UPM relatively upbeat in interim report tone, share down on earnings miss

UPM Kymmene (OMX: UPM1V) reported EPS of 26 cents excluding special items. This was down a notch from 2010. Special items included an 86 million gain from Pohjolan Voima Oy’s sale of Fingrid Oyj shares and EPS with special items was 56 cents. Sales were up 9% to 2.4 billion plus on higher prices (for instance average paper prices were up 6% for the year).

Operating cash flow was strong 280 million Euro. EBITDA increased to 372 million or 15.2% of sales. Variable costs were up strongly: fibre costs were 49 million higher and energy costs 18 million higher than in Q2 2010.

Myllykoski and Rhein Papier GmbH acquisition was completed on August 1st for an enterprise value of around 900 million. EU commission approved the deal on July 19th. UPM expects the acquisition to have instantaneous positive impact on cash flow and a positive impact on the result from next year. UPM has started Q3 with an increase of 2% in prices for newsprint and magazine papers in Europe.

UPM’s earnings guidance continues to call for a higher operating profit excluding special items than in 2010. The company foresees H2 operating profit to match H1. Demand has levelled off and the demand outlook is stable. UPM says that variable costs are no longer climbing at a fast rate. The share is down 7% to 9.2 Euro one hour into the session.