Sappi (Ba2/BB/BB) reported a fairly weak set of 1Q12 results in terms of volumes, although EBITDA was a touch better than most estimates as a result of lower input costs. Sales were -15% yoy with volumes -10% with declines across the board. EBITDA of USD194m was -21% yoy but ahead of the consensus USD180m estimate.
EBITDA margin actually improved 200bps to 12.2% vs 4Q11. Working capital saw a seasonal outflow (USD166m) and cash still remains at a decent USD400m. Net leverage through the secured bond increased by 0.2x to 1.8x (2.8x total).
The outlook seems positive as the company is seeing reasonable demand for its end products and the European fine paper business benefiting from lower raw materials and costs savings. North America should improve as a result of higher pulp production, which may have turned a corner and Chinese demand for casting release paper. Chemical Cellulose remains strong.