Smurfit Westrock (SW) Q3 2026 Earnings Call Transcript

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DATE

Wed, Oct. 28, 2026

CALL PARTICIPANTS

• Group VP, Investor Relations - Ciaran Potts
• Chief Executive Officer - Anthony Paul J. Smurfit

TAKEAWAYS

• Net Sales -- $8,161 million, representing growth from $8,003 million in the prior year quarter.
• Adjusted EBITDA -- $1,205 million, reflecting a margin of 14.8% amidst high inflation in energy and freight costs.
• Fiscal 2026 Adjusted EBITDA Guidance -- approximately $4.7 billion, updated to reflect an estimated $700 million headwind from energy and freight costs.
• North America Adjusted EBITDA -- $760 million, representing a 15.6% margin for the region.
• EMEA & APAC Adjusted EBITDA -- $379 million, with a 13.4% margin heavily impacted by rising energy costs in Europe.
• Latin America Adjusted EBITDA -- $126 million, reflecting a margin of 21.4%.
• Net Income -- $219 million, with a net income margin of 2.7%.
• Adjusted Basic EPS -- $0.45, compared to $0.58 in the prior year quarter.
• Net Cash from Operating Activities -- $874 million for the third quarter.
• Capital Expenditures -- $514 million for the quarter, with full-year guidance reduced by $150 million to manage cash flow.
• Quarterly Dividend -- $0.4523 per ordinary share, payable on Dec. 10, 2026.
• Sequential Pricing -- 5% in North America and 2% in Europe from the second quarter to the third quarter.
• North American Volumes -- flat in October relative to the previous year as the market stabilizes.
• EMEA Volumes -- up 2% on a same-day basis in October.
• Diesel Sensitivity -- a $1 change in price impacts the business by $120 million to $130 million annually.
• Containerboard Price Increases -- $170 per ton in North America and €140 per ton in Europe intended to recover rising input costs.
• Paper Bag and Sack Business -- growing structural shift in the U.S. where the company is currently the largest producer.
• Colombian Biomass Boiler -- $100 million investment that started up during the quarter to offset local energy price increases.
• Tres Barras Mill -- capacity of approximately 700,000 tons, benefiting from €350 million in investment over five years.
• Loss-Making Operations -- reduced to fewer than 30 in the corrugated business as part of rationalization efforts.
• Energy Pricing -- TTF gas prices reached €97 to €98, contributing to the significant cost headwinds for the period.

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RISKS

• Smurfit warned that "the period was characterized by a number of 1-off events, such as extreme heat waves in Europe, earthquakes in Colombia, and a significant contamination issue in the agriculture sector," which reduced volumes in Mexico and the United States.
• Smurfit noted that "Mexican business is as weak as I have experienced in recent years," citing low demand despite strengthened local footprints.
• Smurfit stated, "energy price increases... are reaching levels that we have rarely seen," particularly impacting the profitability of the European industry.

SUMMARY

Smurfit Westrock Plc (NYSE:SW) reported third quarter results that reflect the challenges of unprecedented energy and freight cost inflation, which are expected to create a $700 million headwind for the full year. Management noted that while net sales grew to $8,161 million, margins were pressured by the time lag in passing through paper price increases to corrugated box customers. The company continues to integrate its global operations following the merger, focusing on an "owner operator" model and footprint rationalization, including the planned acquisition of CMPC assets in Chile. Management expressed confidence that pricing actions taken in the second half of 2026 will lead to significant margin recovery and improved financial performance in 2027.

• CEO Smurfit stated, "our mail system across practically all grades remains sold out allowing for us to prioritize orders and improve our business mix."
• Management noted that European energy costs are ten times higher than in North America, with TTF gas prices reaching approximately $30 per million BTU.
• The company reported that the 2030 strategic plan remains intact despite near-term cost pressures, with Executive Ken Bowles noting that the current shortfall is "essentially... timing."
• The North American segment is seeing improved talent retention and customer service metrics as it adopts the performance-led culture of the new organization.
• Management highlighted a large structural shift toward the paper bag and sack business in the U.S., where it maintains a leading market position.
• CEO Smurfit noted that in the European market, "there is a lot of people that actually cannot afford to run the mills" due to current energy price levels.

