Shares in Smurfit Stone, the American packaging group 29.4 per cent-owned by Jefferson Smurfit, remained under pressure on the Nasdaq market yesterday after the overnight warning that first-quarter earnings would fall well short of market forecasts.
Smurfit Stone shares fell 60 cents to $16.21 (€18.44) on Thursday and remained around that level in early trading yesterday after chief executive Mr Pat Moore warned that earnings in the first quarter would be a "couple of pennies" short of Wall Street's estimates of $0.08 for the first quarter.
Now, the market expects first-quarter earnings of $0.04 a share or $0.06 a share before exceptional items. The exceptional item relates to the closure of three corrugated container facilities in the US.
The warning about more difficult trading and lower-than-expected earnings comes as Jefferson Smurfit weighs up its options for its stake in Smurfit Stone.
There is growing speculation that Smurfit will sell the 29 per cent stake in an institutional placing, with many investors in both Smurfit and Smurfit Stone believing that divestment of the stake is preferable to a full-scale merger between the two companies.
Smurfit Stone is currently capitalised at around $4 billion (€4.6 billion) and this values Smurfit's 29.4 per cent stake at just less than €1.4 billion. This would be enough to eliminate Smurfit's current debt of around €1 billion with cash left over to fund the group's expansion plans in Europe and the Far East.
Smurfit's incoming chief executive Mr Gary McGann has already indicated that sorting out the Smurfit Stone situation is a priority for the group, with the current uncertainty acting as a drag on the Smurfit share price.
The expectation that the Smurfit Stone stake will be sold is the main factor behind the recovery of the share price in recent months.
Mr Moore told Dow Jones that the business environment remained "very difficult" during the first quarter and added that the expected rebound in sales from the sluggish fourth quarter of 2001 had failed to materialise.
"We're reading that the economy is growing and maybe in the service sector and other sectors it is. But in the manufacturing sector, the business environment continues to be extremely difficult and is showing little if any signs of rebounding."
Although it was possible that demand would improve in the second quarter, businesses were hesitant to rebuild inventories out of fear that an improvement in the economy would not be sustainable, Mr Moore said.
He added that analysts' forecasts of 48 US cents a share for the full year could be achieved if business conditions improved, demand picked up and there were no further cuts in prices.
The strong dollar is another drag on the manufacturing sector, with fewer goods being exported in US-made boxes and more goods being imported in foreign-made boxes. Lower prices also hit Smurfit Stone in the first quarter, with linerboard prices down $5 a ton in February after the $15 fall in prices in December.
