Sappi Squeezed by Costs

Sappi Ltd. (SPP - Snapshot Report) has grown through a series of strategic acquisitions to become a global manufacturer of fine paper, coated specialty paper and pulp.

In the fourth quarter, the company reported a net loss of $0.14 per ADR during the quarter, compared to a net income of $0.33 per ADR in the fourth quarter of FY07. Reported earnings in 4Q08 include an unfavorable adjustment of $0.35 per ADR related to special items, while 4Q07 earnings include a favorable impact of special items of approximately $0.03 per ADR.

However, input costs -- such as wood, chemicals and energy is trending lower -- which should offset the negative impact of slowing demand on margins. The industry-wide move to reduce North American and European fine coated paper capacity is taking off the excess supply from the market.

As a global leader in fine coated paper, though, Sappi could shut-in additional capacity. Moreover, the global economy has slowed down significantly. As a result, the demand for Sappi’s products may be weak for the foreseeable future. We reiterate our Hold recommendation on the stock. Our target price is $6.25 per ADR.

Read the full analyst report on SPP

Read the full analyst report on SPP