- Shares fall despite earnings beat
- Inflationary pressures abate amid fall in demand
- Final dividend increased by 12%
Despite growing full-year revenues by 27% to €12.8 billion and beating prior profit guidance shares in paper packaging solutions company Smurfit Kappa (SKG) fell 2% to £34.14 as investors digested a story of falling demand.
A reversal of ‘unsustainably high’ demand levels seen during the pandemic and negative effect from high inflation saw box volumes decline 2% in the year to 31 December 2022.
The company said the slowdown was particularly evident in the back half of the year with December seeing stock reductions and downtime from customers.
Analysts at JP Morgan said there was a clear read across for the sector: ‘We see commentary on the start of a de-stocking cycle and continued weak demand in container board markets as negative for peers, with Mondi (MNDI) more impacted.’
Shares of Mondi declined 1% while DS Smith (SMDS) traded 2% lower.
A STRONG YEAR DESPITE SLOWER DEMAND
A moderation in energy and other input costs in the second half of the year combined with price rises helped the company deliver a 38% improvement in EBITDA (earnings before interest, tax, depreciation, and amortisation) to €2.35 billion representing a margin of 18.4%. up from 16.8% in 2021.
The annual return on capital employed, a measure of profitability and efficiency improved to 21.8% from 16% a year ago. Net debt to EBITDA, a measure of financial leverage reduced to 1.3 from 1.7 increasing balance sheet strength.
‘Our balance sheet metrics are the strongest in the Group’s history, providing SKG with significant strategic and financial flexibility’ the company noted.
Reflecting the strength in the business the board recommended a 12% increase in the final dividend to €1.06 per share.
Davy analysts took a more positive view on the outlook and reiterated an outperform rating on the shares. ‘We believe 2023E is the cyclical trough of SKG box demand/profitability, forecasting a return to box volume and profit growth in 2024E.’
