Sappi expected to report zero earnings
January 28, 2005
By Lucia Mutikani
Johannesburg - Sappi, the world`s largest fine paper maker, was set to report zero earnings for the first quarter of its 2005 financial year due to high input costs and scheduled maintenance shut-downs, a poll showed yesterday.
The Johannesburg-based pulp and paper company releases results for the three months to December on Monday, and analysts say there is a risk it could post its second quarterly loss since 1999, when it began publishing three-month updates.
It reported its first loss in the first quarter of fiscal 2004.
Six analysts produced a consensus forecast for headline earnings per share (EPS) of zero US cents, down from 26c (about R1.54) in the fourth quarter. Estimates for headline EPS, which excludes profits and losses from the sale of fixed assets, ranged from a loss of 7c to a profit of 3c.
Sappi, with a secondary listing on the New York Stock Exchange, warned at the release of its 2004 results that rising input costs and tax charges would make it difficult to achieve positive first-quarter results.
It also warned that scheduled maintenance downtime across the group and repair work at its Somerset Mill plant would shave about $20 million off its bottom line in the first quarter.
`We forecast a big earnings shortfall in line with management guidance,` said Morgan Stanley in a research note.
`We expect earnings before interest and tax down 41 percent quarter on quarter to $26 million due to maintenance stoppages, repair work at Somerset mill and higher input costs.`
Sappi`s Nordic rivals, Stora Enso and UPM-Kymmene, are expected to post improved profit for the seasonally weak October to December quarter when they release their results next month.
But high input costs and currency headwinds in the form of the strong rand and euro would continue to haunt the leading producer of the glossy paper used in magazines, analysts said.
Sappi sells about 45 percent of its products in Europe and 26 percent in southern Africa.
Analysts said that although Sappi had increased its coated wood-free prices, these had not sufficiently matched increases in the price of pulp, which accounts for a large chunk of costs.
Sappi was unchanged at R78 on the JSE Securities Exchange yesterday.
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