SMURFIT WESTROCK 2026 Q3 RESULTS - SMURFIT WESTROCK PLC

Explicit Guidance:

• 2026 Adjusted EBITDA: Full-year adjusted EBITDA expected at approximately $4.7 billion, primarily reflecting unprecedented cost inflation (energy costs alone expected to represent $700 million year-on-year headwinds).
• 2027 Outlook: Management expects actions taken in 2026 to more than offset current cost inflation in 2027, with early views indicating confidence that next year will be "significantly better" based on current run rates, though specific 2027 financial targets (revenue, EBITDA margins) remain under budgeting and have not been formally released.
• Capital Expenditure (Capex): 2026 Capex guidance reduced by approximately $150 million via project delays; no material change to the 2026 Capex philosophy, with the deferred spend likely shifting to 2031 or 2032.
• Pricing Recovery: Full recovery of the July 100 EUR/ton paper price increase expected to materialize in Q1 2027; subsequent price increases anticipated to translate into higher margins as contractual pass-throughs settle in early next year.

Business-Segment Outlook:

• North America: Expect volumes to return to or exceed prior-year levels by Q4 2026 (following cyclo-spiro/E. coli disruptions); strong pipeline in corrugated with mill systems sold out for practical all grades; converting margins expected to improve as pricing lags settle, with underlying margin trends in corrugated showing "significant" improvement.
• Latin America: Returns and adjusted EBITDA margins remain at "excellent levels" despite regional cost pressures; Mexico facing weak demand but strengthened by cost takeout and rationalization; Brazil seeing demand weakness due to election uncertainty, though profitability remains intact; CNPC acquisition expected to strengthen positions in Chile and add paper integration.
• Europe (EMEA) & APAC: Outperforming integrated peers; structural shift noted in paper bag and sack business; consumer business in Europe improving radically and set for strong growth alongside corrugated; strong growth observed in October, with expectations for 2-3% volume growth on a year-on-year basis.
• Specific Grades: Container board sold out; SBS (Solid Bleached Sulfate) positioned for increases to recover Q4 2025 losses and maintain profitability; CRB (Coated Recycled Board) remains an alternative supplier without pricing momentum; export prices expected to rise significantly as older orders clear the system.

Market and Competitive Outlook:

• Supply Dynamics: Industry-wide supply reduction anticipated as energy costs render operations unprofitable for some competitors (zero EBITDA on new assets), leading to inevitable downtime or closures, particularly in Europe.
• Pricing Power: Price increases (net 170 USD/ton in North America, net 140 USD/ton in Europe) necessary to cover spiraling energy costs; market structure consolidation (exit of independents like Schumacher and Tim Group) reduces risk of price wars by new capacity.
• Demand Trends: Consumer volume growth driven by owner-operator model and service improvements; food/beverage volumes broadly flat; HBH (Home, Bath, and Home) segment seeing ~2% YoY volume growth; structural shift toward paper bags and sacks.
• Competitive Landscape: Management notes that new capacity coming online (Italy, UK) will likely prioritize downtime over price cuts to protect margins due to high capital costs and energy exposure.

Macro / Industry Outlook:

• Energy Costs: Energy prices (TTF gas in Europe, diesel in US) remain "spiraling" and at "unprecedented" levels; European gas costs are ~10x North American levels, creating a structural threat to industry profitability.
• Regulatory Environment: Customers in Europe value Smurfit Westrock's ability to navigate complex regulatory frameworks, treating compliance as a key competitive advantage.
• Geopolitical/Election Risks: November US election uncertainty noted as a potential demand variable; Brazil election uncertainty caused recent demand weakness but not profitability impact.
• Freight Sensitivity: Diesel price volatility is the primary sensitivity for North America; estimated at ~$80 million impact per dollar of diesel cost on the direct business, rising to $120–$130 million when downstream impacts are included.

Strategic Initiatives:

• M&A: Completed acquisition of CNPC packaging assets during the quarter to strengthen position in Chile and wider region, adding further paper integration.
• Capacity/Investment: Launched ~$100 million biomass boiler investment in Colombia to offset energy price increases; ~$350 million invested over the last five years in Três Barras mill (Brazil) delivering superior returns.
• Operational Improvements: Rollout of innovation centers driving cross-selling; "owner-operator" culture adoption improving efficiency and talent retention; rationalization of footprint to enhance future returns.
• Efficiency Projects: Focus on fixing two underperforming North American mills to bring the entire mill system to world-class standards; transitioning specific customers from CRB to SBS/CHK for differentiated value.

Risks and Headwinds to Outlook:

• Cost Inflation: Unprecedented energy and freight cost inflation (specifically $700 million headwind in 2026) risks compressing margins if price pass-throughs lag or fail to fully recover.
• Execution Timing: Pricing lag time remains a key variable; full cost recovery expected in Q1 2027 but delays could impact interim financials.
• External Shocks: Potential for further energy price escalation, geopolitical events (elections), and cyclical disease outbreaks (e.g., agricultural sector contamination) affecting volumes.
• Competitive Response: Risk of downstream discounting by competitors struggling for volume (isolated incidents noted) or extended downtime by governments preventing necessary industry rationalization.

Management Tone on the Future:

• Confidence Level: High confidence in the 2030 strategic plan and 2027 outlook despite 2026 headwinds; management describes the foundation built for 2027 as "great" and expresses excitement about the future of the combined entity.
• Stance: Frustrated by the need to "catch up" on costs due to uncontrollable external factors, but confident that the business will return to a growth trajectory; emphasizes that the 2030 target remains "bang on" in timing, with only the annual flex shifting.
• Hedging Strategy: Deliberately avoiding aggressive hedging at current energy peaks to prevent being "trapped" should prices fall, preferring to rely on price increases and operational efficiency.

Miscellaneous:

• Geographic Context: Call hosted at the Três Barras mill in Brazil (Latin America's largest country, 213M population), a state-of-the-art craftliner mill with 700,000 tons capacity.
• Culture: Unified under the "owner-operator" model across 40 countries, resulting in improved customer service metrics and talent retention.