November 7, 2008 / 2:58 PM / in 9 years

UPDATE 2-Verso Paper tops expectations, shares jump

 * Q3 EPS 36 cents vs. Wall St view of 14 cents
 * Q3 revenue up 7.8 pct to $485.4 mln
 * Shares jump 26.4 percent
 By Euan Rocha
 NEW YORK, Nov 7 (Reuters) - Verso Paper Corp VRS.N, which
went public in May this year, posted better-than-expected
third-quarter earnings on Friday, as price increases for its
coated paper products offset a 10 percent decline in sales
volumes.
 Verso's results, which triggered a 26.4 percent jump in its
stock price, bucked the negative trend in the North American
paper sector, which has in recent months seen profits eaten away
by high costs and a steady erosion in demand.
 Verso, which supplies coated paper used in catalogs and
magazines, posted a quarterly profit of $18.5 million, or 36
cents a share, up from a year-ago loss of $25.8 million, or 68
cents a share, and well above the average Wall Street estimate
of 14 cents a share, according to Reuters Estimates.
 Pricing gains in the quarter drove revenue up 7.8 percent to
$485.4 million, the Memphis, Tennessee-based company said in a
statement.
 The company, which operates four mills that have a combined
annual capacity of 1.7 million tons of paper, idled 13,000 tons
of capacity in the third quarter due to weak demand. It intends
to take an additional 80,000 tons of downtime during the fourth
quarter.
 "We will continue to monitor demand carefully and to take
decisive action to preserve and strengthen our ability to
achieve our objectives for long-term growth in earnings," said
Chief Executive Mike Jackson, in a statement.
 "We expect favorable pricing in the fourth quarter and
continued historically high costs for key input items, although
cost trends for certain of these items began to improve late in
the third quarter and are expected to continue to ease in the
fourth quarter," he added.
 Analysts said the company appears to be managing the tough
market conditions better than many of its peers. However, they
remain concerned that a further decline in demand could impact
the pricing power of paper manufacturers.
 "While Verso remains committed to balancing supply with
demand, we remain concerned that elevated industry inventories
and a slower macro backdrop could drive a sharp falloff in
coated paper demand in 4Q and into 2009," said JPMorgan analyst
Claudia Hueston, in a note to clients.
 STRONG LIQUIDITY
 Weak demand and high costs have weighed on the North
American paper sector through most of 2008, but the recent
freeze in credit markets has given rise to concerns that some
companies in the sector will be unable to meet or refinance
loans or debt facilities that come due in the months ahead.
 Verso said it has $167 million still available from its
revolving credit facility. Moreover, this credit facility does
not mature for nearly four years, and all its other debt
instruments mature in 2013 or later.
 "Despite conditions in the credit markets and the national
economy, Verso has ample liquidity and is well-positioned to
fund its operations and anticipated growth," Jackson said.
 Newsprint maker AbitibiBowater Inc ABH.N, along with
packaging makers Smurfit Stone SSCC.O and Caraustar CSAR.O,
have been among the biggest losers in the sector due to
liquidity-related concerns that have caused their shares to
plunge more than 80 percent this year.
 AbitibiBowater posted a third-quarter loss on Thursday and
analysts expressed increasing concerns that the company will not
be able to generate enough cash flow through operations and
asset sales to address its debt maturity schedule.
 Although Verso does not have any near-term debt maturities,
weak demand conditions have caused its shares to plunge more
than 80 percent since May, when its public offering of 14
million shares priced at $12 a share.
 However, shares of the company on Friday rose 33 cents to
$1.58 in midday trade on the New York Stock Exchange.
 (Reporting by Euan Rocha, editing by Dave Zimmerman)


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