Essity Posts Higher Than Expected First Quarter Profits
Swedish hygiene products group Essity reported slightly higher than expected first quarter profit growth as volume and price increases across all its divisions helped offset higher pulp and energy costs.
A sharp rise in input costs for raw materials such as pulp has put pressure on Essity, the world's biggest maker of incontinence products and hand towels and toilet rolls for businesses with its TENA and Tork brands.
The rival to Procter & Gamble and Kimberly-Clark posted profit before amortisation and one-off items of SEK 3.19 billion crowns (€300 million) in the first three months of the year, compared with SEK 3.12 billion a year ago and a mean forecast of SEK 3.15 billion in a Reuters poll of analysts.
Price, Mix, Volume
"In spite of the very negative impact from raw materials and energy, we compensated for nearly all of that through price, mix and volume," CEO Magnus Groth told a news conference.
Sales grew 9% to 30.7 billion crowns, boosted by organic growth of 4%.
Analysts at Liberum, who have a "hold" rating on the stock, said organic growth was unexpectedly high but cautioned that input costs remain a stiff headwind.
"Even with stable pulp prices, the mismatch between cost pressures and pricing and cost savings will persist in the first half of 2019, leaving scope for an earning miss," they said.
Groth said he expected to keep raising prices in the second quarter and
throughout the year to compensate for input costs.
"We are very close to the inflection point we've been talking about for a long time: the point where we are able to compensate just through price and mix...for higher raw material and energy costs," he said.
"In coming quarters we will see some more positive impact from pricing," he said.
Essity, the global no.2 in consumer tissue such as Edet toilet paper and Vinda handkerchiefs, said an ongoing group-wide savings programme was proceeding according to plan.
P&G this week posted a higher quarterly profit than expected but weaker margins, sending shares down. Kimberly-Clark saw shares rise on higher-than-expected profit.