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By John Acher
OSLO, Aug 7 (Reuters) - Norwegian papermaker Norske Skog (NSG.OL) reported a drop in core earnings for the second quarter, in line with forecasts, and said operating results remain weak despite signs of improvement.
The company's badly dented shares jumped as much as 8 percent in a relief rally, and trimmed gains to trade up 6.2 percent at 22.20 crowns by 0711 GMT. The stock outpaced a flat Oslo market .OSEBX and a soft DJ Stoxx European basic resources index .SXPP.
Earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 601 million Norwegian crowns ($116 million) in the three months to the end of June from 1.13 billion in the same quarter last year.
The average forecast given in a Reuters survey of eight analysts was for EBITDA of 595 million crowns, with individual estimates ranging between 507 million and 831 million crowns.
"Even though we see signs of improvement, there is far to go before we have satisfactory financial results from operations," Chief Executive Christian Rynning-Toennesen said in a statement.
Results of the main business, newsprint, improved somewhat in the second quarter from the first quarter. "But the result is still weak," Norske Skog said. The company has struggled to climb out of a six-year slump in the global paper industry, hit by weak demand, soft prices, overcapacity and rising costs, which have kept earnings low and knocked market values of Norske Skog and its rivals.
"There is reason to expect continued high prices on input factors, with a risk of additional price increases beyond the current level," Norske Skogindustrier ASA said in a statement.
"The price trend for newsprint in Asia and for magazine paper in Europe is expected to be good, with associated price increases," the company said. "Newsprint prices measured in local currency will be stable in Europe, but the development in demand is more uncertain."
The company said that its profit improvement programme has achieved annualised benefits of 2.5 billion crowns out of a target of 3 billion by end-2008. It said it stood by the goal.
Second-half results will be affected by the sale of two South Korean mills -- a 4.3-billion-crown deal announced in June -- and shutdowns of capacity in Europe, the company said.
After the sale of the Korean mills and shutdown of the Steti mill in the Czech Republic and paper machine No. 2 at the Follum mill in Norway, Norske Skog's total annual production capacity is 5,225,000 tonnes of newsprint and magazine paper, it said.
The group said it would consider selling surplus energy in Brazil following its decision to halt a project to move a paper machine to a Brazilian mill from Norway due to high costs. It said it had a surplus under a power supply deal up to 2025.
The report followed lacklustre results last month from Nordic rivals Stora Enso (STERV.HE) and UPM-Kymmene UPM1V.HE. (Reporting by John Acher; Editing by Greg Mahlich, Paul Bolding) ((email@example.com; +47 22 93 69 76; Reuters Messaging: firstname.lastname@example.org)) ($1=5.183 Norwegian Crown)