Smurfit Kappa earnings rise as it chases rising input costs

Group’s corrugated box volumes rose by 7% both in Europe and the Americas

 Smurfit Kappa chief executive Tony Smurfit. Photograph: Alan Betson / The Irish Times

Smurfit Kappa chief executive Tony Smurfit. Photograph: Alan Betson / The Irish Times


Smurfit Kappa’s earnings rose by 2 per cent in the first quarter to beat analysts’ expectations, as sales surged and the packaging giant dealt with a €90 million rise in the cost of recycled cardboard, used to make new boxes, by raising prices for customers.

Earnings before interest, tax, depreciation and amortisation (ebitda) came to €386 million for the quarter, though the rate of increase was a third of the 6 per cent surge in revenues, to €2.27 billion.

Goodbody Stockbrokers analyst David O’Brien said the ebitda figure was 7 per cent of analysts’ consensus forecasts.

The group’s corrugated box volumes rose by 7 per cent both in Europe and the Americas, as it continued to benefit from the twin trends of online commerce and a shift by manufacturers from plastic to more sustainable packaging.

Prices for containerboard, used to make cardboard boxes, increased in the first quarter and again at the start of the second quarter, as a result of strong demand and higher costs for recycled boxes, or what is referred to as “recovered fibre”.

“[Smurfit Kappa’s] recovered fibre cost has increased by approximately €90 million versus the first quarter of last year. We are progressively recovering these input costs through our corrugated box system,” it said.

Davy analyst Alan Smylie said he expects Smurfit Kappa to fully recover the spike in input costs “in the coming quarters”.

‘Remarkable’ Q1

Chief executive Tony Smurfit said: “The first quarter was remarkable in many ways. We had strong corrugated volume growth in practically every area and all markets in which we operate. With unprecedented industry-wide shortages of supply and input cost pressures, paper prices have moved up sharply. We are recovering these input costs in line with our expectations.”

Mr Smurfit said the group’s first-quarter performance “has set the foundation for accelerated revenue and earnings growth as we move through 2021”.

Last November, Smurfit Kappa raised €660 million through a share placing to allow the company accelerate its investment over the next three years as customers cry out for more sustainable packaging solutions and ecommerce continues to grow.

The FTSE 100 company said on Friday that its investment plans are continuing apace. “These include the construction of mega plants and the acquisition of many converting machines in order to meet our customers’ demand growth and continue our cost optimisation programmes,” it said. “In addition, a number of paper investments are being deployed to further strengthen our integrated model and improve our sustainability footprint.”

Smurfit Kappa’s improved balance sheet since the equity raise has prompted leading credit rating agencies to raise their rating on the company’s debt to investment grade.

Shares in the company rose as much as 4.3 per cent by midafternoon trading in Dublin on Friday.