INDUSTRY GLOSSARY

• BTU: British Thermal Unit, a measure of the heat content of fuel or energy.
• CHP: Combined Heat and Power, a system that generates electricity and useful thermal energy in a single, integrated system.
• CRB: Coated Recycled Board, a grade of paperboard made from recycled fibers with a clay coating.
• CUK: Coated Unbleached Kraft, a grade of paperboard used for heavy-duty packaging like beverage carriers.
• Kraftliner: A high-strength paperboard made with at least 80% virgin wood pulp.
• SBS: Solid Bleached Sulfate, a premium paperboard grade made from bleached chemical wood pulp.
• Testliner: Recycled paperboard used for the facing of corrugated cardboard.
• TTF: Title Transfer Facility, a virtual trading point for natural gas in the Netherlands used as a benchmark for European gas prices.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Smurfit WestRock 26 Q3 Results Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ciaran Potts, Smurfit WestRock Group VP, Investor Relations. Please go ahead.

Ciaran Potts: Thank you, Sarah. 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, 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, are available at investors.smurfitwestrock.com.

I will 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 2 questions. I will stay on the line should we have any technical issues in Brazil, I will now hand you over to Tony Smurfit CEO of Smurfit WestRock.

Anthony Paul J. Smurfit: Thank you, Ciaran. As Ciaran just said, we are hosting today's call from our Tres Barras mill in Brazil. Latin America's largest country with a population of some 213 million Tres Barras is a state of the art kraftliner mill with a capacity of approximately 700 thousand tons. This operation is a great example of successful investments of approximately €350 million over the last 5 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 would have seen, we have announced third quarter 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 1-off events, such as extreme heat waves in Europe, earthquakes in Colombia, and a significant contamination issue in the agriculture sector in The United States 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 2 companies together and formed 1 culture. Operating in 40 countries, we have unified the company under 1 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. And we have refocused the company on 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 mail 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 United States. Finally, while demand in our Mexican business is as weak as I have experienced 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 pay regular digit 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 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, our 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 CNPC 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 of approximately $4.7 billion This primarily reflects the unprecedented cost inflation we continue to experience across the business. Freight and energy headwinds, and energy costs alone 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 have taken during the year will more than offset these costs.

What I am 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. And with that, operator, we will hand it over to questions.

Operator: Thank you. If you would like to ask a question, you will need to press *1 on your telephone and wait for your name to be announced. We will now take the first question. This is from George Staphos from Bank of America. Please go ahead.

George Staphos: Good morning, everybody. Good afternoon. Thanks for taking the questions. I am here with Reinhardt Walt in Europe. So I guess 2 questions, Tony. First of all, can you talk about the progression on volumes in North America At 1 point, you expect to be up at some point in the back half. Is that still the projection? Relatedly, I think you had a profit improvement in terms of the bridge from volume even though volumes were down in third quarter in North America. How do we reconcile that? And then second, given that energy and freight would seem to be largely a box related expense. Certainly, it is going to affect both converting and production.

But does the fact that you are seeing so much pressure on where you had the most or the least amount of margin headroom to begin with in converting does that change your philosophy in terms of how you try to push pricing and improve commercial terms over time? Thank you and good luck in the quarter.

Anthony Paul J. Smurfit: Thank you very much, George. With regard to progression, as I said, that we expected either in the third or the fourth quarter, that we would start to be there or thereabouts with the previous year. Obviously, the third quarter has been very heavily impacted by this cyclo I have to remember the name of it, cyclospora. cyclospora and E. Coli situation. That affected our agricultural region very significantly, And, you know, I think from the good news point of view is and that 1 swallow does not make a summer, but for October, we are line ball with last year. And it looks like our order books are reasonably good for November at this stage.

