Smurfit Westrock Plc (SW) Earnings

Management highlights

- **Overall Integration & Strategic Progress**: The post-merger integration of Smurfit and WestRock is progressing well, with all regional leadership teams fully in place. A performance-focused owner-operator culture is accelerating, with best practices and innovation being shared globally across the company's 30+ innovation hubs and over 2,000 global designers. The company remains on track with its medium-term self-improvement plan focused on operational excellence, disciplined capital allocation, and customer-focused quality/innovation. - **Cost & Asset Optimization**: Management continues a relentless focus on cost reduction via footprint optimization, with underperforming asset closures completed across all regions. As of Q2 2026, the company has reduced the number of loss-making converting facilities from over 80 to approximately 20 (out of 100 total converting facilities in North America), with 10 of these 20 expected to be turned around or closed in the near term. - **Market Conditions**: Global paper markets are significantly stronger than any period in recent history, with nearly all paper grades sold out through the end of 2026 across all regions. Supply tightness provides a strong fundamental backdrop for the company's medium-term plan. - **Capital Allocation & Balance Sheet**: Capital allocation priorities remain unchanged, with internal investment prioritized as the highest-return, lowest-risk use of capital. Full year 2026 capex is expected to be $2.4-2.5 billion, aligned with the medium-term average annual target of ~$2.5 billion. The company maintains a strong investment-grade balance sheet (Baa2 positive from Moody's, BBB stable from S&P, BBB+ stable from Fitch) and announced a quarterly dividend of 45.23 cents per ordinary share.

Guidance

- Full year 2026 adjusted EBITDA guidance is set to a range of $4.9 billion to $5.1 billion, revised downward from prior expectations primarily due to significantly higher-than-anticipated global freight costs. - The majority of the recently announced $100 per ton containerboard price increase in North America is not reflected in the 2026 guidance, as pricing lags will push most of the benefit into 2027, creating a strong earnings foundation for next year. - Management expects North American corrugated volumes to inflect positive year-over-year in either the second half of Q3 or Q4 2026, as lapping prior year lower-margin business exits and new customer wins commercialize. - EMEA margins are expected to recover through the end of 2026 and into 2027 as recently announced containerboard price increases flow through to converted boxes, with a target of returning to historical 18+% adjusted EBITDA margins. - Long-term, management remains confident in the group's medium-term earnings potential and the ability to deliver improving returns through 2027 and beyond.

Segment performance

Smurfit WestRock reported 2026 Q2 adjusted EBITDA of $1.14 billion, with an adjusted EBITDA margin of 14.2%. - **North America**: Corrugated volumes were down 4.5% year-over-year (absolutely), in line with management's value-over-volume strategy. The region absorbed the majority of the group's global freight inflation, but delivered resilient performance; mill order books remain full, and commercial momentum is strengthening. The North American box system currently holds a 3-4% EBITDA margin, up from previously heavy losses. - **EMEA and APAC**: Corrugated volumes rose 1.9% year-over-year (absolutely), with mills operating at full capacity. The region outperformed overall, though near-term margin compression occurred due to ongoing freight and energy cost inflation. Performance is expected to improve in H2 2026 as cost recoveries take effect. Margins currently sit below historical levels, with a target of returning to 18+% in 2027. - **Latin America**: Delivered an excellent quarter, with healthy demand and growing corrugated volumes. The region benefits from strong market positions and recent operational investments, generating attractive margins and strong returns with significant future growth opportunities. There are almost no loss-making converting facilities in the region.

Risks & headwinds

- Global freight costs have spiked significantly due to the ongoing Middle East conflict, higher fuel costs, and transportation availability issues, creating a $300 million year-over-year headwind for 2026 that is not abating, and requires additional pricing initiatives to recover. - Energy costs in EMEA remain volatile and elevated, creating ongoing near-term margin pressure. - Pricing increases to recover input costs have a natural lag of 1-6 months depending on customer contract terms, meaning cost impacts are felt immediately while revenue recoveries are delayed, creating short-term margin pressure. - There are still ongoing inventory and logistical inefficiencies from the post-merger integration, with inventory often in the wrong locations or of the wrong grade, creating minor operational disruptions. - New capacity entry amid the current tight supply and strong pricing environment could impact long-term market balance, though management notes any new capacity would require 2-3 years to bring online and requires significant higher capital costs that limit attractive returns for new entrants.

Analyst Q&A

• Q: What is the timing of containerboard price recovery in North America, and can volumes inflect positive year-over-year in H2 2026? /

  A: Pricing initiatives for corrugated and containerboard are progressing, but prior paper price declines offset some near-term gains in Q2. Full benefits of recent containerboard price increases will be seen in Q3 and Q4 2026, with additional pricing gains carrying into Q1 2027, due to 1-6 month lags in customer contracts. Management expects North American corrugated volumes will turn positive year-over-year in either late Q3 or Q4 2026, as new 500+ won customers commercialize and the company laps easy comparisons after exiting lower-margin business last year.

• Q: Where does Smurfit WestRock stand in the transition to improving converting segment returns, and how many problem facilities remain? /

  A: Management describes the transition as between first and second base, with substantial progress made: the number of loss-making converting facilities has dropped from more than 80 to approximately 20, with 10 of those 20 expected to be resolved (turned around or closed) in the near term. The North American box system is now small EBITDA positive, with a current margin of 3-4% up from heavy losses, and will improve further as pricing recovers. There are almost no problem facilities in Latin America, with only 3-4 in EMEA.

• Q: Why did Smurfit WestRock announce a $100/ton containerboard price increase when competitors announced different levels, and what is driving SBS pricing improvements? /

  A: The $100/ton increase is an inward-looking calculation based on the company's own cost inflation (particularly freight and energy), offset by ongoing cost takeout programs, to restore lost margin. Competitor actions are not commented on. The SBS market is meaningfully stronger than last year, with improvement driven by both new business wins from the company's agnostic product approach (attracting customers switching from other paper grades) and rising input costs, with recent SBS price increases not expected to impact earnings until 2027 due to contract lags.

• Q: What is driving the recent freight cost headwind increase, and what explains Q2 North American volume softness? /

  A: The freight headwind increased from $50 million year-over-year projected in April to $300 million, driven by a sharp spike in shipping rates from May to July caused by escalating conflict in the Middle East. This is management's best current estimate, not an explicitly conservative projection, and energy costs remain in line with prior guidance. Q2 North American volume weakness reflected only small, expected deviations from plan tied to the company's intentional exit of lower-margin business, with new customer acquisition progressing as planned, and overall operational progress remains on track.