Smurfit Westrock plc 2026 Q3 Earnings Call

As a reminder, statements in today's press release and presentation and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our SEC filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Where applicable, reconciliations to the most comparable GAAP measures are included in today's earnings release and in the appendix to the accompanying presentation, which are available at investors.smurfitwestrock.com. Before I hand you over, please note that Tony and Ken are stepping away from the board this morning and rejoining after our call.

In the interest of time, I therefore request that you ask no more than two questions. I'll stay on the line should we have any technical issues in Brazil. I'll now hand you over to Tony Smurfit, CEO of Smurfit Westrock.

Thank you, Ciaran. As Ciaran has just said, we're hosting today's call from our Três Barras mill in Brazil, Latin America's largest country, with a population of some 213 million people. Três Barras is a state-of-the-art kraftliner mill with an annual capacity of approximately 700,000 tons. This operation is a great example of successful investments of approximately $350 million over the last five years, delivering superior returns. It is integrated downstream into our Latin American box system, primarily in Brazil, Argentina, and soon-to-be Chile, and significantly integrated upstream into our sustainably sourced forestry operations. As you will have seen, we've announced Q3 Adjusted EBITDA of $1,205 million, with an Adjusted EBITDA margin of 14.8%. These results show great resilience in the face of unprecedented and greater than anticipated cost inflation, predominantly, but not limited to, energy and freight.

To counteract these cost increases, we have, by necessity, implemented price increases across most paper grades, which are being passed on with the normal time lag. The period was characterized by a number of one-off events, such as extreme heat waves in Europe, earthquakes in Colombia, and a significant contamination issue in the agricultural sector in the U.S., affecting our volumes both there and in Mexico. Since the formation of Smurfit Westrock, I am incredibly proud of the many achievements we have accomplished, especially the way we have brought the two companies together and formed one culture. Operating in 40 countries, we have unified the company under one banner with the focus being the owner/operator model, which resonates and is well understood both internally and externally.

We have developed a strategic plan, which we presented to you in February, that takes the company to a different level through our own actions and investments to improve efficiency and our offering to our customer base. We have refocused the company at our end customer through innovation, quality, and service. Turning now to a regional overview. Our North American business continues to improve in most areas, although this improvement is masked by the amount of increased costs that we have incurred. The third quarter showed sequential improvement in our corrugated volumes with a continued and developing strong pipeline. Our people have embraced our new Smurfit Westrock performance-led and owner/operator culture, and this is reflected by our improvements across all customer service metrics and our attention and retention of talent.

Today, our mill system across practically all grades remains sold out, allowing for us to prioritize orders and improve our business mix. The real benefits of this will be apparent as we move into 2027. In our converting businesses, we are progressively getting better through continuous investments with teams of highly motivated people across both business areas of corrugated and consumer. As we roll out our innovation centers, we continue to benefit from our cross-selling opportunities as a major competitive advantage. In another business area, we have seen a large structural shift towards our paper bag and sack business, where we are the largest producer in the U.S. Finally, while demand in our Mexican business is as weak as I have experienced it in recent years, our footprint is continually being strengthened by significant cost takeout initiatives and rationalization measures.

Now turning to our EMEA and APAC region, where we continue to outperform our integrated peers. Our innovative offering delivers solutions to our customers that help them navigate an increasingly complex regulatory environment, especially in Europe. By partnering with Smurfit Westrock, our customers take regulatory compliance as a given, solving a key supply chain issue for them. As in other regions, we have implemented paper price increases to recover costs, which are being progressively passed through. These increases are primarily a consequence of the spiraling cost of energy that has shown no signs of abatements during the year and is reaching levels that we have rarely seen. Over the last number of years, we have made many investments in both our mill system and conversion operations that have considerably improved our quality and service KPIs, giving us further competitive advantage.

Some of those investments are also targeted at continuing to reduce our cost base and drive operating efficiency, which have helped somewhat to offset some of the cost pressures we have seen this year. We have also continued to rationalize our footprint, making our asset base more efficient, which will enhance future returns. Our experienced management team in this region has the skill to both navigate the current difficult macro environment and continue to outperform. In Latin America, while the region faces many of the same challenges experienced in other regions, our returns, and in particular Adjusted EBITDA margin, remain at excellent levels. We have strong market positions, a well-invested world-class asset base, together with, again, skilled and experienced operators.

We continue to look for ways to develop our offering in the region, and I was particularly happy to announce our agreement to acquire the world-class packaging assets of CMPC during the quarter. This acquisition will strengthen our position in both Chile and the wider region, as well as adding further paper integration to our system. Also during the quarter, we started up our circa $100 million investment in our biomass boiler in Colombia, which is helping to offset energy price increases in that country. Paper prices are rising in the region as international shortages feed into the market. For the full year 2026, we now expect Adjusted EBITDA margin of approximately $4.7 billion. This primarily reflects the unprecedented cost inflation we continue to experience across the business. Freight and energy costs alone are expected to represent approximately $700 million year-on-year headwind in 2026, materially above our earlier expectations.

As we move into 2027, we believe the actions we've taken during the year will more than offset these costs. What I'm most satisfied with is the great work that has been done across the organization in every region to improve efficiency, reduce our costs, further develop our innovation offering, and improve our asset base. As a truly global paper and packaging company with an unparalleled product portfolio and the widest geographical reach, it is ultimately our customers who benefit most from our extensive offering. As we develop the company through our investment program and through our culture, I am confident of the foundation we are building for 2027 and beyond. With that, operator, we will hand it over to questions.