So, I mean, again, as I say, 1 swallow does not make a summer, but I do think that we have you know, our progress each quarter has been a bit better. And as we see the volumes that we gave up last year, come out of our business and the comparisons becoming easier, we would say that we are going to be there or thereabouts in Q4 with unless something happens, with regard to the market that we do not expect. So I think the progression is as we expected.

What I am very encouraged about, honestly, George, is when I see the customer wins we are having, They are smaller in number in the sense sorry, smaller in size than when you lose 1 of the big ones, but it kind of takes a lot to replace the big 1. But they are our quality and service levels are being. Have improved very significantly Our attitude because of the owner operator model is very well liked by our customers and liked by our internal people. And our innovation offering, as we start to roll that out, is really a very big positive. So I see us getting going where we want to go to.

Maybe sometimes a little bit slow because the underlying market is not as strong as we would have liked. But overall, I think it is going exactly as we would have anticipated. With regards to your bridges, I will hand it over to Ken.

Ken Bowles: Morning, George. Morning, Reinhardt. Yes. Keep it simple, George. The net positive volume in North America is remember, we have a lot of third party sales, so the positive growth you see in there is around third-party paper sales.

George Staphos: Okay.

Anthony Paul J. Smurfit: And then on the pricing and the pressure you are seeing in converting? Yeah. On the on the converting, I mean, I would not say there is anything different that we are we are having to go to our customers and sort of recognize the fact that we have got other costs than just than just paper. And clearly, we have to recover those as we go through the year in either through negotiation or through making sure that we have a special tag on for certain customers. So there is nothing that. We are continuing to develop our margins in our corrugated business We have reduced our loss makers very considerably.

I think we are less than 30 loss makers. And some of them. it is a bit difficult when the paper price goes up. Obviously, there is a period of time where the corrugated operations slip backwards because they have to go into the market and get those paper prices up. To see where we are right now. But overall, I think that we are making very good commercial progress across the business and I am really happy with our commercial team and the customer wins they are winning. And getting pricing, going forward.

Ken Bowles: And, George, I think you can see that a little bit if you look at you know, the North American margin Q1, 2, and 3. See progression on the margin build there. And equally, while we are dealing with the normal time lag, you can see progression of pricing also, right? So sequentially, quarter 2 into quarter 3, North American pricing up about 5%. And in Europe, equally, pricing up about 2% quarter 2 to quarter 3. So the impact of the price increases from paper to box beginning to take hold, Tony said in his prepared remarks, you know, really setting that foundation for 2027.

So the actions we are doing are still on track, so no change to philosophy in that. All right.

Anthony Paul J. Smurfit: Tell everybody, you know, George, we would love it to be quicker, but, you know, the reality is that, you know, we are being whacked by these mass cost increases in energy that we are going to get back. And, you know, as you know, we announced a €100/ton increase The publication recognized €70 of that and, obviously, from our perspective, we would have expected to get €100, but we are waiting to see what happens going forward.

George Staphos: Understood. Enjoy the trip. See you soon.

Anthony Paul J. Smurfit: Thank you. Thanks, George.

Operator: Thank you. We will take the next question today. This is from Hilary Cacanando from Deutsche Bank Securities. Please go ahead.

Hillary Cacanando: Hillary, thank you for taking my questions. Just going back to the North American converting business. Last quarter, you mentioned that corrugated converting margins were roughly 3-4%. Could you update us on where that converting margins stand today?

Anthony Paul J. Smurfit: it is a little bit lower than that now, Hillary, because we take in the paper price into our converting business we transfer at the market price. So therefore, it will be a little bit less than the 2% number now because we have to then go to the market and get that increase into our box system. But the underlying trend of margin improvement within our corrugated business is quite significant. And you will see that as we go into Q1 and Q2 of next year, as we pass through this latest paper price increase.

