Smurfit Westrock Q2 Earnings Miss Estimates, Sales Dip Y/Y

Smurfit Westrock Plc SW reported adjusted earnings of 69 cents per share in second-quarter 2024, which missed the Zacks Consensus Estimate of 75 cents. The bottom line was down 22.5% from adjusted earnings of 89 cents in the year-ago quarter.

Smurfit Westrock was formed by the merger of two major paper and packaging industry players, Smurfit Kappa and WestRock, on Jul 5, 2024. With the completion of the merger, subsequent to the end of the second quarter, Smurfit Westrock stated that the reported results pertain to Smurfit Kappa Group plc and not to WestRock. Results for the combined company will be reported from the third quarter of 2024.

Net income was $132 million (51 cents per share), down 51% from $267 million in the year-ago quarter. This was primarily due to lower sales and transaction-related expenses of $60 million associated with the Smurfit Westrock combination, which was partially offset by a $12 million decrease in the costs of goods sold attributed to lower raw material and energy costs. 

Net sales declined 3.5% year over year to around $3 billion. The top line lagged the Zacks Consensus Estimate of $7.9 billion (which included revenues from WestRock). Smurfit Kappa witnessed a 3.1% increase in corrugated volumes. On a shipments per day basis, volume growth was 1.1%. A net positive foreign currency impact of $28 million and a $4 million positive contribution from acquisitions aided revenues. However, these gains were offset by lower average box pricing in the European business.

The cost of sales was down 0.5% year over year to $2.28 billion. The gross profit declined 12% year over year to $693 million. The adjusted EBITDA was $480 million, down 13.7% from the year-ago quarter. Adjusted EBITDA margin was 16.2%, lower than 18.1% in the year-ago quarter.

Segment Performances

Sales in Europe were down 6% year over year to $2.2 billion. Corrugated volume growth was 3.5% in Europe, which was offset by lower prices. The segment's adjusted EBITDA fell 18% year over year to $355 million due to the lower net sales and higher labor, distribution and recovered fiber costs, partially offset by a decrease in energy and other raw material costs.

Sales in the Americas were reported at $0.76 billion, up 5% year over year. Corrugated volume growth was reported to be 1.5%.  

The segment's adjusted EBITDA rose 4% year over year to $146 million on higher net sales, partially offset by elevated raw materials and labor costs.

Cash Position & Balance Sheet Updates

Smurfit Westrock had cash and cash equivalents (including restricted cash) of $3.3 billion at the end of the second quarter compared with $1 billion as of the end of 2023. The company reported a total debt of $6 billion at the end of the second quarter compared with $3.7 billion at the end of 2023.

Net cash provided by operating activities was $340 million compared with $307 million in the year-ago quarter. Adjusted free cash flow was $186 million compared with $83 million in the year-ago quarter. 

The company had previously announced a quarterly dividend of 30.25 cents per share.

Price Performance

Shares of Smurfit WestRock have lost 9.3% since it made its debut on the New York Stock Exchange on Jul 8, 2024, compared with the industry's 0.3% dip.

Image Source: Zacks Investment Research

Zacks Rank

SW currently has a Zacks Rank #3 (Hold).

Performances of Peers in Q2

International Paper Company IP reported second-quarter 2024 adjusted earnings of 55 cents per share, which surpassed the Zacks Consensus Estimate of 40 cents by 38%. The bottom line declined 7% year over year due to lower year-over-year prices in both the Industrial Packaging and Global Cellulose Fibers segments. 

International Paper's net sales were around $4.7 billion, up 1% from the year-ago quarter as higher volumes were offset by lower prices. The top line missed the consensus estimate of $4.8 billion. IP currently carries a Zacks Rank of 3. 

Stora Enso Oyj SEOAY reported second-quarter adjusted earnings of 8 cents per share, which beat the Zacks Consensus Estimate of 7 cents. The bottom line marked a significant improvement from the loss of 29 cents per share in the year-ago quarter, driven by an increase in demand. 

Stora Enso's net sales were $2.48 billion, down 4% from the year-ago quarter. Sales declined mainly due to structural changes. The company currently carries a Zacks Rank of 3.

A Better-Ranked Pick

Sylvamo Corporation SLVM, scheduled to release second-quarter results on Aug 9, presently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for SLVM's second-quarter earnings is pegged at $1.64 per share. It indicates year-over-year growth of 43.9%. The estimate has remained unchanged in the past 60 days. Sylvamo has a trailing four-quarter earnings surprise of 23.2%, on average.

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