Smurfit Westrock Plc Q4 FY2025 earnings call

• Portfolio optimization: Closure of SBS machine in La Tuque, Quebec as part of portfolio optimization. • Financial performance: Quarter had adjusted EBITDA of $1.172 billion, full year $4.939 billion; quarter adjusted free cash flow $679 million, full year over $1.5 billion. • Balance sheet: Leverage reduced to 2.6x, moving towards target of 2x; successful refinancings and bond redemptions. • Dividend: Increased by 5%, with dividend as a key pillar of capital allocation. • Region highlights: North America focused on replacing uneconomic business, Europe with strong margins and consumer business growth, Latin America with strong margins and seamless integration. • Medium-term plan: Aim for adjusted EBITDA growth to $7 billion by 2030 with CAGR of 7% and margin expansion; generate significant free cash flow; return capital to shareholders. • Awards: Recognized by Forbes, Fortune, Time Magazine as a leader; over 230 awards received for quality and service.

In the fourth quarter, North America had adjusted EBITDA of $651 million, a margin of 14.7% (down modestly year-on-year). Europe had adjusted EBITDA of $438 million with margins expanding to over 16%. Latin America had adjusted EBITDA of over $130 million with margins over 24%. For the year, adjusted EBITDA was $4.939 billion, with North America contributing significantly, Europe showing margin expansion, and Latin America delivering strong performance.

• First quarter 2026 adjusted EBITDA expected to be between $1.1 billion and $1.2 billion. • Full year 2026 adjusted EBITDA expected to be between $5 billion and $5.3 billion. • Medium-term plan targets adjusted EBITDA growth to $7 billion by 2030 with 7% CAGR and margin expansion of over 300 basis points, generating significant free cash flow.

• Market conditions: Difficult market conditions across many countries. • Weather events: Impact of weather events in Europe and US on operations. • Paper market situation: Uncertainties in the paper market affecting operations and profitability. • Integration challenges: Potential challenges in integrating different regions and businesses.

Q: In terms of the outlook for this year, can you talk to the extent that pricing is already baked into your forecast or not? And then ultimately, recognizing you don't manage the business week by week, month by month, what is the expectation for volume progressions, especially within corrugated, but in box board over the course of the year?

A: No, we haven't baked in pricing for the year. Expect volumes in the latter half of the year to get back to more normalized levels, with potential positive impact from US stimulus.

Q: Tony, can you give us a little feel for where you are in the process of churning some of these lower loss-making contracts? And you talked about a robust pipeline where you can more than offset that. What does that actually mean? Have you secured contracts? And how does that kind of layer in, I guess, to the puts and takes of those dynamics?

A: Most bad stuff has gone, with some contracts phasing out or being reworked. Pipeline has layers of conversations from close to happening to prospects, with overall perspective encouraging. Sales force is closer to operating units for better flexibility.

Q: Just on that value over volume piece. Just wondered sort of how that piece will contribute. Do you think that will translate to pricing outperforming the benchmark or maybe cost takeout from rightsizing and efficiency? Or in terms of volume, we've seen some deliberate drop off this year, just seeing how that -- how you see that sort of evolve? Do you think that will sort of close more towards, as you said, normalized levels of demand towards the end of this year?

A: Value over volume will contribute through gaining market share via quality, service, and innovation. Volume drop is temporary, with expectation of normalized levels in the latter half of the year as demand improves.

Q: Looking at the progression to $7 billion, $4 billion North America, $2 billion in Europe, $1 billion roughly in South America, can you help us understand how important the evolution of consumer is relative to getting to that target across the segments? Why it seems like you see consumer being married to corrugated makes more sense than what we've seen perhaps past companies have had difficulty getting that effectiveness? And frankly, you've had questions about that when you first put the business together. Why you think it makes sense now?

A: Consumer business is married to corrugated as it provides a strategic advantage, allowing offering of diversified portfolio to customers. The timing is right, with market expecting such evolution, and experience centers facilitating engagement with customers.

Q: On the margin improvement in North America, you talked about going from about 16% to 20%. And then you also include about half of it from base business, half of it from strategic action. So if I look at kind of the column to the right, and we see footprint optimization, obviously, strategic action. What else would be in the strategic action bucket?

A: Strategic action bucket includes projects like refurbishing paper machines, redeveloping parts of mills to generate higher returns, and addressing equipment and management issues in box plants to improve performance, beyond just base maintenance of assets.