January 31, 2019 / 7:58 AM / 6 months ago

Sweden's Essity delivers on profit with price hikes, cost cuts

STOCKHOLM (Reuters) - Essity beat quarterly core earnings estimates on Thursday, with larger-than-expected costs savings and price rises lifting the Swedish hygiene products maker’s shares.

Sharply higher input costs for raw materials such as pulp has put pressure on Essity, which makes Libero diapers and is the world’s biggest maker of incontinence and professional tissue products with its TENA and Tork brands.

Essity, which competes with Procter & Gamble and Kimberly-Clark, embarked on a cost-saving programme last year and still expects to generate annual cost savings of around 900 million Swedish crowns, with full effect at the end of 2019.

“We were also quite surprised by the strong top-line and the strong margin development,” Essity Chief Executive Magnus Groth told a conference call. “The initiatives we have are really starting to bite already in the fourth quarter”.

Shares in Essity were up 8.9 percent by 1010 GMT after it said adjusted operating profit before amortisation dipped to 3.45 billion crowns (290.81 million pounds) in the fourth quarter from 3.62 billion a year earlier, beating the mean forecast of 3.07 billion in a poll of analysts.

Essity, the world’s second largest supplier of consumer tissue, also reported higher than expected quarterly sales at 31.1 billion crowns versus the 30.4 billion seen by analysts.

“Overall a pleasing beat on top line and margins ... We expect today’s release to be well received,” JP Morgan said.

Essity expects to increase prices further this year, with the biggest impact in its consumer tissue unit, and in Europe.

“There is still a strong momentum ... to raise prices, it is a necessity, and our customers understand that,” Groth said.

Kleenex-tissues maker Kimberly-Clark last week reported quarterly profits below Wall Street estimates in spite of higher selling prices as it struggles with rising raw materials costs and a strong U.S. dollar.

But P&G, the number one personal care goods company, raised its sales forecast for this fiscal year after posting forecast-beating results boosted by price hikes.

Reporting by Johannes Hellstrom, editing by Niklas Pollard and Alexander Smith

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