The worst of a year-long dip in demand for packaging appears to be over, Smurfit Kappa's CEO said today, after the company reported a rise in fourth quarter production volume that snapped three quarters of declines.
Packaging companies rode a boom in goods' sales and e-commerce during Covid-19 lockdowns.
But a fall in demand when economies reopened and consumers spent more on travel and other services led to 3.5% fall in Smurfit's volumes last year and a 12% drop in core profit, as expected, it said today.
Smurfit, Europe's largest paper packaging producer, said volumes were flat in the fourth quarter in Europe and up by 1.6% in the Americas, the two geographies it operates in.
The head of its European unit later told analysts that its shipments per day were 3% higher year-on-year in January, while its Americas chief pointed to growth of 2-3%.
"I think the worst is behind us in the sense of demand," CEO Tony Smurfit told CNBC, adding that February also looked good so far.
The Irish group's volumes had declined by 7%, 5% and 2% in the first, second and third quarters, respectively.
Smurfit, which hopes to close its $11 billion acquisition of US rival WestRock in early July, also recommended increasing its final dividend by 10%.
The companies' fortunes have diverged since the deal was agreed in September, with WestRock sales falling short of market expectations for the past two quarters.
Tony Smurfit said he and WestRock felt comfortable that the US firm's consumer business, which suffered in the second half, will recover.
Smurfit's full-year core profit of €2.08 billion was broadly in line with the approximate €2.05 billion it forecast in November and was still its second-largest profit ever, far above the €1.7 billion recorded in 2021.
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.
Smurfit Kappa's finance chief Ken Bowles said he expected a further maximum drop of two percentage point in the first quarter, driven by index-linked contracts.
The company said its EBITDA (earnings before interest, tax, depreciation and amortisation) margin moved up to 18.8% from 18.6% in 2022.
The 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.
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 paper and packaging giant said today that its revenues for the year to the end of December fell by 12% to €11.272 billion from €12.815 billion in 2022.
Profit before income tax for the year dropped by 18% to €1.055 billion from €1.293 billion, while basic earnings per share fell by 20% to 293.5 cent.
The company said the demand environment for the industry in 2023 was difficult mainly due to destocking and a lack of economic activity in certain sectors, particularly durable goods.
"However, one trend in which we have seen strong acceleration, is an increasing demand for sustainable packaging solutions. While full year volumes for the group were down 3.5%, we saw a progressive improvement in demand during the year, with a return to growth in the fourth quarter," it added.
"Our 2023 results again demonstrate Smurfit Kappa Group's proven capacity to perform across all market conditions. While there are, and will always be, challenges in the macro environment, we look forward to the year ahead with confidence and excitement," the company's chief executive Tony Smurfit said.
"Reflecting the continuing confidence in the strength, quality and performance of the Smurfit Kappa business, the Board is recommending a 10% increase in the final dividend to 118.4 cent per share," the CEO added.
Smurfit, which operates in 22 European countries and 13 in South, Central and North America, is Europe's largest paper and packaging producer. WestRock is the second-largest packaging company in the US.
The companies' combined adjusted revenue was about $34 billion for the year ended June 30.
The deal would make the new company, called Smurfit WestRock, the largest listed global packaging partner by revenue, the statement from the companies said.
Under the terms of the deal with WestRock, Smurfit Kappa will delist from Euronext Dublin and the merged entity will be listed on the New York Stock Exchange as well as its standard listing on the London Stock Exchange.
Smurfit Kappa shares ended over 3% higher in Dublin trade today.
Additional reporting by Glenda Sheridan
