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Smurfit Kappa sees cardboard box demand recover as WestRock merger on track for July

Demand for cardboard boxes had slumped following a pandemic-fuelled spike in demand for durable goods

Tony Smurfit, Smurfit Kappa chief executive. for Business Section Feature Interview Photograph: Alan Betson / The Irish Times

Joe Brennan
Thu May 2 2024 - 07:42

Smurfit Kappa said demand for its cardboard boxes grew in the first quarter, as the industry recovers from a brief downturn and the company presses ahead with its plans to merge with US rival WestRock to form a paper packaging giant with about $35 billion (€32.6bn) of annual sales.

Box volumes grew by 3 per cent in Europe, where it is the largest player in the market, and 2 per cent in the Americas, the company said in a trading statement on Thursday.

It marks a turnaround from a difficult market in 2023, when group volumes declined by 3.5 per cent, even if demand had started to grow again in the fourth quarter. The wider industry had been hit from late 2022 by a drop in consumer spending on durable goods – a hangover from a spike in spending during the pandemic on everything from TVs to patio furniture, as well as concerns about inflation.

“Smurfit Kappa Group has delivered a very strong first quarter,” said chief executive Tony Smurfit. “These results reflect the continuing benefits of our multi-year capital plans and the dedication and commitment of our people, providing the most sustainable and innovative packaging solutions for our customers.”

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Still, revenue declined to €2.7 billion for the three months from €2.99 billion for the same period last year, as the sector has yet to start rebuilding prices again following a slump during the cyclical downturn.

The last few months have seen the sector increase prices of certain containerboard products – which are used to make cardboard boxes and had plunged by more than 35 per cent from late 2022, according to analysts. The expectation is that this will lead to increases in the price of boxes – the final product – within three to six months, they say.

Earnings before interest, tax, depreciation and amortisation contracted to €487 million from €579 million.

“Our integration planning with WestRock is progressing well and as expected,” Mr Smurfit said. “We remain on-track to complete the transaction in early July.”

The tie-up between both companies, to create the world’s largest box-maker was first announced last September. Mr Smurfit and his chief financial officer, Ken Bowles, will lead the combined group.

The deal has since been followed in the past month by US-based International Paper, which had made a failed attempt in 2018 to buy Smurfit Kappa, agreeing to take over DS Smith in the UK, which is the Irish company’s main competitor in Europe.

WestRock reported on Thursday that its net sales fell by 10.4 per cent in the three months to March, its second financial quarter, to $4.73 million, partly down to “softer” sales volumes. Adjusted ebitda declined by 21 per cent to $618.4 million. The company said it achieved over $160 million in cost savings during the quarter and now expects to “significantly exceed” its previously announced full-year target of $300 million to $400 million.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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