Smurfit Kappa sees core profit fall, shares tumble

By Jonathan Saul

DUBLIN (Reuters) - Smurfit Kappa Group Plc expects a 5 to 10 percent drop in core profit this year due to rising costs, a weak dollar and slowing demand, the Irish packaging maker said on Friday, knocking 10 percent off its shares.

The company (SKG.I: Quote, Profile, Research)(SKG.L: Quote, Profile, Research), one of the world's biggest makers of paper and cardboard packaging, had previously said it expected "modest" core profit growth this year.

"Our expectations for 2008 have moderated," Chairman Sean Fitzpatrick told shareholders at its annual meeting on Friday.

Fitzpatrick said rising raw materials costs such as paper, soaring fuel prices, a weak dollar and slackening demand for corrugated packaging, one of its major products, were likely to hit profits in 2008.

NCB analyst John Sheehan said it was cutting its forecasts for the company.

"With continued weakening in demand, upward cost pressures and the prospect of further unnecessary capacity in 2009 we lower our rating to Hold," Sheehan wrote in a research note.

Shares in Smurfit Kappa were 9.7 percent lower at 7.75 euros in Dublin by 1219 GMT, underperforming a 1.1 percent fall on the wider Irish market .ISEQ. Its London shares fell 10.2 percent.

The group said earlier on Friday earnings before interest, tax, depreciation and amortisation (EBITDA) before exceptional items rose to 257 million euros ($394 million) in the three months to the end of March, up 1 percent year-on-year.