Packaging firm Smurfit Kappa says worst is over as volume growth returns

By Padraic Halpin

DUBLIN (Reuters) -The worst of a year-long dip in demand for packaging appears to be over, Smurfit Kappa's CEO said on Wednesday, after the company reported a rise in fourth quarter production volume that snapped three quarters of declines.

Packaging companies rode a boom in goods' sales and e-commerce during COVID-19 lockdowns. But a fall in demand when economies reopened and consumers spent more on travel and other services led to 3.5% fall in Smurfit's volumes last year and a 12% drop in core profit, as expected, it said on Wednesday.

Smurfit, Europe's largest paper packaging producer, said volumes were flat in the fourth quarter in Europe and up by 1.6% in the Americas, the two geographies it operates in.

The head of its European unit later told analysts that its shipments per day were 3% higher year-on-year in January, while its Americas chief pointed to growth of 2-3%.

"I think the worst is behind us in the sense of demand," CEO Tony Smurfit told CNBC, adding that February also looked good so far.

The Irish group's volumes had declined by 7%, 5% and 2% in the first, second and third quarters, respectively.

Smurfit, which hopes to close its $11 billion acquisition of U.S. rival WestRock in early July, also recommended increasing its final dividend by 10%.

Smurfit's London-listed shares were the biggest gainers in the FTSE 100, up 4.5% at 1025 GMT. WestRock's shares rose 6.8% in premarket.

The companies' fortunes have diverged since the deal was agreed in September, with WestRock sales falling short of market expectations for the past two quarters.

Tony Smurfit said he and WestRock felt comfortable that the U.S. firm's consumer business, which suffered in the second half, will recover.

Smurfit's full-year core profit of 2.08 billion euros ($2.24 billion) was broadly in line with the approximate 2.05 billion it forecast in November and was still its second-largest profit ever, far above the 1.7 billion euro recorded in 2021.

After raising the prices customers pay for its boxes by up to 40% in 2021 and 2022, prices fell again in the fourth quarter. Finance chief Ken Bowles said he expected a further maximum drop of two percentage point in the first quarter, driven by index-linked contracts.

The fall in prices and volumes in 2023 was more than offset by lower energy and raw material costs, taking the company's EBITDA (earnings before interest, tax, depreciation and amortisation) margin up to 18.8% from 18.6% in 2022.

($1 = 0.9288 euros)

(Reporting by Padraic Halpin; Editing by Louise Heavens and Mark Potter)