environment, the group continues to benefit from its low cost of financing and long-term debt profile with no material maturity in the next four years.

“The group also benefits from strong liquidity, with approximately €730 million of cash on its balance sheet, and unused committed credit lines of approximately €600 million,” it said.

Smurfit Kappa said it would “progressively reduce” capital expenditure from current levels to further increase cash flow generation and maximise debt paydown through the business cycle.

The company said it expected a continuation of tough operating conditions for 2009, even though declining interest rates, a stronger dollar, further capacity rationalisation in the industry and “increased financing risk for the announced new capacity” were potentially positive factors.