* 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.
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)