Smurfit WestRock Plc Q3 FY2024 earnings call

• Combined Smurfit Kappa and Westrock to be the global leader in sustainable packaging, leveraging geographic reach and product diversity. • Made progress in integrating operations over the first 100+ days, with new leadership teams in place and plant visits completed. • Identified operational efficiencies, reduced SG&A, and eliminated some 800 positions. • Capital allocation framework focused on internal projects, with planned CapEx for 2025 in the range of $2.2 billion to $2.4 billion. • Dividend policy in line with legacy Smurfit Kappa's progressive dividend policy, with a dividend of $0.3025 per share for the quarter.

The company has three segments. The North American segment delivered gross sales of $4.6 billion with adjusted EBITDA of $780 million and an adjusted EBITDA margin of 16.8%. The Europe, EMEA and APAC division had gross sales of $2.7 billion, adjusted EBITDA of $411 million, and an adjusted EBITDA margin of 15.5%. The Latin American segment had gross sales of $0.5 billion, adjusted EBITDA of $116 million, and a margin above 23%.

• Total CapEx for 2025 is expected to be in the range of $2.2 billion to $2.4 billion. • Q4 is expected to be conservative due to additional downtime and maintenance, with an estimated $60 million hit from downtime. • The dividend policy is in line with legacy Smurfit Kappa's progressive dividend policy, subject to board approvals.

• New capacity in Europe may lead to downtime as it may not be absorbed by the market. • Uncertainty in the SBS market and smaller folding boxboard machines in North America pose strategic challenges. • Economic factors such as recovered fiber, energy, and distribution costs, as well as inflationary pressures, can impact results.

Q: On the full year guidance, is there a slight reduction in EBITDA in Q4 versus Q3?

A: Yes, guidance is conservative with an additional $60 million hit for downtime in Q4 compared to Q3.

Q: On the CapEx plan for next year, is the opportunity better in Westrock?

A: We think the mid- to high-teens pretax return on nonmaintenance CapEx is a reasonable target, and there are opportunities as we integrate the two businesses.

Q: On the cadence of synergies, how is it progressing?

A: Hard synergies are on track to be fully realized by the end of next year, with incremental operational and commercial improvements taking slightly longer, expected over 18-24 months.

Q: On the performance of European operations, especially Germany?

A: Germany has been disappointing in not exploiting strategic advantages, while other European businesses have done okay but overall Europe didn't meet expected demand based on earlier expectations.

Q: On the value over volume approach, how does it play out?

A: It involves rationalizing facilities, selling for value rather than volume, replacing bad business with good business, and recognizing customer needs for differentiated packaging.