Hillary Cacanando: Got it. Thanks, Tony. And then, as a follow-up, you know, with 2026 EBITDA now expected at roughly 4.7 billion. How should we think about that lower starting point relative to the medium term plan? Is the, you know, shortfall predominantly timing around price cost recovery such that the, you know, underlying 2030 earnings opportunity is largely unchanged? How should we think about that relative to the 2030 plan? Hillary, Hillary.

Ken Bowles: it is Ken here. Yeah. Essentially, it is timing. In reality, you know, the plan was set up to bring us from, you know, call it 2026 to 2030. Nothing within the plan from a structural perspective has changed. And if you recall when we talked to you in February, that plan was largely built on internal actions and a lot of internal opportunities that we had to get through like working through the unprofitable contract and getting positive volume growth in North America, for example. So pricing was not necessarily part of that proposition, if you like.

But, clearly, the backdrop and cost for 2026 is going to impact the timing but not the recovery or achievement of the target. But only the timing in terms of when we get there. But the 2023 target is still bang on in terms of timing. It will just be kind of a flex in between years whenever we get there.

Hillary Cacanando: Great. So no change to 2030 plan. Great. Thank you so much.

Anthony Paul J. Smurfit: Thank you, Hillary.

Operator: Thank you. We will now take the next question. This is from Philip Ng from Jefferies. Please go ahead. Philip Ng Jefferies. Your line is open. Please ask your question.

Anthony Paul J. Smurfit: We can come back to him, Sarah.

Operator: Sure. Let's move on to the next question. This is from Michael Roxland from Truist Securities. Please go ahead.

Michael Roxland: Yes. Thank you, Tony, Ken, Ciaran and team for taking my questions. First 1 I had, the industry has gotten about $170/ton of price this year. Of that amount, how much do you estimate is for cost recovery versus margin? For you guys in particular?

Anthony Paul J. Smurfit: I would say that the first $100 is really just basically recovering the cost. I mean, you know, obviously, the cost thing is a moving target as you have seen from our numbers because when we when we were here in through 3 months ago, we did not expect TTF gas to be at €97 or €98 as it is this morning. Nor did we expect diesel to be where it is or some of these other energy costs. So know, we would have thought that the first $100 would have had some margin improvement in it. But clearly, I would say the vast majority of that has been gone in these current high prices.

As we translate the other increases through the more recent increases. That would probably be all margin enhancement, I would say, broadly speaking.

Ken Bowles: Yeah. And I think Tony referenced it there. You know, the July increase is that the $100 a ton we put back end of July. I think up to that point, the increases to that date would have-- really dealt with the cost of a repeat and probably a bit of recovery of margin. That $100 would have overcome any remaining piece, but also purely margin. But. So as you said, then, clearly, the cost backdrop has continued to be elevated and unanticipated. So still, you know, a lot of cost with a bit of margin there, but probably again, pushing out the timing slightly in terms of 2027 versus where it might have been. But still on track.

Michael Roxland: Got it. I am very clear. And just 1. You know, when you think about 2027, given the lower stepping off point, can you provide us with an initial peak of what you are expecting in terms of either demand, you know, maybe some of the larger buckets or guideposts around going to drive EBITDA next year? Thanks.

Anthony Paul J. Smurfit: Mike, we have not done our budgets yet. So, you know, I just I do know that our guys are very comfortable and confident that our numbers will be you know, significantly better based upon the run rate that we are gonna come out of last year, but we have not actually got to do our budgets yet. We are doing those next week. But I would say that we still the early. The early view is that we are very comfortable and confident that year will be a very good year for us if everything stays relatively where it is today.

I mean, clearly, there is still a lot of uncertainty in the world And if we have some relief on cost, then that will be very positive to us. But equally, if we do not have relief on cost, you know, we will have to look again as to what actions we might take to mitigate those costs as we go into Q1, Q2 next year. Understood. Thank you.

Ken Bowles: Thanks, Mike.

Operator: Thank you. Next question today is from Mark Weintraub from Seaport Research. Partners. Please go ahead.

