| Tue 3 Feb 2004, 9:17 | | Sappi is cut down to size by slump in US |
|
Sappi is cut down to size by slump in US
February 3, 2004
By Bloomberg
Johannesburg - Shares in Sappi, the world's biggest maker of glossy paper for magazines, fell yesterday after the company posted its first net loss in 10 quarters and cut its profit forecast as US demand remained depressed.
The company said it was less likely than previously forecast to report improved earnings for fiscal 2004. Earnings for the company's second quarter, which ends in March, should be little changed from the preceding quarter, Sappi announced in a statement to the JSE Securities Exchange.
"There is no sign of a recovery in North America," said chief executive Jonathan Leslie. "We would hope this is the bottom of the cycle."
Paper-producing companies are suffering from a third year of overcapacity and sliding prices after the worst advertising slump in a decade cut demand for their products.
The company, which supplies paper to magazines like Vogue and Vanity Fair, was affected by a $33 million charge related to the cost of cutting jobs and shutting a production line in Westbrook, Maine.
Sappi's share price fell as much as R4.49, or 4.7 percent, to R91 during intraday trade in Johannesburg. The shares closed R1.99 down at R93.50. Sappi's market value is about R21.4 billion.
Sappi posted a net loss of $21 million, or 9c a share, in the three months to December. Net income a year earlier was $51 million, or 22c a share.
Earnings were also reduced by the rand's 28 percent rise in value against the dollar last year, which eroded its profit margins in South Africa.
Even before Sappi's comments, analysts were expecting full-year profit to drop. Now analysts are estimating how far it will fall.
"The outlook statement wasn't so good," said David Brennan, an analyst at Andisa Securities.
"The company is expecting about 6c a share for the next quarter, which is below what I was expecting," he said.
Faster economic growth in the US, where the company posted an operating loss of $54 million in the quarter, had not translated into stronger demand, Sappi stated.
"It's still a tough market," said Stephen Roelofse, an analyst at Sanlam Investment Managers. "Going forward, it's all about the economy and how demand comes back."
The US economy grew 4 percent in the final three months of 2003, after expanding 8.2 percent during the third quarter.
The economy was expected to expand at a 4.4 percent annual pace this quarter, according to the median estimate of economists surveyed this month by Blue Chip Economic Indicators.
Sappi expects stronger demand in Europe to lead to higher prices "soon".
Paper makers such as Finnish-based Stora Enso, the biggest by capacity, were forecasting price increases of about 5 percent this year in Europe.
The price of lightweight coated paper averaged E689.87 (R6 016) a metric ton in the three months to December, a 7.2 percent decline on the year-earlier period, according to the benchmark Finnish index
