SCA’s report weighs on the sector

Svenska Cellulosa Aktiebolaget (OMX: SCA B) reported sluggish sales growth of 1% in Q1 2012 compared to Q1 2011. Net sales of just below 19.5 billion SEK generated gross profit of 4.8 billion. Operating profit excluding items affecting comparability was up 4% to 1.834 billion and profit before tax is just over 1.5 billion.

Packaging operations held for sale and the acquisition of Georgia-Pacific's European tissue operations are ongoing matters that need to be taken into account. The company said those are progressing according to plan. Operating cash flow increased marked on lower working capital vs. comparison period.

Personal Care and Tissue segments showed rapid growth mainly in emerging markets and EBIT was up vs. last year. Compared to Q4 2011 margins were disappointing. Some of this is explained by seasonal factors. In Forest Products sales were flat vs. Q1 2011 where as margins were down particularly fast, catching analysts completely off-guard. The entire sector has retreated today on that news.

SCA also said it is acquiring the remaining 50% of the Chilean hygiene company Papeles Industriales S.A. (PISA) de Santiago for 520 million SEK. PISA’s 2011 turnover was around 780 million, with 0% from tissue segment and 30% from AFH (away from home) hygiene products.

SCA bought into PISA Group in 2003. It is second largest company in Chile with consumer tissue and AFH tissue and has around 400 employees. SCA said this is the right time to take the next step in Latin American expansion. SCA’s is down almost 8% just before market close.