Packaging firm Smurfit Kappa says worst is over as volume growth returns (updated)

WestRock Co

07/02/2024 08:32

(Adds details, quotes throughout)
    By Padraic Halpin
       DUBLIN, Feb 7 (Reuters) - 
    The chief executive of packaging giant Smurfit Kappa  SKG.I 
said on Wednesday that the worst of a year-long dip in demand
for the sector appeared over after volumes increased in the
fourth quarter, snapping three successive quarterly declines.  
    Packaging companies rode a boom in demand for goods and
e-commerce during COVID-19 lockdowns. But a fall in volumes when
economies reopened and consumers spent more on travel and other
services led to a 12% drop in Smurfit's full-year core profit,
as expected on Wednesday. 
    The Irish group, Europe's largest paper packaging producer,
said volumes fell 3.5% in 2023 as a whole as customers destocked
and demand for durable goods weakened but were flat in Europe
and up by 1.6% in the Americas in the fourth quarter.
    Smurfit shares opened 4.6% higher.
    "That trend is continuing into January, that we have seen
improvements in demand again, so I think the worst is behind us
in the sense of demand," Smurfit told CNBC on Wednesday, adding
that February also looked good so far.
    The growth in fourth quarter volumes compared with declines
of 7%, 5% and 2% in the first, second and third quarters,
respectively.
        After raising the prices customers pay for its boxes by
up to 40% throughout 2021 and 2022, Smurfit's prices fell last
year but was more than compensated for by lower energy and raw
material costs, taking its EBITDA (earnings before interest,
tax, depreciation and amortisation) margin up to 18.8% from
18.6% in 2022.
  
        Full-year EBITDA of 2.08 billion euros ($2.24 billion)
were broadly in line with the approximate 2.05 billion the group
forecast in November. That was still its second-largest profit
ever and sharply higher than 1.7 billion euro recorded in 2021.
    While Smurfit had flagged signs of tentative improvements in
its German order books in November, CFO Ken Bowles told
Bloomberg that the key German market continued to lag, saying
"it's not terrible, but it could be a lot better."     
    The group said it hopes to close the $11 billion deal to buy
U.S. rival WestRock  WRK.N  agreed last year in early July. 

($1 = 0.9288 euros)

 (Reporting by Padraic Halpin; Editing by Christian Schmollinger
and Louise Heavens)
 ((padraic.halpin@thomsonreuters.com; +353 1 500 1504; Reuters
Messaging: padraic.halpin.thomsonreuters.com@reuters.net))