SHARES IN Smurfit Kappa dropped 9.7per cent to €7.75 yesterday as the packaging giant warned that its profit this year could fall by as much as 10 per cent due to declining demand, dollar weakness and the rising cost of energy and raw materials.
Chief executive Gary McGann said its current "mindset" suggested a drop of "5 to 10 per cent" this year in pre-exceptional earnings before interest tax depreciation and amortisation (EBITDA).
"If there is no change in what we are seeing today, then you could have a view we could be at 10 per cent," he told reporters after the firm's agm, the first since its flotation last year.
The comparable annual profit in 2007 was €1.06 billion. The warning of a drop in profits came two months after the firm trimmed back a projection of "continued" earnings growth to forecast "modest" earnings growth if conditions then prevailed.
NCB Stockbrokers lowered its rating on Smurfit Kappa stock to "hold" and reduced its EBITDA forecast to about €900 million from €1.08 billion for 2008. The broker cut its EBITDA forecast for 2009 to €850 million from €940 million. Mr McGann was speaking after company chairman Seán FitzPatrick told the agm the business was not immune to the contagion in global markets. "Our expectations for 2008 have moderated."
Smurfit Kappa yesterday reported a 1 per cent year-on-year rise to €257 million in EBITDA before exceptionals and share-based payments in the three months to March. Compared with the final quarter of 2007, quarterly earnings fell 7 per cent.
Quarterly turnover rose 2 per cent year-on-year to €1.83 billion. Excluding exceptional items, a quarterly pretax profit of €61.55 million compared with a pretax loss of €42.43 million in the first three months of 2007.With profit margins as measured by pre-exceptional EBITDA declining in the quarter to 14 per cent from 15.1 in prior quarter, the company anticipates that a "combination of factors" will contribute to a greater than expected margin pressure for the remainder of the year. "These factors include a slowdown in demand growth for corrugated, continued weakness in the value of US dollar and further cost inflation." Notwithstanding the drop in value of the dollar, Mr McGann said the company's annual energy bill could rise by €70 million from about €470 million last year. The dollar had the effect of increasing imports into Europe of kraftliner product made in the US. "Nobody could credibly stand up and say there is not a slowing, as distinct from a collapse, in the general outlook demand-wise," Mr McGann said. With some €400 million in cash on its balance sheet, the firm was examining many potential acquisitions, he said. Only deals that would enable the business to quickly pay down any new debt would be viable.
