Smurfit Kappa said today that a decline in demand for its boxes slowed further in the third quarter, while it saw tentative improvements in its German order books that could bode well for a return to volume growth.
The group, which is Europe's largest paper packaging producer, benefited from a boom in demand for packaging 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 contributed to an 8% decline in core profit in the first nine months of 2023.
Smurfit Kappa, which agreed an $11 billion deal to buy US rival WestRock in September, said in a trading update today that it expects full-year core profit to fall by almost 13% to around €2.05 billion.
That would still be up sharply on the €1.7 billion recorded in 2021.
Smurfit's shares rose today on the improved trend in box demand. It said demand from its customers was around 2% behind 2022 levels in the third quarter compared to falls of 7% and 5% in the first and second quarters, respectively.
Chief executive Tony Smurfit said he expected the trend to continue with orders in Germany, which had been a "true laggard" this year, up somewhere between 8% and 10% in the last month or so.
"I was at a customer event last week in Germany and there is certainly more optimism," Smurfit told an analyst call.
"I don't think we're necessarily seeing any of the durables coming back yet, but I think you're seeing the normalisation of the food and drink business and the FMCG (fast-moving consumer goods) business coming back to more normalised levels," he stated.
Smurfit added that he was reticent to call that a long term trend in Europe's biggest packaging market after an uptick in Germany in April fizzled out over the summer.
After increasing the prices customers pay for its boxes by up to 40% during 2021 and 2022, prices fell for the second quarter in a row, down around 6% quarter-on-quarter.
Smurfit's CEO reiterated that he expected box prices to rise again once demand recovers.
In today's trading update, Smurfit Kappa said that earnings before interest, tax, depreciation and amortisation (EBITDA) fell 8% in the first nine months of the year.
It said that a rise in its EBITDA margin to 19% from 18.2% a year ago failed to offset a fall in volumes.
Meanwhile, revenues for the nine month period fell by 12% to €8.533 billion from €9.724 billion the same time last year.
Profit before income tax was down 18% to €939m from €1.141 billion while basic earning per share decreased by 22%.
"These results continue to demonstrate the effectiveness of our multi-year capital plans, our geographic footprint and the service and dedication of our people," CEO Tony Smurfit said.
"Our consistent delivery, over many years, demonstrates the quality of our business and the capital allocation decisions we have made. For the full year 2023 we expect to deliver EBITDA of approximately €2,050m," he added.
Shares in the company moved higher in Dublin trade today.