Mark Weintraub: Great. Thanks very much. Obviously, we are in a pretty extraordinary period from a cost standpoint. And so I was just hoping if we could maybe get a little more color. On some of the sensitivities and things like hedging as well as the timing on price recovery as you roll containerboard through into box in the different regions. So it was kind of a big picture stuff. We would not normally be asking this, but, again, we are in a really volatile market, and it is hard for us on the outside to get our arms around some of the timing in particular around these items.

Anthony Paul J. Smurfit: Yeah. We have said that we expect to get the full cost recovery of the latest increase you know, in Q1 of next year. And all of the paper the paper price increases as we as we deal with some of the later. Earlier taken orders, as we get rid of those out of our system, those will translate into much higher export prices You know, I mentioned in our in my script that, you know, we see very strong, paper bag business that is growing very strongly because of some structural shifts. So all of that will start to peek through into later in this quarter.

All the paper stuff will later in this quarter, but, really, you know, strongly into early next year. So, you know, as we go through Q1, Q2, we should start to see, you know, material increases in our in our numbers based upon these increases that will be passed from corrugated into. Sorry. From paper into corrugated and in and into export markets and into other grades of paper. And that would be a normal situation for us. You know, Europe has been a little bit more volatile in up and down. Pricing. And so this is completely normal for the European business to have this time lag period.

And obviously, when prices go down, that is also a benefit for the company holding on to margin. So we are not seeing anything different other than the fact that costs, as you say, Mark, it is it is a time when all of us are dealing with these escalating costs. And, you know, if they continue to escalate, we will have to do something about it because you know, clearly, they are they are affecting our numbers, and we need to recover. So Q1 will be you know, a continuing benefit from what we have seen in the announcement of the $70.

And then and then we will keep an eye on what we have to do based on costs Hey, Mark.

Ken Bowles: it is Ken here. I think not in an overcomplicating either sensitivities on energy or freight, I think when we think about energy and hedging, clearly, coming into the year and where prices were, we still have a decent bit of hedging in the tank. Clearly, at these levels, we. We have taken a different view across the year. We have stepped into the market every now and again when the price has come to a level where we think it is it makes sense to hedge, but not hedging at these kind of levels because, you know, in reality, that can go against you if the price drops.

So the energy committees in both North America and Europe and indeed Latin America have been smart about how they have incrementally added small hedges along the way. But we would not be at the levels where we would normally be, and that is clearly as a function of the market. And where we see cost. But, clearly, that is why the price increase we have announced on paper in both regions, you know, net $170 North America, net €140 in Europe.

Are designed to kind of take into account that situation too, but still a level of hedging, but not at the levels we would like, and their ranges would be quite wide in terms of the stock prices for that. So. And we look at the forward curve equally. You would not be stepping into this market given where the forward curves for energy are. I think on the freight side, probably the most meaningful sensitivity for you is around where diesel fits with us. So we estimate that call it, every $1 on diesel probably has a direct impact to the business of something like $80 million.

But then when you when you add in the downstream impact of that through the rest of the system, that is probably more like $120 to $130 million in total impact for the year. North American system. that is probably the most meaningful sensitivity for that region versus, say, energy for Europe.

Mark Weintraub: Super. that is super helpful. And, Ken, just could you give us a sense of the sensitivity to you know, nat gas in Europe, either how much your consuming, or, you know, similar to, like, the dollar translates into x million dollars? What would be?

Ken Bowles: it is a trickier proposition given the fact that we do a lot of our own internals through CHPs and our own take-off. it is a much trickier. What I will do is, Mark, I think we will deal with that 1 separately because it is a it is a much deeper modeling question given you cannot take the total energy piece and kind of model it out. It has a lot of kind of moving parts around internal energy, where we use renewables, how we step into renewables, the CHP and the corrugated systems, it is quite it is quite a different more detailed answer if that is okay.

