Smurfit Kappa issues sudden profit warning

Dublin-based packaging group Smurfit Kappa issued a profit warning yesterday in an unexpected trading update to the stock market.

Smurfit said that higher "input cost pressure" and an inability to recover the price rises in full meant that its full-year earnings expectations would be at "the lower end" of the range of current market forecasts.

The company, which is headed by Gary McGann, said the pressure of this impact would be felt in the fourth quarter of this year. Smurfit said it will report its third quarter results on November 13th, when it will also provide initial guidance for the 2008 financial year.

For the third quarter, Smurfit said it would report "continued and sequential" growth in earnings before interest, tax, depreciation and amortisation (Ebitda).

Its Ebitda margin would also be increased and it achieved a "significant" rise in its free cash flow, which would be applied towards "further debt reduction" at the group.

In spite of the negative news, Smurfit Kappa's share price rose by almost 2 per cent to €13.69.

The shares, however, are 17 per cent below the €16.50 level of its flotation in March 2007, when the packaging group returned to the stock market.

Smurfit's warning on profits follows on the heels of similar announcements by European rivals Stora Enso and Norske Skog last week.

The trading update by Smurfit had not been expected and was published in advance of "planned" investor relations meetings.

NCB Stockbrokers responded to the announcement yesterday by reducing its Ebitda estimates for Smurfit in 2007 and 2008 by 4 per cent and 6 per cent respectively.