Nippon Paper Industries will likely report a 25% year-on-year increase in operating profit to around 13 billion yen ($118 million) for the six months ending Tuesday, falling short of a prior projection of 16 billion yen amid soft corporate spending on advertising fliers.
Sales are expected to rise just 1% to around 530 billion yen, instead of climbing 2% to 535 billion yen as forecast previously. Real estate companies, automakers and other businesses cut back on fliers and catalogs following the consumption tax hike in April, and recovery has been slow. Sales of corrugated paper for fresh produce have been disappointing because of bad weather.
To make up for the domestic weakness, the Tokyo-based company is stepping up exports to Australia and elsewhere. Exports account for less than 10% of sales, but they are projected to grow 50% or so in the April-September term, driven by printing paper for fliers.
The operating margin for the period is expected to come in around 2.5%, improving approximately 50 basis points from a year earlier. The increase is attributed to two rounds of price hikes carried out last fiscal year, as well as improved utilization of printing-paper factories amid strong exports.
Nippon Paper may revise full-year forecasts depending on foreign exchange rates since a softer yen would raise import prices of wood chips and coal. Every 1 yen depreciation in the Japanese currency against the dollar reduces full-year operating profit by 800 million yen. The company assumed an exchange rate of 105 yen to the greenback when it released its April-June quarterly performance on Aug. 6, but the yen has since weakened.