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An Economic Snapshot at Smurfit-Stone





Smurfit-Stone (SSCC) was sharply lower in Monday's premarket session after the cardboard and container company warned of a wider-than-expected loss in its current first quarter.

The Chicago-based company expects to lose 22 cents to 25 cents a share in the quarter, wider than the loss of 10 cents a share forecast by analysts surveyed by Thomson One Analytics. The shares were recently trading for $15.90, down $1.55, or 8.9%, from their close at 4 p.m. EST Friday.

Because its products are used in shipping, Smurfit's results are sometimes viewed as a proxy for the larger economy, and indeed several macro trends were evident in its earnings warning. The company said the shortfall was attributable to pricing pressures, a consequence of the kind of tight-fisted end-user demand that has kept the Federal Reserve from hiking interest rates this year.

Prices for corrugated containers will probably fall about $10 million in the first of quarter 2004 over the fourth quarter of 2003, the company warned.

"Despite the margin pressures, demand for packaging is increasing at a steady pace, paving the way for price and margin improvement in the remainder of the year," the company noted. "Although the return to profitability is taking longer than expected, demand is increasing, our inventories remain low and our mill operating rates are healthy."

The other major factors are higher raw material prices, including natural gas and recycled fibers, and employee costs.

"Recovered fiber and energy costs are expected to exceed those of the fourth quarter 2003 by an estimated $20 million," Smurfit said. "Employee benefit costs are also estimated to be $20 million higher in the first quarter 2004 compared to the prior quarter."

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