Anthony Paul J. Smurfit: I think, Mark, it is very interesting. Like, you know, at the current levels, you know, just put into an American context, the TTF is about $30/BTU for docs. Natural gas in Europe and you know, in North America, it is call it $3. So it is a 10-to-1 ratio for the European industry. And, you know, like, the reason why we are getting paper price increases in Europe is not because of the capacity situation. there is a lot of people that actually cannot afford to run the mills. And you know, that is why the prices are absolutely necessary.

And if this continues, there will obviously be to be other actions either by closures or other pricing actions because there is just no way that at these cost levels that the. Our European industry in paper, but also many European industries, will be able to continue to operate in any way profitably. So obviously, from our perspective, we have our kraftliner mills, which do not use as much gas and generate themselves. So that is. it is making them you know, very profitable.

And as we get these box paper price increases, we have to pass them on through the box system, which we are-- which we are doing Which we will be doing and are doing you already see the prices moving up in Europe step by step, and we will start to see big benefit of that in Q1 as we go into as we pass through the contractual price increases that we have. Appreciate the color.

Analyst: Thank you.

Ken Bowles: Thanks, Mark.

Operator: Thank you. Next question comes from Anthony Pettinari from Citigroup. Please go ahead.

Anthony Pettinari: Good morning.

Ken Bowles: Hey, Anthony.

Anthony Pettinari: Tony, hey. In North America, I think you indicated you are sold out in most consumer grades. And I am wondering if you could give any more detail on where the consumer business is in terms of cost recovery or just sort of overall performance expectations? And I guess we have gotten these high in containerboard, but in consumer, we have not necessarily seen the same kind of pricing traction. So just wondering if you can comment on that.

Anthony Paul J. Smurfit: Yes. On consumer, I would say that it is steady as she goes on the CUK market. there is that is carrier board market. there is not there is not. There has not been any real decreases nor has there been any real increase there. We tried-- we had a look at that way back when and then did not seem like the right time. SBS, you remember, went down about $100. We are in the market with increases currently. And we are sold out in that grade. So therefore, we believe that there. It merits some increases to get more of them back what we lost in the last quarter of last year.

As we move into next year, as we move into 2027. So that is a very strong grade for us. We have a very differentiated offering. We are not in-- we are a little bit in the commodity side of that business, but we tend not to try and be in all the commodity side of that business in plate stock and cup stock. And we have got some specific areas which we have grown And as we have talked about before, we have made some switches away from CRB to SBS and indeed to CUK. With customers and giving them benefit for that. So I think you know, I feel good about the SBS market right now.

I would say the way that we are positioned at least, And then the CRV market, we do not have our mills are not the strongest in that area, and we continue to be an alternative supplier for customers and our own internal usage. And that is an area which we do not necessarily see I talk about most grades, that is the 1 area that we do not really see any pricing momentum. You will know the reasons why that is, Anthony.

Ken Bowles: I think Henry got the. Yeah. Hey. Ken here. I think to follow-up about 2 at the converting end in terms of consumer, we have seen reasonable progress in terms of volumes Q3 over last year. I mean, you know, for food and beverage, broadly flat, but most pleasingly, probably in our HBA segment. You know, broadly volumes up about 2% year-over-year. So it aligns with that kind of a sold-out position on most of the consumer grade forward wise, but also seeing progress in terms of volumes on the converting side is equally pleasing. Okay.

Anthony Pettinari: Okay. That. that is very helpful. And then just quick follow-up on Europe and kind of your response to Mark's question. Given the spike in energy and freight, and I would imagine some volume pressure for the industry, I am just are you seeing changes in industry supply demand in terms of supply coming off? Has that I guess, has it surprised you that you have not seen more supply come off just wondering if you can give any kind of general commentary on supply demand situation in Europe and what is obviously kind of a stress environment?

Anthony Paul J. Smurfit: I think it is inevitable that it will happen. I think we have seen a lot of people taking a lot of downtime because, obviously, if you are if going into the market and selling at the old prices, you are just that you are losing a lot of money on every ton. And as this price continues to rise for energy, then you are gonna see continued stress either through downtime You know, as you know, Anthony, in Europe, governments do not like to see paper mills shut down, so they try and keep them open as long as possible. And they give all sorts of subsidies and help.

