Smurfit Kappa sales fall as cardboard box sales dip in weakening economy

Smurfit Kappa’s sales fell 9 per cent in the first half of the year as demand for cardboard boxes fell back from the highs of the pandemic, with customers cutting back on orders amid a weakening global economy.

Sales fell to €5.84 billion for the period, as the volume of cardboard used by Smurfit Kappa dropped by 6 per cent and box prices declined between the first and second quarters of the year.

Earnings before interest, tax, depreciation and amortisation (Ebitda) dipped 5 per cent to €1.11 billion, with the company managing to improve its earnings margin and market share. The business said it benefited from its vertically integrated model, spanning forestry to the production of container board and the making of its final product, boxes.

“In the context of many peers’ profit warning, commencing restructuring and reporting extreme declines in profitability, this update again highlights the resilience inherent in Smurfit Kappa’s integrated model through the cycle,” said David O’Brien, an analyst with Goodbody Stockbrokers.

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Smurfit Kappa’s integrated model allowed it to ensure security of supply to its 65,000-plus customers, as economies crawled out of pandemic restrictions in recent years and manufacturing internationally was affected by supply chain issues. Chief executive Tony Smurfit has also gradually pushed the group to be even closer to its customers in terms of designing packaging that works best for them.

“We are pleased to deliver an excellent outcome against a challenging macro backdrop with a strong first-half performance. In a declining volume environment, this reflects both the quality and resilience of SKG’s [Smurfit Kappa Group] integrated and geographically balanced business model,” said Mr Smurfit.

“SKG is the packaging partner of choice for the world’s leading companies. Our team continues to excel in supplying market-leading, innovative and sustainable packaging best reflected, within the period, by market share gains across many of the countries in which we operate.”

Smurfit Kappa’s net debt declined by 4 per cent to €3.18 billion on the year to the end of June, reducing its borrowings to 1.4 times Ebitda from 1.6 times.

“While the global macro backdrop continues to be uncertain, there are some encouraging signs of improvement and we are confident about our future prospects,” said Mr Smurfit. “Smurfit Kappa has never been in better shape strategically, operationally and financially. Reflecting the continued confidence in the quality of our business and our prospects, the board has approved a 6 per cent increase in the interim dividend [to 33.5 cents per share].”

While shares slid by 5 per cent in early deals in Dublin on Wednesday, they soon rallied and ended the session up 1.2 per cent at €36.19, giving the group a market value of €9.42 billion.