US associate behind Jefferson Smurfit's IQ decline

A poor performance from one of its US subsidiaries dragged down first-quarter profits at Jefferson Smurfit, the Irish paper and packaging business at the centre of a bid from a US private equity house.

Operating profits in the US fell by almost 50 per cent to €25 million compared with €48 million, as the group struggled with lower demand and price erosion on products. Particularly hard hit was Smurfit Stone Container, Smurfit's 29.4 per cent owned US subsidiary. Profits at the associate dropped from $46 million (€50m) to $14 million.

This weakness in the US knocked pre-tax profits, which fell by 40 per cent from €82 million to €58 million in the three months to 31 March. Turnover also decreased, falling to €1.08 billion against €1.16 billion.

Describing the results as largely "unexciting", one analyst said there were signs that volumes in the US were increasing.

The group, which has recently been the focus of media attention, made no mention of the proposed bid by Madison Dearborn Partners, the US private equity house.

Madison Dearborn, which already owns five paper and packaging companies in its investment portfolio, has made an offer for Jefferson Smurfit excluding its stake in Smurfit-Stone Container.

Michael Smurfit, chairman and chief executive officer, said there had been a satisfactory performance in Europe and Latin America.

He said: "As we emerge from the first quarter, business conditions and sentiment have clearly improved."​

But one commentator speculated that the group's very positive outlook might have had more to do with the possible takeover than conditions in the market.

During the quarter Jefferson Smurfit completed the acquisition of Munksjo, its Swedish rival, giving it a valuable foothold in the Scandinavian market.

Smurfit is forecast to make full-year pre-tax profits of €260 million.