Smurfit Westrock Q3 2024 Earnings Call

Smurfit Westrock (ticker: SW), a leader in sustainable packaging solutions, held its Q3 2024 earnings call, marking a robust first reporting period since its merger. The company reported net sales of nearly $7.7 billion and an adjusted EBITDA of $1.265 billion, with a margin of 16.5%. CEO Tony Smurfit emphasized the successful integration of Smurfit Kappa and Westrock, the completion of leadership training for managers, and the elimination of positions to streamline operations. The company looks forward to maintaining a strong investment-grade credit rating and disciplined capital allocation, focusing on operational efficiency and sustainability.

Key Takeaways

• Smurfit Westrock achieved net sales of $7.7 billion, with an adjusted EBITDA of $1.265 billion.
• Strong performance was reported across North America, Europe, EMEA, APAC, and Latin America, with Latin America achieving a margin above 23%.
• Plans for 2025 include CapEx between $2.2 billion and $2.4 billion and a quarterly dividend of $0.3025 per share.
• A 0.7% increase in same-day sales was reported, despite a decline in adjusted EBITDA margin year-on-year.
• Expected synergies of $400 million from the merger by the end of 2025, with full realization in 2026.
• CEO Smurfit highlighted the shift towards empowering plant-level operations for enhanced accountability and efficiency.

Company Outlook

• Projected CapEx for 2025: $2.2 billion to $2.4 billion.
• Continues progressive dividend policy with a quarterly payout of $0.3025 per share.
• Aiming for less than 2 times leverage through the business cycle.

Bearish Highlights

• Adjusted EBITDA margin declined year-on-year due to lower corrugated prices and higher recovered fiber costs.
• The German market underperformed, impacting overall European performance.

Bullish Highlights

• On track to achieve $400 million in synergies by the end of 2025.
• Management expressed confidence in the consumer segment's growth potential.
• The Latin American segment outperformed with a high margin despite challenges in Argentina.

Misses

• Slight increase in net debt attributed to cost reductions and seasonal effects.
• Some legacy assets require improvement, as noted during recent mill tours.

Q&A Highlights

• Ken Bowles confirmed the company's trajectory aligns with projections of $400 million in synergies.
• Tony Smurfit discussed the need for strategic adjustments in the corrugated business and a value-over-volume approach.
• New capacity in Europe and the U.S. may lead to increased downtime, though Smurfit Kappa's integrated strategy is expected to absorb this.

Smurfit Westrock's Q3 earnings call demonstrated the company's resilience and strategic focus following its merger. With strong sales across various regions, a commitment to sustainable practices, and a clear vision for the future, Smurfit Westrock is poised for continued success in the packaging industry. The company remains dedicated to enhancing its operational efficiency and capitalizing on synergies while navigating market challenges and investing in growth.

Full transcript – None (SMFTF) Q3 2024:
Operator: Good day, and thank you for standing by. Welcome to the Smurfit Westrock 2024 Q3 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ciaran Potts, Smurfit Westrock Group, VP, Investor Relations. Please go ahead.

Ciaran Potts: Thank you, Sarah. As a reminder, statements in today's earnings release and presentation, and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the earnings release and in SEC filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release and in the appendix to the presentation, which are available at investors.smurfitwestrock.com. In order to accommodate all those who want to ask questions, we ask that participants limit themselves to two questions during Q&A. Should you require any clarifications on what we are discussing today, myself and Frank will make ourselves available after the call. I will now hand you over to Tony Smurfit, CEO, Smurfit Westrock.

Tony Smurfit: Thank you, Ciaran, and good morning or good afternoon, everyone. Thank you for taking the time to join us today. As you'll have seen from this morning's release, which is the first reporting period for Smurfit Westrock, I think it's fair to say we reported an excellent third-quarter performance with adjusted EBITDA of $1.265 billion and a margin of 16.5%. Since combining our two companies on July 5, which is a little over 100 days ago, we have made great progress in bringing these two companies together. The results demonstrate that we are building a strong foundation for the continued development and success of Smurfit Westrock. I want to emphasize the enthusiasm and resolve I have seen across Smurfit Westrock to deliver on the combined potential. As time progresses, this will be absolutely apparent. When combining Smurfit Kappa and Westrock, we were very clear about the kind of company we could create. We were going to create the global leader in sustainable packaging. With our knowledge of the industry, we would be able to deliver the most value-adding and innovative packaging across the industry. We could leverage all our applications and knowledge across a broader geographic reach and unparalleled product diversity. We felt confident that we could deliver improved operational efficiency and drive excellence for our customers. We had also developed a tremendous culture in legacy Smurfit Kappa, which we could bring to the new Smurfit Westrock—a culture that is performance-driven, teamwork-orientated, with accountability for results and a deep desire to perform for all stakeholders. After the first 100+ days, we have even more confidence as we enter the next phase of our journey.

Note: Footnotes omitted for brevity.