March 28, 2014 2:32 am JST

Nippon Paper seen topping fiscal 2013 pretax profit outlook

One of Japan's largest paper machines, at Nippon Paper's plant in Miyagi Prefecture.

TOKYO -- Nippon Paper Industries Co. is expected to exceed its forecast for pretax profit for the year ending Monday thanks to price hikes that offset higher costs for fuel and materials.

     Pretax profit at the Japanese papermaker will likely reach about 26.5 billion yen ($257 million), up 15% from the amount posted by predecessor Nippon Paper Group the previous year. An earlier projection called for pretax profit of 25 billion yen. Sales are seen growing 5% to about 1.07 trillion yen, slightly higher than the estimate.

     Paper demand has been strong, partly because retailers are distributing many fliers to encourage last-minute shopping ahead of the consumption tax hike on Tuesday. As a result, Nippon Paper's main plant in Miyagi Prefecture has been running at full capacity for longer than a year. The company's North American pulp business and Chinese corrugated-board operations have also fared well.

     Exchange rates affect Nippon Paper's imports of wood chips and other materials. The yen is currently about 9% weaker than at the end of last fiscal year. Since every 1 yen depreciation of the Japanese currency against the dollar erodes profit by around 800 million yen, Nippon Paper expected the weaker yen to push down its profit by more than 13 billion yen this fiscal year.

     To improve profitability, the company hiked domestic prices for printing paper in the summer and winter. These moves are seen offsetting the higher costs for materials.

     And Nippon Paper has been selling off rental real estate and other assets to reduce its interest-bearing debt. Interest payments are expected to decline by about 1 billion yen compared with the previous fiscal year.

     For the year ending March 2015, sales and profit are expected to continue to climb. Price hikes will again contribute to full-year earnings and recent price increases by such major foreign players as Asia Pulp and Paper will likely lead to stronger sales for Japanese paper companies.