Business Irish

Tuesday 2 September 2014

Higher paper prices help Smurfit Kappa top forecast

Published 07/11/2012 | 09:38

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Packaging group Smurfit Kappa posted quarterly earnings 10pc ahead of forecast helped by stronger paper prices and a tight grip on costs, prompting it to reiterate its full-year guidance despite a weak European outlook.

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Like others in the packaging industry, Smurfit has been recovering from low industry price levels reached in the recession that shrank demand for consumer products such as the paper-based items it sells.



"What you're seeing is that paper prices, kraftliner went through at €50 a tonne ... that's a help. It was also helped by less paper coming in from the States," Smurfit's chief financial officer Ian Curley said.



He added that OCC, or waste paper, prices are continuing to rise, which will help push through further recycled price increases that are seen as necessary to restore long-term economic viability to the sector.



Smurfit, Europe's leading producer of containerboard and corrugated packaging, said third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) rose 6pc year-on-year to €280m.



That compared with analysts' average forecast of €255 million and prompted some analysts to upgrade full-year estimates.



"This is a very impressive set of results ... in terms of profit growth and debt reduction - particularly in what is believed to be a very difficult economic environment in the euro zone," said Barry Dixon, an analyst at Davy stockbrokers.



Smurfit cut debt by 10pc year-on-year to €2.6 billion and shaved €20 million off costs in the quarter. It kept its guidance for full-year EBITDA to be in line with 2011.



Smurfit snapped up a Mexican business last month for €265m, its first major acquisition since Jefferson Smurfit merged with Kappa Packaging in 2005, heralding a new era for the business after five years of paying down debt.



Comments from Smurfit echoed an upbeat statement from UK rival DS Smith, which said it expects substantial year-on-year earnings per share growth on Tuesday.



Shares in Smurfit were down 1.2pc this morning, underperforming the ISEQ down 0.3pc.



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