Sappi Ltd. (SAP), the world’s largest maker of glossy paper, climbed after returning to a second-quarter profit.
The stock of Johannesburg-based Sappi increased as much as 5.4 percent, the biggest intraday rally since Nov. 30, to 27.14 rand and closed at 25.82 rand, bringing its gain this year to 8.5 percent. The stock slumped 30 percent last year as rising costs and weaker paper sales led the company to close mills.
Profit was $58 million in the second quarter through March compared with a loss of $74 million a year earlier, Sappi said in a statement. Input prices for items such as wood, pulp and chemicals were lower than a year earlier, while cost-cutting measures boosted profitability, the company said.
“South Africa continued to contribute significantly to profit, but the improvement in the European and North American businesses were big drivers,” Chief Executive Officer Ralph Boettger said in an interview today.
While demand in Europe was down from a year earlier and prices were “under pressure,” the European operations benefitted from an annual reduction of more than $100 million of costs, Boettger said. The closing of its Biberist mill in Switzerland, together with the use of more efficient mills and distribution savings helped boost profit in Europe, he said. In North America, Sappi had an improvement in margins.
Pulp prices, which had been weakening since July 2011, stopped declining midway through the quarter, and have been gradually increasing, Boettger said. This benefits Sappi’s Southern African and North American operations where it is a net seller of pulp. In Europe, where Sappi still buys about 40 percent of its pulp, the higher prices may support selling prices of the final product, he said.
Net debt was reduced by $42 million to $2.13 billion in the quarter. Sappi will consider refinancing and extending the maturity of its higher cost debt, including bonds due in 2014, when “market conditions are favorable and we see an opportunity to do so,” Boettger said.
The benefits of reorganization at the paper producer’s South African operations will start showing from the third quarter and will become more evident from the fourth quarter, he said. Sappi’s third-quarter earnings will be “in line” with the year-earlier period, he said. The company’s third quarter is typically used for maintenance of mills because it is a seasonally weaker period.
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