And you will have seen some of our competitors announce their results, and they are making zero EBITDA on brand new asset So the question is how long they can continue to do that for. And you know, I do not have an answer to that because you know, there is-- there is often government support that keeps them going. But inevitably, if the economics will trump out, then there will be some closures. At these levels.

Anthony Pettinari: Okay. That. that is very helpful. I will turn it over.

Ken Bowles: Thanks, Anthony.

Operator: Thank you. Next question is from Andrew Jones from UBS. Please go ahead.

Andrew Jones: Hillary, gents. Thanks. Thanks for the color. I just wanted to ask about the situation in Europe. We have had large price hikes, obviously, driven by that cost pressure that you have mentioned. But I am curious what your thoughts are on as we go into the next year, some of this new capacity is coming online in Italy and obviously, that shop in Berlin. the U.K. I mean, are you seeing pricing sort of holding if the current cost environment lasts, or do you think that we will start to see some pressure as we go into 2027?

Anthony Paul J. Smurfit: I think. Morning, Andrew. it is Tony here.

Ken Bowles: I think the reality is that you know, of all the new capacity coming on, they are all people who have in the game already, if you like, in terms of a system in play. So, you know, you got to think about this in kind of a pure capital allocation perspective or at least I would in the sense that it would not make any sense logically you know, to be kind of trying to capture volume for a new mill on lowering price given the amount of capital that it takes either to convert these mills or the start of a new 1.

So for, like, the shot somebody mentioned there or even the palm mill, equally in The UK in the early part of next year, you have to assume the kind similar logic or pattern that we have seen in the last number of years. is around, you know, Tony just referenced downtime, you know, prioritizing maybe downtime in the middle system over reducing price in order to kinda make sure that the returns stay reasonable because irrespective of how you might wanna fill a mill, the fibrin of the mill, the energy cost of those mills, and that he is trying to find a market in a kind of a, you know, okay kind of demand environment.

Will all impact the overall return. And, ultimately, it comes down to the ability to generate cash flow you know, to be successful. So I think we have seen in Europe 2 things happen over the last number of years. 1, you know, it may have predominantly to take additional downtime in order to manage that kind of market better than it might have done before. Equally, the lack of independent players means that idea of a rogue mill trying to capture mill. Capture new volume on price is not really there anymore. It is a lot of systems who have a bigger game to play in the context of how they manage overall market share.

Anthony Paul J. Smurfit: Yeah. I think I need to just made a good point. I think these 2 very large independents have gone out of the markets, 1 to DS Smith and 1 to Mondi in Germany, Schumacher, and Tim Group And so the independent market per se is shrinking. So therefore, independent mills that are coming into the market like what the 2 that Ken has mentioned, less and less markets go for other than they go for export, and that is not that is not that is the road to perdition, really.

So I think you will find that you know, that for them to be chopping pricing will be, as I say, at the you know, it will be it will be a disaster for them. And you will see you will see that already with 1 of the larger competitors. In the free market competitors who makes nothing in their in their in their containerboard system, and that is before the recent price rises. So I think I think I worry less about that than how the energy price affects the demand outlook for our end customers. And that is something that we do not obviously have a crystal ball on.

But, you know, so far, at least because of our offering in Europe, you know, we have we have grown this year We continue to see in October you know, reasonably good growth in October. So I. I am very comfortable with our own system. But the overall environment, how Europe energy affects Europe is something that we have to think about at least.

Andrew Jones: Yeah. Okay. that is that is that is very clear. Thanks a lot.

Ken Bowles: Thanks, Andy.

Operator: Thank you. And the next question comes from Detlef Winckelmann from JPMorgan. Please go ahead.

