UPM Forecasts Lower Profit as European Paper Demand Slows

UPM-Kymmene Oyj (UPM1V), Europe’s second- largest papermaker, reversed its full-year earnings forecast and predicted operating profit will fall rather than rise, sending the stock into its biggest drop in eight weeks.

UPM, based in Helsinki, attributed the lower forecast for operating profit excluding one-time items to declines in pulp and fine-paper deliveries in Europe. Operating profit in the third quarter was 137 million euros ($189 million) on sales of 2.6 billion euros, UPM said in a statement.

“It’s really a bad situation in the paper and pulp sector in Europe at the moment,” said Katja Keitaanniemi, an analyst at Swedbank AB (SWEDA) with a “strong buy” recommendation on UPM shares. “Buyers are decreasing their inventories because they are uncertain about demand going forward. Only Chinese buyers are really active now.”

Finland is home to Stora Enso Oyj (STEAV) and UPM, the two largest papermakers in Europe, and the country’s pulp industry has languished for years as South America and Asia produce cheaper timber. UPM plans to close two publication-paper mills in Finland and Germany as a paper machine at another German site, cutting about 1,170 jobs, the company said in August.

“Fine-paper demand continued to be low in Europe and deliveries did not recover in September from the seasonal summer slowdown,” UPM said today.

UPM fell as much as 84 cents, or 9 percent, to 8.53 euros, the stock’s steepest intraday decline since Aug. 18, and was down 6.4 percent as of 5:10 p.m. local time in Helsinki.

Other Nordic papermakers also fell. Stora Enso dropped as much as 7 percent, and M-real Oyj declined as much as 12 percent. Norway’s Norske Skogindustrier ASA (NSG) plunged as much as 8.5 percent, and Holmen AB (HOLMB) in Sweden lost as much as 1.6 percent.

UPM plans to publish full earnings figures on Oct. 26.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.