Sweden's Essity plans to increase its prices over the coming months to offset rising pulp costs, it said, after posting first-quarter earnings above expectations.
Pulp represented 11% of all costs in 2023, and the maker of brands including Libresse and TENA has focused efforts on reducing its reliance on the fibre, saying in March it had cut its purchase of pulp by around half.
"It (costs of pulp and recycled fibre) will have an impact in the second quarter and beyond, but we will compensate through price increases," chief executive Magnus Groth told Reuters.
Essity has been growing its margins over the last year at the expense of falling volumes, but has said that trend has begun to reverse.
Pricing Strategy
As marketing activity increased, it cut prices in the first quarter and analysts said the planned increase could cost the company sales volumes.
'Pricing in consumer goods should be a worry at a time of potential rebound in costs,' JP Morgan said.
Others in the sector are also responding to the increasing cost of pulp. Portuguese tissue maker Navigator said it would hike prices by 8%-10% from May.
Many in the market had expected an announcement of a share buyback or updated targets as a result of the SEK 19 billion (€1.6 billion) sale of its 52% stake in Asian hygiene products company Vinda.
'We expect the stock to be under pressure today as the lack of MT targets/share buyback should disappoint,' JP Morgan said.
Quarterly Highlights
Groth told Reuters the company would provide an update in the second quarter on its financial targets and capital structure.
Essity's adjusted quarterly earnings before interest, tax and amortisation (EBITA) rose 12% from a year earlier to SEK 4.9 billion (€420 million), surpassing the SEK 4.45 billion (€380 million) expected by analysts polled by LSEG.
The margin rose to 14%, marking its sixth consecutive quarterly margin increase.
Excluding restructuring and exited contracts, volumes increased 0.6% in the quarter.
