Smurfit Kappa profits jump 50% but warns some demand slowing

Packaging giant Smurfit Kappa (SKG.I) posted a 50% jump in first-half core profit on Wednesday, sending shares in Europe’s largest paper packaging producer sharply higher.

Revenue growth of 33% pushed its core earnings up to a fresh record 1.2 billion euros ($1.22 billion), prompting Smurfit to increase its interim dividend by 8% to 31.6 euro cents per share.

However CEO Tony Smurfit warned that demand, after booming as the pandemic bolstered demand for e-commerce and shelf packaging rose as economies reopened, is slowing in some parts of Europe as inflation makes consumers more cautious.

“In the UK, it (demand) has been slow all year. We have seen a deterioration in orders in the more industrialised countries like Germany. The U.S., which we’re not a real benchmark for, has slowed down for us,” Smurfit told Reuters in an interview.

Other markets such as Brazil, Columbia and Spain are still growing strongly, he added.

In its earnings statement, the company said it was very confident about its future prospects and continued to see many opportunities for growth.

Smurfit Kappa shares, down 30% this year, were up 6.2% at 34.2 euros by 0805 GMT.

The Irish group, which a year ago was one of the first major European companies to predict that inflation was here to stay, is not seeing those pressures getting any better, its chief executive said.

Smurfit added that the only way he saw cost pressures easing in Europe in the short term was if there is a “very large recession”, but that the company does not expect that to happen “at this moment in time”.

Smurfit Kappa passed costs on to customers in the second quarter and has done in the third, Smurfit said. The prices it charges are 35% to 40% higher than they were two years ago.

After being effectively sold out of its product range in the 36 countries where it operates during the recent boom, Smurfit now has spare capacity in markets such as Britain.

It plans to slow down some production in August to save on energy costs.

($1 = 0.9863 euros)