Smurfit WestRock Plc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Fourth Quarter Performance: Reported strong fourth quarter with adjusted EBITDA of $1.166 billion and margin of 15.5%; full-year 2024 adjusted EBITDA of $4.706 billion, consistent with prior guidance.
• Merger: Combined Smurfit Kappa and Westrock in July 2024, with significant global operations, over 500 converting facilities, 62 mills, and waste paper processing.
• Synergies: Developed a synergy program over $400 million, expected to be met or exceeded by end of current year, with additional $400 million opportunities identified.
• Capital Spend: Revised capital spend for 2025 between $2.2 billion and $2.4 billion.
• Streamlining: Over 1,000 people streamlined, with talent training and development programs initiated.
• Investments: Over $750 million invested in facilities for growth and cost reduction, with examples of phased investments in converting mills and specialties.

Segment Performance

• North America: Delivered sales of $4.6 billion with adjusted EBITDA of $710 million and an adjusted EBITDA margin of 15.4%. Higher selling prices offset cost headwinds from fiber sourcing and labor, with box volumes broadly stable, third-party paper sales growing mid-single digits, and consumer packaging up over 2%.
• EMEA and APAC: Generated sales of $2.5 billion, adjusted EBITDA of $371 million, and an adjusted EBITDA margin of 14.7%. Resilient despite sector challenges, with stable sales and adjusted EBITDA margin slightly lower due to higher recovered fiber and labor costs, partially offset by lower energy and distribution costs and higher box volumes.
• LatAm: Registered sales of $0.5 billion, adjusted EBITDA of $121 million, and an adjusted EBITDA margin of over 23%. Higher year-on-year adjusted EBITDA and margin, despite 3% lower corrugated box volumes in some areas, with successful pricing initiatives offsetting negative impacts from foreign currency translation and lower volumes.

Guidance

• First Quarter 2025: Anticipates adjusted EBITDA of approximately $1.25 billion.
• Dividend: Quarterly dividend increased to $0.4308 per share, up from $0.3025, aligning with legacy SKG's progressive policy.
• Leverage: Target long-term leverage ratio below 2 times through the cycle, with disciplined approach to M&A and capital allocation.

Risks

• Energy: Spiking energy prices in Europe, with partial hedging in place (25% hedged in Q1, less in subsequent quarters).
• Currency: Volatile currency movements, impacting earnings translation from euros to dollars.
• Tariffs: Potential impacts on cross-border trade, particularly in Mexico (affecting consumer goods) and Canada (impacting specific mill exports).

Question and Answer

• Q: Philip Ng on commercial approach and contract discussions in North America A: Tony Smurfit discussed the value over volume strategy, noting volume degradation as core issues are addressed, and innovations offsetting potential volume loss.
• Q: Charlie Muir-Sands on operational improvement examples and Q1 maintenance A: Tony and Ken discussed underselling issues, focusing on basic operations, and Q1 maintenance expected to be $10 million less than Q4.
• Q: Gabe Hajde on price discovery and dividend A: Tony and Ken talked about decoupling pricing to individual profit centers and the dividend increase aligning policies of Smurfit Kappa and Westrock.
• Q: Lars Kjellberg on synergy cadence and dividend A: Ken discussed synergy phasing and the dividend alignment between Smurfit Kappa and Westrock, balancing policies and payment cycles.
• Q: Detlef Winckelmann on energy hedging and maintenance A: Tony mentioned 25% hedged in Europe for Q1, and maintenance typically higher in Q2 compared to Q1 and Q4.
• Q: Anthony Pettinari on tariffs and North American consumer business A: Tony discussed tariff impacts on Mexico and Canada, and positive impressions on North American consumer business assets, noting good assets and people with some opportunities to address.
• Q: Patrick Mann on business weighting and leverage A: Tony and Ken talked about business balance in containerboard, sack conversion, and consumer board, and leverage targets through disciplined capital allocation and working capital optimization.
• Q: Matthew McKellar on SBS opportunities and LatAm focus A: Tony elaborated on SBS opportunities through improved selling and marketing, and LatAm growth potential despite regional challenges, highlighting Brazil as a key opportunity.