- Key highlights from the quarter: Sales softened by 5% q-o-q (-19% y-o-y), driven by lower corrugated box pricing (around -6% q-o-q) and lower corrugated box volumes (-2% y-o-y). This largely explained the fall in EBITDA, down 4% q-o-q (-14% y-o-y), while the EBITDA margin at 19% improved q-o-q (+17bps), but up over 120bps y-o-y. Strong FCF generation helped reduce net debt by 4% q-o-q and net debt/EBITDA is stable at 1.4x.
- Cadence of corrugated box volume declines is easing: Corrugated box volumes were down 2%, comparing favourably to declines seen in Q1 (-7%) and Q2 (-5%). Regionally, the Americas were down 3% y-o-y (Brazil is doing better, Mexico is stable and Columbia improving), while Europe eased by 1.8%. Smurfit extended downtime in Q3 (less than Q2) and will likely be even lower in Q4. Encouragingly, the Americas EBITDA was stable y-o-y.
- Corrugated box prices are for the 9m ended are down around 4% y-o-y: Prices in Q3 fell around 6% q-o-q, with further pressure (2-3%) expected in Q4.
- Smurfit’s view on the European Packaging and Packaging Waste Regulation (PPWR) proposal: Mostly positive for industry, however some “wrinkles need to be challenged”.
- Smurfit Kappa appear more excited around the WestRock deal, which is on track to close in Q2 24E: Smurfit firmly believes this is a unique point in time to create an exciting opportunity. Smurfit have visited more WestRock sites and teams and are “more excited now”.
- FY 23E guidance implies a weaker Q4, however the outlook for 2024 is encouraging: EBITDA to drop by 17% q-o-q; however, at €2,050mn, this is slightly ahead of consensus. Smurfit expects corrugated box volumes to improve further, with Germany (Europe’s largest packaging market) showing improved order books (“order intake 8-10% higher than the summer”). In terms of corrugated box pricing heading into 2024, Smurfit appear to have comfort and good visibility. Containerboard prices have been stable for a few months now and the bottom has likely been reached as the middle to high-cost producers are losing money, especially if not integrated. Most of their business has been retained under contract and box pricing will be down, but not significantly and likely to reverse as volumes come back. No material changes to their cost buckets heading into Q4.