It said demand for recycled containerboard had reduced stock levels in Europe, while global demand for kraft liner, or packaging paper, meant supply was “extremely tight”. Shares of packaging firms such as Smurfit Kappa tend to slide during world economic downturns because it is very difficult to close capital-intensive mills.
Global growth can boost paper firms because packaging materials are used in so many consumer products.
Smurfit Kappa shares, which rose 3% on the news of the earnings, have now climbed 21% since the start of the year, valuing the firm at almost €6.25bn. On the outlook, chief executive Tony Smurfit warned about the “exceptional volatility” of fibre trade but the main message was upbeat.
“We expect to deliver a full year earnings before interest, taxation, depreciation, and amortisation in line with current market expectations and will enter 2018 with optimism and good momentum,” he said. At €2.12bn, third-quarter revenue rose 4% from a year earlier, though earnings before interest, taxation, depreciation, and amortisation was down, by 1% to €320m. Those margins in Europe and in the Americas rose to 15.3% and 15.4%.
With net debt of almost €2.84bn, the company has been fairly slow to make large acquisitions. It said however, recent purchases of a corrugated packaging plant in Russia and a packaging firm in Greece gave it room to expand further. The results “reflected the improving economic backdrop across the Americas and Europe”, said Merrion Capital. Goodbody said the result bodes well for 2018.