Product Price Cuts To Pressure Essity Tissue Paper Profits
Leading office tissue paper supplier Essity on Wednesday said easing pulp prices meant it had to lower prices on some products, hitting first-quarter earnings, after fourth-quarter profit was boosted by the lower pulp costs.
The stock was down by nearly 6% at 1000 GMT on the news, unravelling gains that last week took shares in the Swedish rival to Procter & Gamble and Kimberly-Clark to a record high.
Operating profit before amortisation and items affecting comparability jumped 37% from a year earlier to 4.74 billion crowns ($498 million), roughly matching analysts' average expectation in a Refinitiv poll.
The world's biggest maker of hygiene products for businesses under the Tork brand, and incontinence products under the TENA brand, said easing raw material and energy costs, efficiency measures, higher sales volumes and price hikes boosted profit.
But the declines in pulp costs have resulted in price pressure in the consumer market.
"In the Consumer Tissue business area, we have finalised some negotiations and agreed on price decreases in Europe. The agreed price decreases are on average low single-digits and will have an impact in the first quarter of 2020," it said.
Chief Executive Magnus Groth told a news conference the price cuts agreed were smaller than he had feared.
The division accounts for around 40% of group sales.
After its 2017 listing, tough markets and a sharp rise in pulp prices put pressure on Essity, which is also the global No.2 in consumer tissue such as toilet paper and handkerchiefs, under a range of brands including Edet and Vinda.
But pulp prices are easing and Essity's shares had by Tuesday's close climbed 41% over the last 12 months.
Essity shares reached a record last week after the group's Chinese holding Vinda issued a robust earnings forecast, pointing to the easing raw material prices.
Essity on Wednesday proposed a 9% increase in the annual dividend to 6.25 crowns per share.