Shares in packaging group Jefferson Smurfit have fallen to their lowest level for nine months after the group's US associate, the 29.4 per cent-owned Smurfit Stone, warned that first-quarter earnings would be well below market expectations.
Market sources in Dublin were taken aback by the scale of the selling of Smurfit shares yesterday, as Smurfit Stone had recovered from initial selling on Wednesday after chief executive Mr Ray Curran gave the profits warning at the Morgan Stanley paper conference in New York.
The profit warning was given 45 minutes before New York markets closed on Wednesday and provoked some initial selling, which saw Smurfit Stone shares fall about $1 (P1.1) to $12. But market relief that the profit warning was not due to weakness in product pricing but because of downtime led to a recovery before the Wednesday close.
That did not prevent the Dublin market yesterday being hit by a wave of selling of Smurfit shares. By the close, 5.2 million shares had traded as the stock closed down 15 cents on P1.82. "Some people seem to have simply lost patience with Smurfit and just dumped the stock," said one market source. He added that the selling had been overdone given the modest reaction on the New York market. Smurfit Stone shares traded marginally lower as the US market continued to react relatively benignly to the warning.
At the Morgan Stanley conference, Mr Curran said corrugated demand had been sluggish from mid-December through February and, as a result, Smurfit Stone expected downtime in the first quarter would be higher than the 214,000 tonnes of downtime taken in the fourth quarter of 2000.
Significantly, Mr Curran added that, despite the poor demand, product pricing remained stable after the $15 a ton cut in containerboard prices in January. All of this meant that earnings in the first quarter would be significantly below the $0.15 a share consensus estimates, he said.
Mr Curran's comments were reinforced yesterday by official figures, which showed that containerboard production in the US in January and February was down 10.6 per cent on the same period in 2000, while the operating rate in the industry was 86.4 per cent of capacity compared to 95.4 per cent in January-February 2000. In addition, box shipments fell 8.7 per cent in February, bringing the fall in shipments for the year to date to 3.4 per cent.
Despite the weakness in the US economy and the resulting fall in demands from industry for packaging, analysts are confident the new-found discipline in the industry will maintain prices close to the current $475 a ton for containerboard.
The willingness of the US producers to take downtime and hold product inventories at the minimum level would be the key to maintaining product prices in the difficult months ahead, said one analyst.
Smurfit's Irish broker, Davy, which has been the most conservative in its earnings forecasts for the group, said it did not expect any major downgrading from its current 2001 forecast of 22.8 cents per share. Other analysts were less positive and ABN Amro has pulled its 2001 earnings forecast back to 20.4 cents.
In Smurfit Stone's case, Lehman Brothers has slashed its 2001 earnings forecast from $0.45 to $0.25 per share and its 2002 forecast from $1.90 to $1.75 a share.
