Essity shares fall as Q2 profit misses forecasts, margins decline

Investing.com -- Shares in Essity (ST:ESSITYb) fell more than 2% Thursday after the Swedish hygiene and health company reported second-quarter earnings that missed forecasts, with operating profit and margins falling short despite modest growth in sales.

Operating profit for the three months ended June 30 came in at SEK 4.69 billion, down 5% from consensus expectations of SEK 4.94 billion. 

The company reported an operating margin of 13.7%, a decline of 1 percentage point from a year earlier.

Earnings per share fell to SEK 4.71, 8% below analysts’ expectations of SEK 5.10 and down from SEK 5.13 in the same period last year.

Sales rose 1.9% on an organic basis, slightly ahead of expectations. Volume increased 0.2% and pricing added 1.7%. 

The company reduced advertising and promotion spending by 20 basis points to 5.2% of sales during the quarter.

Cost savings totaled SEK 112 million in the quarter, short of the SEK 130 million expected by Jefferies. 

Input costs in Swedish krona were not lower as anticipated, though the report noted that potential benefits from foreign exchange movements could emerge later in the year.

Each of Essity’s three business segments posted operating profit below expectations. Health and Medical (TASE:BLWV) reported SEK 1.16 billion in operating profit, a 10% miss compared with consensus estimates of SEK 1.29 billion. 

Professional Hygiene reported SEK 1.53 billion, 6% below expectations. Consumer Goods came in at SEK 2.37 billion, narrowly missing the forecast of SEK 2.39 billion.

In Health and Medical, organic sales grew 0.1%, below the 2.0% consensus. The report cited weaker conditions in the healthcare sector in certain markets. 

The Consumer division posted organic sales growth of 3.2%, higher than expected, but mix was negative due to a shift toward retailer brands and downtrading. 

Baby care saw lower volumes, with the company pointing to competitive pressure and low birth rates in Europe. 

Professional Hygiene grew 0.6% organically, with continued weak demand in U.S. hotel and restaurant channels.

The company continues to face risks related to demand trends in the second half of the year, with price sensitivity in consumer tissue and subdued footfall in out-of-home hygiene markets noted as ongoing challenges.