Smurfit Westrock Plc Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Combination Progress: Cash flow strong with operating cash $1.1 billion and adjusted free cash flow ~$850 million. Synergy program exceeding expectations. Asset base optimized with facility closures and equipment transfers.
• North America: Loss-making corrugated units down 50% in a year, over 70% profitable. Consumer business transferring $100M of CRB to SBS and CUK. First Global Innovation Summit held, Experience Centers rolling out.
• EMEA and APAC: Integrated model proving successful, mills running at mid-90s operating rate. Rationalization of 2 German converting plants.
• LatAm: Brazilian operations well-positioned, Colombian business grew 8%, volumes up in Chile and Peru.

Segment Performance

• North America: Net sales of $4.7 billion, adjusted EBITDA of $810 million, and adjusted EBITDA margin of 17.2%. Loss-making corrugated units declined by almost 50% in a year, with over 70% of corrugated operations profitable. Consumer business has switched about $100 million worth of business from CRB to SBS and CUK.
• EMEA and APAC: Net sales of $2.8 billion, adjusted EBITDA of $419 million, and adjusted EBITDA margin of 14.8%. The integrated model is successful, with mills running at mid-90s operating rate, and rationalization of 2 German converting plants.
• LatAm: Net sales of $0.5 billion, adjusted EBITDA of $116 million, and adjusted EBITDA margin of over 21%. Sequential margin dip due to an operational issue in a Central Cluster mill, now resolved. Volumes grew in Chile and Peru, and Colombian business saw 8% growth.

Guidance

• Full-year adjusted EBITDA revised to $4.9 billion to $5.1 billion.
• 2026 CapEx expected to be $2.4 billion to $2.5 billion, enabling cost takeout, efficiency, and growth.
• Synergy program on track to deliver $400 million full run rate savings.

Risks

• Continued weakness in European market demand and pricing.
• Operational issues in Latin America affecting margin temporarily.
• Uncertainty in demand trends impacting pricing and profitability.

Question and Answer

• Q: Weakness in European market, expedite cost takeout? A: System optimized, continue trimming assets, cost takeout program ongoing.
• Q: Demand trends in North America and Europe, CRB to SBS shift? A: October demand uptick not seen, SBS attractive due to brightness, caliper, printability.
• Q: CapEx guidance, mill conversions in SBS? A: Details in February, evaluating opportunities but keeping footprint intact for now.
• Q: Europe market performance, pricing flow through? A: Markets mixed, Germany laggard, pricing ticked up, depends on demand.
• Q: North America converting operations, SBS move rationale? A: SBS due to brightness, caliper, printability; empowering local teams to drop uneconomic business.
• Q: Revised guidance, Latin America operational issue? A: Guidance range due to December swing, Latin America issue was digester problem, cost $6M now.
• Q: Cost buckets, pricing breakdown? A: Fiber tailwind, energy headwind reduced, pricing lower than midyear, breakdown deferred.
• Q: North America box shipments, shedding underappreciated business? A: Positive movements expected Q3 2026, shedding underappreciated business to persist into next year.
• Q: SBS switch, machinery flexibility? **A: Easy to switch between grades, SBS runs better according to customers.