Essity’s Profit Takes a Hit Amid Rising Raw Material Costs
Currency Fluctuations and High Raw Material Expenses Weigh on Margins
Swedish hygiene products maker Essity reported a disappointing fourth-quarter core profit, falling short of market expectations. The company’s adjusted operating profit before amortization (EBITA) rose 2% to 4.97 billion Swedish crowns ($451.6 million), missing analysts’ average estimate of 5.26 billion crowns.
Strong US Dollar and Raw Material Costs Take a Toll
The rapid strengthening of the US dollar increased costs, which has not yet been fully offset, according to CEO Magnus Groth. Essity saw a raw material impact of 880 million crowns in the quarter, with 330 million of that related to currency movements. This significant cost increase has not been fully compensated for, putting pressure on the company’s margins.
Quarterly Adjusted EBITA Margin Falls
As a result, Essity’s quarterly adjusted EBITA margin fell to 13.1% from 13.3% a year earlier. This decline is a concern for investors, who were expecting a stronger performance from the company.
Cost Concerns to Persist into 2025
J.P.Morgan analyst Celine Pannuti notes that the sequential acceleration in cost of goods sold and the impact from the stronger dollar are likely to be a concern into the first half of 2025. This could continue to weigh on Essity’s profit margins in the coming months.
Sales Growth Driven by Price and Volume Increases
On a more positive note, Essity raised its selling prices by 2.2% in the quarter, compared to a year earlier. Its volumes also rose 1.7% in the same period, marking the first time since the third quarter of 2022 that its sales growth was driven by both positive price and volume growth.
Dividend Proposal and CEO Succession
Essity proposed a dividend of 8.25 crowns per share for 2024, a 6.5% increase from what it paid last year. Additionally, the company announced that CEO Magnus Groth would step down from his position in 2025, after nearly ten years in the role.
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