Smurfit Kappa chief: Trump win may hurt appetite for US deals

Smurfit Kappa’s chief executive has signalled the paper packaging group’s appetite for US deals would wane – in the event of Republican candidate Donald Trump winning the US presidential election.

"I think it's just still unbelievable we could be contemplating a Donald Trump victory," Tony Smurfit, the group's chief executive told The Irish Times after it posted third quarter results.

“I think the world will take a more cautious approach [on US investments]”, if Mr Trump won the election, he said.

Mr Smurfit said earlier this year that he is most interested in doing deals in the US, although he reiterated that valuations being sought for businesses there are stretched – particularly given that interest rates remain at very low levels.

While he said that "America still remains a major opportunity" for Smurfit Kappa, the prospect of doing deals – with Mr Trump in charge of the White House – would be impacted, given the candidate's protectionist stance on international trade.

“Assuming Hillary [Clinton] wins, it won’t change anything,” he said, referring to the company’s interest in US acquisitions.

Rising costs

Earlier on Wednesday, Smurfit Kappa reported a better-than-expected 6 per cent increase in earnings in the third quarter, as higher volumes of cardboard box sales more than offset negative currency movements and rising costs of recycled packaging material.

Earnings before interest, tax, depreciation and amortisation (ebitda) rose to €323 million from €305 million for the same period last year.

Analysts, on average, had estimated a figure of €319 million.

Revenue increased by 1 per cent to €2.05 billion, though when the effect of currency movements are stripped out, it rose by 6 per cent.

“Based on current operating conditions, the group will deliver continued earnings growth and record ebitda for 2016, in line with market expectations,” said Mr Smurfit.

Smurfit Kappa, which employs 45,000 employees across 370 production sites in 34 countries and has a market leading position for corrugated packaging in Europe, saw the price of old corrugated containers (OCC), the raw material for much of its boxes, rise by over 10 per cent in the third quarter.

Solid performance

“Although we have seen some softening in the export market for OCC from its August high, and we expect some slight weakness in the last quarter, we believe the medium-term trend for OCC pricing to remain at a high level,” the company said.

Smurfit Kappa purchases 4.3 million tonnes of OCC a year in Europe and 5.5 million tonnes globally, according to analysts at US investment bank Jefferies.

The group was unsuccessful in pushing through a €40-a-tonne increase in recycled packaging in September, in Europe.

However, the company managed to execute price increases for cardboard packaging based on fresh wood fibre during the quarter.

Strong cash generation helped push the group’s net debt down to €2.95 billion at the end of September, from €3.12 billion in June.

“We believe this is a solid performance from Smurfit Kappa, with the cash generation, achieved during the period, encouraging,” said David O’Brien, an analyst with Goodbody Stockbrokers.”

Shares in the group were up 3.35 per cent at €20.22 at 9.55am.