Sweden's Essity misses profit forecast as price hikes ease

By Agata Rybska

(Reuters) -Sweden's Essity on Thursday missed fourth-quarter core profit expectations as price hikes slowed and volumes fell, sending the hygiene products maker's shares down more than 4%.

It also warned that volumes in some business areas would be hurt in the first half of 2024 due to contracts it had exited and by higher pulp prices.

Essity added that it did not plan to exit more contracts.

"Of course, where we can raise prices, we will still do that," CEO Magnus Groth told analysts on a call.

Easing input and energy costs were offset by softening pricing and re-investments, J.P.Morgan said in a note to clients. Essity's price hikes decelerated to 0.7% in the quarter, below the brokerage's 2% estimate.

The company has been growing its margins over the past year at the expense of volumes, a trend which management has said it wants to start reversing, though Red Sea shipping disruptions might force companies to again pass higher input costs on to consumers.

Essity in December said the impact on its business from attacks on shipping in the Red Sea by Yemen-based Houthi militants was limited.

While only 1% of Essity's transports go through the Red Sea, transporters are adding a Red Sea surcharge, which has a negative impact on Essity's freight costs, Groth told Reuters in an interview, but he could not specify what that impact would amount to.

Its fourth-quarter adjusted EBITA margin rose to 13.3% from 11.2% a year earlier in its fifth consecutive quarterly margin increase. Volumes fell by 1.4%.

"We have invested for future volume growth and higher market shares by intensifying sales and marketing activities," Groth said in a statement.

Adjusted earnings before interest, taxes and amortisation (EBITA) rose by 18% to 4.86 billion Swedish crowns ($465.3 million) but missed an LSEG estimate of 5.22 billion.

Essity proposed a dividend of 7.75 crowns per share, a 7% increase from 7.25 crowns it paid for 2022. In the two years prior, it had increased dividends by 4% per year.

The shares were down 4.47% at 235 crowns per share at 1005 GMT.

($1 = 10.4444 Swedish crowns)

(Reporting by Agata Rybska in Gdansk; editing by Milla Nissi and Emelia Sithole-Matarise)