April 27, 2018 / 7:50 AM / a year ago

UPDATE 1-Tissue maker Essity's profits rise despite spike in pulp prices

(Adds detail, background, shares)

By Anna Ringstrom

STOCKHOLM, April 27 (Reuters) - Swedish hygiene products group Essity on Friday reported a rise in first-quarter core profit, broadly in line with expectations as product price increases partly offset a spike in pulp costs.

Essity, a market leader in incontinence products with its TENA brand and in professional hygiene with Tork, was spun off from forest products group SCA in 2017.

Operating profit before amortisation and one-off items rose 7 percent from a year ago to 3.1 billion crowns ($360 million) helped by emerging market growth and benefits from the integration of medical equipment firm BSN Medical, which Essity bought in April 2017. Analysts had forecast a 3.2 billion crown profit.

Hygiene products have strong long-term growth prospect because of ageing populations and growing emerging market wealth, but Essity’s listing last year coincided with rising pulp prices, while competition has intensified, making it harder to pass on costs to customers.

Chief Executive Magnus Groth in January warned of much higher raw material costs in the first quarter for the Professional Hygiene and Consumer Tissue divisions. He predicted positive impacts from pushing through higher prices to customers from the second quarter onwards.

The company said higher pulp costs shaved 755 million crowns off first-quarter profit but price increases in Consumer Tissue’s Asian markets and in Professional Hygiene partly offset the cost.

“Price increases were also carried out in Consumer Tissue in Europe during the quarter, which have yet to impact earnings,”

the company said.

Its shares rose 2.8 percent at 0738 GMT. Year-to-date the shares are down 5.4 percent.

Essity, which also makes baby diapers and feminine care products, managed to step up the pace of organic growth versus the fourth quarter to 3.4 percent, just above its target.

Kleenex producer Kimberly-Clark Corp this week reported better-than-expected quarterly profits helped by strong growth in tissue sales.

Procter & Gamble Co narrowly beat profit expectations, saying however that commodity prices squeezed margins.

$1 = 8.6613 Swedish crowns Reporting by Anna Ringstrom. Editing by Jane Merriman

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