UPDATE 2-Buhrmann Q3 disappoints, shares drop

AMSTERDAM, Nov 7 - Office goods trader Buhrmann (BUHR.AS: Quote, Profile, Research) (BUH.N: Quote, Profile, Research) reported lower-than-expected third-quarter profits on Friday, hit by dull European markets and the strong euro, which sent its shares down by as much as 11.4 percent.

Market watchers said they were disappointed that the world's largest office products wholesaler still had not seen a real recovery, which had already been priced in the stock value.

"These numbers really came out of the blue. People were expecting things to be much better, especially given the fact that Buhrmann's competitors had surprised to the upside," said one Dutch trader.

At 0922 GMT, the share had lost 7.3 percent, sharply underperforming the general market which gained over one percent.

Buhrmann gave no full-year forecast but said it expected fourth-quarter sales at its key Office Products North America arm would come in at about the same level as last year.

"The U.S. operations are disappointing. Costs seem to be under control there but sales growth is a setback and because it is their key arm that is where a pick-up in results should be generated," said Bank Van Lanschot analyst Danny van Doesburg.

Buhrmann expects U.S. software sales will improve from this year's slow third quarter but weakness in European office supplies and graphic systems sales is expected to persist.

PROFIT WELL BELOW FORECASTS

Third-quarter net profit before goodwill, at 6.8 million euros ($7.78 million), came in well below forecasts. A Reuters poll of 11 analysts gave a consensus expectation of 12.5 million euros, down from 14.4 million in the same period of 2002.

Group turnover fell by 14.8 percent to 2.05 billion euros but Buhrmann said quarterly sales at constant exchange rates were down a more modest 8.6 percent.
"Organic office supplies sales, excluding software, in North America -- our largest market -- remained stable for the second consecutive quarter compared with the corresponding quarter a year ago," Chief Executive Frans Koffrie said in a statement.

Software sales there were markedly lower but operating profit at the U.S. arm was slightly higher than a year ago on a local currency basis, excluding the effects of the euro's rise against the dollar.

In Europe, office products showed a weaker performance, mainly due to operating losses in Britain and Germany. Buhrmann said it had appointed a new manager in Britain to strengthen the sales organisation and cut costs.

Buhrmann's paper merchant division, which it has just sold to Australia's PaperLinx (PPX.AX: Quote, Profile, Research) , reported higher operating profit on a local currency basis.

Currency effects dampened Buhrmann's group operating profits by about five million euros, it said.

Buhrmann's net debt stood at 1.50 billion euros at the end of the third quarter, down from 1.55 billion at mid-2003.

The company has said the proceeds of the unit's sale to PaperLinx would be used to cut debt, which will fall to about 900 million euros as a result of the transaction.

Earlier this week, Buhrmann repeated that the sale would result in an exceptional charge of up to 170 million euros in the fourth quarter.