Economics

SCA to Raise Prices as Currency Shifts Compound Cost Gain

Svenska Cellulosa AB, the world’s largest maker of incontinence products, plans to raise tissue-paper prices as the dollar’s gains on foreign-exchange markets push supply costs higher.

SCA needs to compensate for the U.S. currency’s increases against the euro, krona and ruble as the shift compounds the effects of a recent three-year high in pulp prices, Chief Executive Jan Johansson said in an interview today at the company’s Stockholm headquarters.

The manufacturer has transformed itself in the past decade from a paper and packaging maker into a consumer-goods producer. SCA posted fourth-quarter earnings today that beat analysts’ estimates as product-sales growth and spending reductions more than offset raw-material cost increases. The company is now charging customers more in response to extra cost, particularly as many of its supplies are priced in dollars, the CEO said.

“In countries where currency rates are dropping, like in Russia, we are increasing prices by 15, 20 or 30 percent,” Johansson said. “While it’s harder to do so to that extent in Europe, we still have to charge more there, too.”

The dollar has gained 17 percent against the euro since mid-2014. In Russia, SCA’s 10th-biggest market in 2013, the ruble’s value has plunged by more than half in the past 12 months amid trade sanctions by the U.S. and European Union. Since peaking in November at the highest level since 2011, prices of Northern Bleached Softwood Kraft pulp have declined less than 1 percent, according to data compiled by FOEX. SCA is the biggest pulp buyer in the world.


Corporate Customers

Some price increases have already been introduced for business and institutional customers, and SCA will now push to charge more for consumer tissue as well, Johansson said. Raw-material costs will continue to weigh on earnings, though the company expects some relief from declining oil prices, and pulp prices will also continue downward, the CEO said.

Fourth-quarter operating profit excluding some items rose 3 percent to 3.25 billion kronor ($393 million). Earnings exceeded the 3.04 billion-krona average of 11 analyst estimates compiled by Bloomberg.

The figures were “solid,” as emerging markets drove a 4 percent jump in sales growth excluding currency effects, acquisitions and disposals, Robert Waldschmidt and Anubhav Malhotra, analysts at Liberum Capital, said in a report to clients.

SCA jumped as much as 10 percent, the steepest intraday climb since January 2012, and was trading up 7 percent at 196.5 kronor as of 3:03 p.m. in Stockholm. A closing price at that level would be the highest since mid-October 2012.

The company has been “reasonably successful” in safeguarding its market position in Europe as competitor Procter & Gamble Co. introduces incontinence products in the region, Johansson said. SCA has seen some “lost volumes” in the U.S., where P&G is taking on market leader Kimberly-Clark Corp., and that’s likely to lead to a slight increase in marketing costs in relation to sales, the CEO said.


SOURCE: Bloomberg

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