Smurfit results unlikely to prove cause of celebration

Results for next week from the Jefferson Smurfit Group are not expected to be any great cause for celebration. Brokers are forecasting pretax profits in a range of #191 million (£150 million) to #220 million which would compare with the 1997 profit outcome of #177 million.

Profits have been in the doldrums because of the sharp fall in product prices during 1998. But the 1998 results are now history. In recent weeks the outlook has become brighter as the $50 per ton linerboard price increase in the US, announced in March, holds and the industry starts to consider further product price increases for later in the year.

But it is likely to be the new millennium before prices come back to levels which would lead to a big rise in group profits.

In the current year, prices in the US market were weak in the first quarter after a sharp fall in the final quarter of 1998. The March increase pushed the linerboard price to $370 to $375 per ton though it is still well off its previous peak of $520. With inventories and capacity coming under control, helped by the Smurfit-Stone merger and the Union Camp/ International Paper moves, and a strong US economy underpinning demand, the outlook for the US is now more healthy.

In Europe, however, markets are difficult in weak economic conditions with prices rises unlikely in the short term. In Latin America, markets are weak but the meltdown forecast by some has not happened.

With the industry outlook somewhat improved, the group is moving to consolidate the Smurfit-Stone operation having tightened its control of the US activities. Confidence that it can make its $2 billion (#1.83 billion) assets sale programmes is increasing as the volatile sector appears to be making a turn in the right direction.

Shareholders, who have seen the share price drop from 353 euro cents to a low of 112 cents in 1998 after the Smurfit-Stone merger before increases this year brought the price back to 195 cents, will be hoping for solid improvement in both product and share prices.