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UPDATE 2-Stora Enso sees rising costs weighing on Q2

Published 04/20/2011, 07:59 AM
Updated 04/20/2011, 08:04 AM
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* Q1 core EBIT 248 million euros vs 231 million in poll

* Lifts 2011 cost inflation forecast to 4 percent

* Says inflation will dent Q2 results

* Shares down 1.7 percent

(Adds analyst comment, details, updates shares)

By Jussi Rosendahl

HELSINKI, April 20 (Reuters) - Stora Enso, Europe's largest paper and board maker, said rising costs and mill maintenance would dent April-June results, overshadowing earnings that beat forecasts and sending its shares lower.

The company was forced on Wednesday to raise its forecast for 2011 cost inflation to 4 percent from an earlier view of 3 percent.

"The key reason for the increased estimate is the rising costs of recycled fibre and some chemicals," Chief Executive Jouko Karvinen said.

First-quarter underlying operating profit more than doubled from a year earlier to 248 million euros ($357 million) and beat analysts' average forecast of 231 million euros in a Reuters poll, helped by paper price hikes.

The Finnish company said it expected increased cost inflation and a few maintenance stoppages to limit the earnings improvement in the second quarter.

Karvinen added the cost inflation was a short-term concern.

"Our ongoing efforts to improve costs, productivity, and customer and product mix continue to be even more important," Karvinen said.

Shares in Stora Enso pared earlier losses to trade down 1.9 percent by 1040 GMT after rising about 50 percent in the past 12 months.

"The short-term guidance was a bit unclear. But I don't think there's very much to worry here. Their operating margin topped 9 (percent), prices are seen to be flat or rising and same goes for the demand. The shares are not valued very high," said Katja Keitaanniemi, the head of research in Swedbank Helsinki.

"In this environment of rising costs, Stora holds a major advantage as it is one million tonnes long in pulp," she added.

The company also announced it will invest 90 million euros to boost its consumer board mill in Sweden.

The company aims to shift focus from a fading European paper business into plantation-based pulp production and packaging, as well as growth markets. It recently agreed to invest in a new pulp mill in Uruguay and a containerboard machine in Poland.

It has permanently closed 15 percent of its paper and board plants and 20 percent of sawmill capacity since 2005.

(Editing by Erica Billingham and Mark Potter)

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