Smurfit WestRock, newly listed in New York, failed to set Wall Street alight on Wednesday after reporting the last set of quarterly results for Smurfit Kappa – one half of the new group formed last month through its merger with US rival WestRock.
Shares in the company fell as much as 7.6 per cent in early trading in the US.
At headline level, there isn’t much to get excited about. Earnings before interest, tax, depreciation and amortisation (Ebitda) fell almost 14 per cent to $480 million (€444 million) in the second quarter, amid higher input costs and lower box prices. Net sales dipped to $2.97 billion from $3.08 billion.
But has Wall Street missed the real story? A recovery in demand from a downturn across the industry last year is gaining momentum, with the volume of corrugated boxes sold by Smurfit Kappa increasing 3.1 per cent in the quarter.
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Tony Smurfit, grandson of the founder of Ireland’s first multinational group and current chief executive of the enlarged Smurfit WestRock, signalled on a call with analysts late on Tuesday evening that box prices are likely to have hit a cyclical low point in the three months to June and they should start picking up in the second half of 2024 and into next year.
The completion of the deal couldn’t have been better timed.
Smurfit set a target last September – as the tie-up to create a business with a market value of $25 billion was first announced – for the combined group to generate $400 million (€370 million) of pretax cost synergies in its first full year.
It was described a few weeks ago by Bank of America analysts as a challenging goal.
However, chief financial officer Ken Bowles, Smurfit’s right-hand man for the past eight years, said on the analysts’ call that the group was now “ever more comfortable about the initial estimate”. He also hinted more could be scraped out, as his team starts, as he put it, to “scope out other areas of synergy and value creation”.
Although the Smurfit team highlighted that there was more work to be done on the legacy WestRock assets, which have had much less investment than the Smurfit side in recent times, they “are very happy with the asset base that we’ve seen”, according to Bowles.
Still, for now, it seems investors are holding out until the final synergies figure is boxed up before they get too excited.
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