July 18, 2019 / 5:37 AM / 5 months ago

Essity profits rise, but still battling costs

FILE PHOTO: Essity products are seen on display at the venue of a presentation to investors by the hygiene product company in Stockholm, Sweden May 23, 2019. REUTERS/Anna Ringstrom

STOCKHOLM (Reuters) - Higher raw material and energy costs took the shine off a rise in second-quarter adjusted profit for Swedish hygiene products maker Essity (ESSITYb.ST) on Thursday, as analysts had expected it to start benefiting from an easing in pulp prices.

Shares in the world’s biggest maker of hygiene products for businesses and incontinence products with its Tork and TENA brands fell 4.3% in early trading, reducing their year-to-date rise to 28%.

Tough market conditions and high costs for raw materials such as pulp have put pressure on Essity since its 2017 listing, as well as rivals such as Procter & Gamble (PG.N) and Kimberly-Clark (KMB.N).

However, pulp prices have started to come off last year’s peaks and analysts have been expecting less of a headwind from raw material and energy prices.

Essity said second-quarter earnings before interest, tax, amortisation (EBITA) and one-off items rose 11% year-on-year to 3.73 billion Swedish crowns (320.34 million pounds), boosted by price increases and cost saving measures.

The adjusted EBITA margin improved to 11.6% from 11.3% a year earlier, despite a 0.8 percentage point hit from higher raw material and energy costs. But analysts at Credit Suisse said in a note the margin lagged a consensus market forecast of 12.0%.

“Efficiency efforts are according to plan and we have achieved significant cost savings,” said Essity, which is also the global No.2 in tissue products such as toilet paper and handkerchiefs.

“Our raw material and energy costs were higher during the quarter, although the market prices for such items as pulp are demonstrating a declining trend, albeit from a high level,” it said.

Sales increased 7.9% in the quarter, or 4.3% on an organic basis, stripping out effects such as acquisitions. Credit Suisse analysts said that was broadly in line with market expectations.

Reporting by Anna Ringstrom, Editing by Helena Soderpalm and Mark Potter

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