SCA Quarterly Net Gains 48% on Procter Unit Purchase

Svenska Cellulosa AB (SCAB), Europe's biggest tissue maker, said fourth-quarter profit rose 48 percent, beating analyst estimates, after a purchase added the Bounty and Charmin household brands in Europe.

Net income increased to 2.13 billion kronor ($334 million), or 3.03 kronor a share, from 1.44 billion kronor, or 2.05 kronor, a year earlier, Stockholm-based SCA said today in a statement. Analysts surveyed by Bloomberg predicted a profit of 1.81 billion kronor.

The $756 million purchase of Procter & Gamble Co. (PG)'s European tissue business increased SCA's market share on the continent to about 30 percent, giving the company greater negotiating power with retailers. Chief Executive Officer Jan Johansson is focusing on own-brand tissues, toilet paper and paper towels, where prices are recovering faster than in other paper grades.

``They have momentum, so now we're looking forward to more improvements this spring when the synergies from the P&G purchase become visible,'' said Claes Rasmuson a Swedbank analyst with a ``buy'' recommendation on SCA.

SCA rose as much as 3.75 kronor, or 3.9 percent, to 99.25 kronor in Stockholm and closed at 98.75 kronor, lifting the company's market value to 69.7 billion kronor. SCA has dropped 18 percent in the last six months compared with a 13 percent decline on the Dow Jones Stoxx 600 index of Europe's biggest publicly traded companies.

Sales advanced 8.4 percent to 27.8 billion kronor. Analysts estimated 28 billion kronor.

Growth Through Acquisitions

SCA will look at growth both organically and through acquisitions, Chief Executive Officer Jan Johansson said today at a press meeting in Stockholm. ``We are currently working on our strategic focus,'' he said without elaborating.

The Procter & Gamble business added the Charmin toilet paper, Bounty kitchen towels as well as Tempo pocket handkerchiefs brands, marketed as far away as Hong Kong. The company sold the Softis brand to gain antitrust approval for the acquisition from the European Commission. Johansson said he expects to save about 700 million kronor annually after overlaps with the acquired businesses have been eliminated.

Rising timber and energy prices have squeezed profit at SCA and its competitors in the paper and forest products industry. Dallas-based Kimberly-Clark Corp. today said earnings fell because of higher costs for pulp used in its Huggies diapers and Scott towels.

Energy Costs

SCA's energy costs rose by 200 million kronor in the fourth quarter, Chief Financial Officer Lennart Persson said today. He declined to give a forecast for the first quarter.

SCA has succeeded in raising prices on consumer products with new items such as pant diapers for babies. Paper makers have been less successful in passing costs on to customers as internet advertising hurts printed publications and global overcapacity persists.

SCA's tissue unit increased fourth-quarter earnings before interest and taxes by 42 percent, helped by the acquisition which added 1 billion kronor in sales out of tissue's total 9.3 billion kronor. A ``good volume trend'' in Europe and price increases and a better mix of products also contributed, the company said.

``We still have too low profitability in tissue, we have to improve that,'' Johansson said. ``We need to strengthen our brands and in that respect the Procter & Gamble acquisition is important.''

Own Brands

SCA has raised the percentage of own-branded tissue it sells to 40 percent from 30 percent, Johansson said in December. Tissue accounts for about a third of the business. Personal care products like diapers supply 20 percent of sales and about one third of profit.

The personal care division raised its EBIT by 7.6 percent to 781 million on sales of incontinence products to the health care industry. Sales of diapers to retailers in the Nordic region and Russia also increased.

The packaging unit had a 16 percent EBIT gain in the fourth quarter. The full-year figure increased 28 percent after SCA raised prices on corrugated board and demand in western Europe rose, especially for products such as consumer and display packaging.

``The market for solid-wood products is weakening after a record 2007,'' SCA said in the statement. ``Otherwise, we see a continued favorable market for most of our segments.''

To contact the reporters on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net; Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editors responsible for this story: Andrew Noel at anoel@bloomberg.net; Malcolm Fried at mfried@bloomberg.net

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