Shares in Smurfit Kappa dropped 4 per cent to €8.85 yesterday after the packaging giant trimmed back its guidance for "continued" growth in earnings this year to forecast "modest" earnings growth if current conditions prevail.
Company chief executive Gary McGann said Smurfit Kappa was "very cautious" in its outlook for 2008 in light of economic uncertainty and related constraints on demand growth.
While the company saw "softer demand growth" at the end of 2007, he said the business has performed well in the year to date in spite of the uncertain economic outlook.
A clearer picture about current conditions will not emerge until later in the year, Mr McGann said. Smurfit Kappa is likely to introduce single-digit price increases this year to compensate for its increasing cost burden.
While costs have increased 21 per cent since a "pricing trough" in 2005, the company has recovered more than 17 per cent of that rise at present and hopes to have recovered 19.5-20 per cent of the rise by the end of this year.
Mr McGann was speaking after Smurfit-Kappa reported a 20 per cent rise to €1.06 billion in annual earnings before interest, tax, depreciation and amortisation (EBITDA) last year.
Analysts noted downside risk to the forecast of "modest" EBITDA growth - most likely in the region of 3 to 5 per cent - if economic conditions worsen. "Their comments on current market conditions prevailing would be an important caveat. If the economic outlook deteriorates further that would imply that there would be downside risk to their guidance," said Merrion Capital analyst John Mattimoe.
"The reorganisation of the debt structure following the IPO has probably been timely. They've reduced the leverage in the business ahead of the slowing economic growth rate.
"They have no big scheduled repayments on their debt until 2012," Mr Mattimoe said.
Smurfit Kappa's EBITDA margin last year was 14.6 per cent, up 1.9 percentage points on 2006. The EBITDA figure, which excludes exceptionals and share-based payments, was marginally ahead of analyst expectations.
However, forecasts were revised downward after the company said last October that its full-year earnings would be at the lower end of expectations due to the rising cost of materials.
Annual revenues rose 4 per cent last year to €7.27 billion. Operating profit rose 144 per cent to €562 million and the company reversed a pre-tax loss of €143 million in 2006 to deliver a pre-tax profit of €170 million.
Smurfit Kappa declared a final dividend of 16.05 cent per share, the first dividend since its return to the stock market last March.
