Third quarter pretax profits soar at Smurfit Kappa

Pretax profits at packaging group Smurfit Kappa rose by 77 per cent in the third quarter and were up by 27 per cent for the nine months to the end of September.

The group reported on Wednesday that profit before tax for the three months to the end of September totalled €165 million as against €93 million for the same quarter a year earlier.

For the first nine months of 2015 pretax profits came in at €408 million compared to €321 million last year.

Third quarter revenues were unchanged at €2 billion and rose 1 per cent for the year to the end of September to €6 billion versus €5.97 billion for the same period in 2014.

The latest results, which are the first under new chief executive Tony Smurfit, show sequential earnings before interest, taxes, depreciation, and amortisation (ebitda) growth of 7 per cent and an improvement in ebitda margins to 15 per cent in the third quarter.

Mr Smurfit said the group’s performance reflected improved demand throughout the year and continued investment in assets and acquisitions.

“Although the reported ebotda of €855 million in the year to date has been significantly impacted by the adoption of the variable Sistema Marginal de Divisas (‘Simadi’) rate for the consolidation of our Venezuelan operations, our business when excluding Venezuela is performing well and delivered ebitda growth of 5 per cent year-on-year.” he said.

The group said packaging volumes grew by over 6 per cent in the year-to-date and over 5 per cent in the quarter as a result of acquisitions in both Europe and the Americas combined with organic growth. It said there was evidence of a slower rate of growth in Europe in the third quarter but said growth remained at a solid level.

“Overall demand levels remain good, and as a consequence the European containerboard market remains well balanced. The industry’s solid fundamental outlook and the containerboard price increases implemented in July will support our current focus on driving corrugated price recovery,” said Mr Smurfit.

In the Americas, Smurfit said its business had operated well with margins improving despite currency fluctuations.

“Based on current operating conditions, the group expects to deliver a full-year ebitda result in line with market expectations. This result reflects the resilience of Smurfit Kappa’s integrated and geographically diversified business model, and the good underlying level of growth in the business.”

In a note to investors, Davy described Smurfit's third quarter performance as "very positive," with analyst Barry Dixon saying that Smurfit's share price looked well positioned for another strong performance over the next 12 months.

“While the outlook statement confirms that management expects to meet full-year market expectations, the underlying commentary paints a relatively positive picture for earnings growth in 2016. Demand remains solid, the company appears determined to push through corrugated price increases and the headwinds which negatively impacted the 2015 performance are starting to wash out,” said Mr Dixon.