October 25, 2019 / 5:27 AM / 19 days ago

Hygiene products firm Essity's profit jumps as pulp costs ease

STOCKHOLM (Reuters) - Swedish hygiene products maker Essity (ESSITYb.ST) reported an unexpectedly big jump in core third-quarter profit on Friday, helped by easing raw material costs, higher sales volumes and price hikes, sending its shares up 4%.

FILE PHOTO: Essity products are seen on display in Stockholm, Sweden May 23, 2019. REUTERS/Anna Ringstrom

After its 2017 listing, tough markets and a sharp rise in prices for raw materials such as pulp put pressure on Essity, the world’s biggest maker of hygiene products for businesses and incontinence products under the Tork and TENA brands.

But pulp prices have started to drop, and Essity’s shares had already climbed 32% this year on the back of cost cutting, higher product prices and hopes it would start benefiting from the drop in pulp prices.

Essity, also the second-largest maker of consumer tissue such as toilet paper and handkerchiefs, said profit before amortization and restructuring costs rose 38% to 4.2 billion crowns ($433 million) from a year ago. Analysts polled by Refinitiv had predicted a 3.8 billion crown profit.

“With raw material prices having eased, Essity is now reaping the benefits of a disciplined approach to pricing during times of high input prices as well as proactive efforts to structurally improve margins,” analysts at Liberum commented.

The only division to still see raw material costs rise in the quarter was Personal Care, which uses oil-based products as well as pulp.

CEO Magnus Groth told analysts and journalists in a conference call raw material costs for the consumer tissue business, which uses mainly virgin fiber, would be substantially lower in the fourth quarter than in the third.

He said the professional products unit, which also uses recycled fiber, would see stable raw material costs, as would Personal Care.

Problems with new production capacity pushed up production and distribution costs in the third quarter, and Essity said it therefore now sees ongoing savings outside the cost-cutting scheme at 600 million-700 million crowns this year, down from initially planned savings of 1 billion.

He warned that, as a result of easing pulp prices, the consumer tissue business was likely to see pressure to lower its prices to customers going forward.

Rival Procter & Gamble Co (PG.N), whose products range from detergent and shampoo to diapers, on Tuesday raised its full-year forecast after a better than expected quarter.

Kimberly-Clark (KMB.N), too, raised its outlook after beating analysts’ expectations.

Reporting by Anna Ringstrom; editing by Johannes Hellstrom, Sherry Jacob-Phillips and David Evans

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