Stora Enso OYJ’s Earnings Call: Growth Amid Challenges

Stora Enso OYJ ((SEOAY)) has held its Q1 earnings call. Read on for the main highlights of the call.

Stora Enso OYJ’s recent earnings call conveyed a generally positive sentiment, highlighting robust financial performance marked by growth in sales and EBIT. The company is making strategic expansions and undergoing organizational restructuring to enhance efficiency. However, challenges such as high fiber costs, ramp-up expenses at the Oulu mill, and cash flow deficits were noted, indicating ongoing financial pressures despite operational progress.

Sales and EBIT Growth

Stora Enso reported a 9% increase in sales, reaching €2.4 billion, and an 18% rise in adjusted EBIT to €175 million, achieving a 7.4% EBIT margin. This growth underscores the company’s strong market position and effective strategies in driving profitability.

Operational Efficiency

The company’s focus on operational efficiency is evident as operating working capital decreased by 3 percentage points to 7%. This marks the fourth consecutive quarter of year-over-year improvement, reflecting Stora Enso’s commitment to optimizing its operations.

Positive EBIT Across All Divisions

For the first time since Q3 2022, all divisions of Stora Enso achieved positive adjusted EBIT. This milestone highlights the company’s successful efforts in enhancing profitability across its diverse business segments.

Oulu Mill Expansion

A significant strategic expansion is underway with the successful production start of the new consumer board line at the Oulu mill. This project is expected to reach full capacity by 2027, positioning Stora Enso for long-term growth in the consumer board market.

Organizational Restructuring

Stora Enso is implementing a new leaner and flatter organizational structure with seven P&L responsible business areas. This restructuring aims to enhance efficiency and focus on renewable packaging, aligning with the company’s strategic priorities.

Strategic Acquisition

The company received regulatory approval to acquire Finnish sawmills, Junnikkala, which is expected to enhance synergies and reduce wood costs. This acquisition is a strategic move to strengthen Stora Enso’s position in the wood products market.

Oulu Ramp-Up Costs

The ramp-up of the new packaging board line at the Oulu mill is expected to adversely impact adjusted EBIT by approximately €100 million for the full year 2025. This highlights the financial challenges associated with scaling new operations.

High Fiber Costs

Stora Enso faced significant increases in fiber costs, primarily from wood, which negatively impacted results with a total negative impact of €131 million in the quarter. This remains a critical area of concern for the company.

Packaging Solutions Challenges

The company continues to face price pressure in its packaging solutions segment due to market overcapacity and oversupply. However, efforts are underway to turn around performance in this area.

Cash Flow Deficit

Stora Enso reported a negative cash flow after investing activities of €47 million, driven by high capital expenditure and an increase in working capital. This reflects the financial strain of ongoing investments and operational adjustments.

Forward-Looking Guidance

Looking ahead, Stora Enso remains optimistic about its strategic initiatives and market positioning. The company anticipates a €100 million negative EBIT impact in 2025 due to the Oulu mill ramp-up, primarily affecting Q2, but expects to reach EBITDA breakeven by year-end. Despite concerns about U.S. tariffs, the impact is minimized as sales to the U.S. constitute less than 3% of total sales.

In conclusion, Stora Enso’s earnings call highlighted a positive trajectory in sales and EBIT growth, supported by strategic expansions and organizational restructuring. While challenges such as high fiber costs and cash flow deficits persist, the company is focused on operational efficiencies and strategic growth to navigate these hurdles effectively.