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Investing.com -- Shares of UPM-Kymmene Corporation (HEX:UPM) fell by 2.1% as the market reacted to a mixed fourth-quarter earnings report.
Despite a headline beat in 4Q EBIT, which came in at €418 million compared to €343 million consensus, the results were bolstered by an unexpectedly high forest fair value adjustment in the other division. When this €105 million boost is excluded, the underlying EBIT was a 5% miss against consensus.
The Finnish company’s outlook also contributed to the stock’s decline, with first-half 2025 EBIT guidance of €400-625 million falling short of the anticipated €615 million. This guidance is seen as a slight disappointment, especially since consensus expectations were towards the upper end of the range.
However, UPM is expected to benefit from increased volumes throughout 2025 and the full operation of its Uruguay pulp mill, which is projected to add 0.3 million tons of pulp in the year.
The report was further complicated by an impairment of the biochemicals division by €373 million due to past construction delays. On the positive side, UPM announced a €160 million buyback, which represents more than 1% of the market cap and is approximately 1% EPS accretive, assuming a share price of less than €30. This buyback is also expected to add a modest 0.1x to the net debt/EBITDA ratio.
Moreover, the company’s capital expenditure guidance for 2025 is set at €400 million, which is below the consensus of €450 million. UPM also boasts a strong balance sheet and is entering a period of increased free cash flow generation as it begins to see returns from major projects and as earnings recover. The company’s attractive dividend yield of 5-6% is supported by an 8-11% free cash flow yield expected between 2025 and 2028.
Additionally, UPM’s recent acquisition of the graphics solutions business Metamark for an enterprise value of €175 million is expected to be margin accretive to its Raflatac division, with the potential to exceed a 15% EBITDA margin.
Investors are now looking ahead to the second half of 2025, which is projected to be stronger than the first half, and to the anticipated earnings recovery to €2 billion mid-cycle EBIT levels by 2028.
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