UPDATE 3-Buhrmann Q3, outlook disappoint, shares drop

AMSTERDAM, Nov 7 - Office goods trader Buhrmann (BUHR.AS: Quote, Profile, Research) reported poor third-quarter profits on Friday, hit by weak markets and the strong euro and disappointed investors further with a bleak outlook, sending its shares down over 11 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.

"Bad figures, bad turnover and no strong outlook. This isn't a sector that you want to be in right now," said Eureffect asset manager Florian van Laar.

At 1208 GMT the stock had lost 8.5 percent, leading Amsterdam's list of losers and sharply underperforming the general market which gained 1.4 percent.

Buhrmann(BUH.N: Quote, Profile, Research) now expects fourth-quarter sales at its key Office Products North America arm to remain steady year-on-year, like they did in the third quarter.

"Three months ago, we told you that we expected a modest organic sales growth in this business for the second half of the year so this is slightly disappointing," Chief Executive Frans Koffrie said in an analysts' conference call. Organic sales exclude acquisitions, divestments and currency effects.

But analysts said Buhrmann's performance and outlook were more than slightly below expectations.

"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 Danny van Doesburg at Bank Van Lanschot.

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.

Buhrmann expects the graphic systems arm, its smallest unit which suffered a 13.6 million euros operating loss in the first nine months of the year, to post positive fourth-quarter results but Koffrie said he could no longer maintain the forecast that the division would break even over the full-year.

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.

Software sales in North America 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 reorganise the branch, strengthen its sales organisation and cut costs.

Koffrie said Buhrmann might have to take a small restructuring charge in the fourth quarter but added that would lead to cost savings of "a few million" (euros) in 2004.

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.

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 paper merchant unit's sale 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.