* Q3 pretax before one-offs 2.2 bln SEK vs forecast 1.96 bln
* Packaging unit posts unexpected profit
* CEO says Packaging's market has stabilised
* Shares up 1.5 percent (Adds CEO, analyst, detail, background, share price)
By Anna Ringstrom and Jens Hansegard
STOCKHOLM, Oct 27 (Reuters) - Swedish hygiene and paper product firm SCA reported a bigger-than-expected rise in third-quarter earnings on Tuesday as its struggling Packaging unit benefited from restructuring measures.
The firm said demand for its paper and packaging products remained weak, but volumes in its hygiene segments were stable.
The paper industry has struggled for years with soft demand, low prices and overcapacity, leading to hefty production cuts.
The current economic downturn has further eroded demand for paper products, but SCA's hygiene operations have suffered less than its more cyclical packaging and forest products businesses.
Pretax profits at Europe's biggest maker of corrugated packaging and hygiene items -- with products ranging from cardboard boxes to nappies -- came in at 2.20 billion Swedish crowns ($324.6 million) before costs of 387 million crowns for restructuring measures in Packaging.
That compared with a year-earlier 1.44 billion crowns, and a mean forecast in a Reuters poll for 1.96 billion plus 250 million in restructuring costs.
"It looks good. Packaging is up a bit faster than the market had expected," said an analyst who declined to be identified.
The unit unexpectedly reported a 172 million crown profit versus a forecast 19 million loss, and a year-earlier 319 million profit.
"This indicates savings are having effect, because the market seems to have remained weak," said Michael Andersson, analyst at Evli Bank. "They did better than expected in the right places."
SCA said the programme at the unit, presented in April, had so far resulted in lower costs of 148 million crowns.
"Nine of the eleven planned packaging plants closures have been carried out and half of the planned 2,200 positions have been cut," the firm said.
But SCA Chief Executive Officer Jan Johansson cautioned that although Packaging had stabilised, it was "too soon to talk about signs of a real turnaround" in the market.
"One can say that things aren't continuing lower. To say that we're seeing a quick turnaround, that is too soon to say. However, things have stabilised and the downturn has ended", Johansson told Reuters.
SCA said a recovery had begun to take place in liner prices, but it didn't expect that to affect corrugated board prices until the end of the first quarter of 2010.
It forecast a continued weak market for publication paper.
HYGIENE PRODUCTS
Operating profits at SCA's Tissue unit -- its biggest unit by sales after it bought the tissue operations of Procter & Gamble in 2007 -- nearly doubled to 1.1 billion crowns, versus a forecast 999 million. The operating margin grew to 10.9 percent from 6.6 percent versus a forecast 10.5 percent.
"The hygiene segments are showing considerable resilience against the recession," SCA said.
SCA forecast stable prices for hygiene products. But it saw energy and material costs rising during the end of the year.
"Margins are pretty strong on the hygiene side ... but they are bit cautious concerning that specific outlook," said an analyst who declined to be identified. "One should maybe not expect as strong margins in the fourth quarter."
Shares in SCA rose 1.5 percent to at 0930 GMT, outperforming the wider market in Stockholm.
"This (report) indicates things will look fairly good next year, with stable profits and margins at the hygiene operations and growing margins at Packaging with restructuring benefits and higher prices," Evli's Andersson said.
Top European paper and board maker Stora Enso on Oct. 22 reported forecast-beating earnings thanks to cost cutting, but it said its market outlook remained gloomy. ($1=6.777 Swedish Crown) (Additional reporting by Johan Ahlander; Editing by Rupert Winchester)