The chief executive of packaging giant Smurfit Kappa said on Wednesday that the worst of a year-long dip in demand for the sector appeared over after volumes increased in the fourth quarter, snapping three successive quarterly declines.
Packaging companies rode a boom in demand for goods and e-commerce during Covid-19 lockdowns. But a fall in volumes when economies reopened and consumers spent more on travel and other services led to a 12 per cent drop in Smurfit's full-year core profit, as expected on Wednesday.
The Irish group, Europe's largest paper packaging producer, said volumes fell 3.5 per cent in 2023 as a whole as customers destocked and demand for durable goods weakened. Volumes were flat in Europe and up by 1.6 per cent in the Americas in the fourth quarter.
Smurfit shares opened 4.6 per cent higher.
"That trend is continuing into January, that we have seen improvements in demand again, so I think the worst is behind us in the sense of demand," Smurfit told CNBC on Wednesday, adding that February also looked good so far.
The growth in fourth quarter volumes compared with declines of 7 per cent, 5 per cent and 2 per cent in the first, second and third quarters, respectively.
After raising the prices customers pay for its boxes by up to 40 per cent throughout 2021 and 2022, Smurfit's prices fell last year but was more than compensated for by lower energy and raw material costs, taking its EBITDA (earnings before interest, tax, depreciation and amortisation) margin up to 18.8 per cent from 18.6 per cent in 2022.
Full-year EBITDA of €2.08 billion were broadly in line with the approximate €2.05 billion the group forecast in November. That was still its second-largest profit ever and sharply higher than €1.7 billion recorded in 2021.
While Smurfit had flagged signs of tentative improvements in its German order books in November, chief financial officer Ken Bowles told Bloomberg that the key German market continued to lag, saying "it's not terrible, but it could be a lot better."
The group said it hopes to close the $11 billion deal to buy US rival WestRock agreed last year in early July.