Detlef Winckelmann: Good morning, everyone. Maybe my first question, you did call out, think you said something to the effect that look, price increases always lagged. Cost inflation has come first, that is fine. But over the next on an annualized basis, price cost fairly positive or price will more than offset cost inflation. Just curious, I mean, is that only on the North American side? Or should we be thinking the same thing in Europe as well just after considering your kind of kraftliner kind of mix in there and the energy efficiency that side on that as well, please? Then I have got a follow-up, please.

Ken Bowles: Hey, Detlef. This is Ken. Good morning. No. You should assume that for all regions. The mechanism, if you like, in terms of paper price increase into the index or indeed the freedom associated is probably slightly quicker in North America than Europe by a couple of months, but ultimately, it is exactly the same pattern. And indeed, in Latin America, you would argue maybe even quicker again given it is a region that generally deals with inflation quite well. So, no, the pattern in terms of normal time lags that we talk about very similar for North America and Europe.

And given the level of index versus nonindexed is probably slightly higher in North America, you tend to get quicker. But overall, you end up in the same place.

Detlef Winckelmann: Okay. Cool. And then 1 more follow-up just on Europe. You know, we have been hearing in the last couple company releases that there is a bit of discounting downstream at the box plant level. It does seem to be isolated to certain regions. But just curious, are you seeing anything of that sort that could hurt you down the line? How do you pass on the price increase of box prices?

Anthony Paul J. Smurfit: I mean, there is some 1 player that is to get a little bit of volume. And so that has created some noise in the market. But overall, I would say I would not say it is that much different to any other pricing environment where people are struggling and try and get some volume.

So I would not say it is a particular massively different situation to what it normally is, but you know, there are there are some players that try and use these times to get some volume in the downstream market, and, you know, you have to you have to because of your quality and service, I mean, when you look at the quality and service and that we bring to our customers and the complexity we deal for them look after for them that, you know, we expect to get paid for that and clearly, our whole innovation offering, it is making a difference. And so I would not worry too much about that per se.

Detlef Winckelmann: That. Let's Cool. Thank you. Thank you.

Operator: Thank you. Next question is from Lewis Roxburgh from Goodbody. Please go ahead.

Analyst: My question is on holding on to pricing. So cost and energy inflation clearly been challenging, but it will turn at some point. So I guess what degree do you believe that you will have to give pricing back? Is Europe in particular more vulnerable? Does that given the oversupply in containerboard and energy security and comparably, is the U.S. and LATAM in a better place. Given, you know, the industry consolidation, tight supply, etcetera.

Anthony Paul J. Smurfit: Yes. I think that is a fair characterization, Lewis. I mean, if all of a sudden energy was to fall back, I think that it would put more pressure on the European containerboard price. But I think that is you know, I do not I do not think that will be the case per se in Latin America or The United States or the North American market. I think you know, the structural change that is happened in North America has been very significant. And as I say, we have been in a sold out position for the last number of months, and we have still orders to fulfill from April and May.

And so you know, I am I am not. I have no idea about the others, but I assume they are in the same sort of situation. And you know, we have a window into Latin America, and while Latin American customers tend to have larger supplies, You know, prices are going up in Latin America. And that is gonna feed into a better situation next year and beyond. Irrespective. So unless something really bad happens in the world, I think that is that is you know, your statement is correct.

Analyst: Yeah. that is clear. Thanks.

Operator: Thank you. Thank you. Next question, we are going to retry the line for Philip Ng from Jefferies. Please go ahead. Your line is open.

Philip Ng: Hey, guys. Sorry about that. I had some technical issues, this morning. Tony, if you addressed this already, I apologize in advance. I think, Ken, you were talking about, you know, earlier the question that in Europe, feel pretty good that your box prices would catch up to containerboard pricing. You would offset inflation. I guess the 1 variable that would be helpful to kind of give us some color is nat gas hedges just because, you had some hedges.

So based on what you have in place and your traction you are seeing, how do you feel about that dynamic, and how should we think about that hitting your P&L and your ability to be a positive spread next year?

Ken Bowles: Hey, Philip. But the price increases we announced, that net $1.40 on Testliner would have ultimately Taken Into Account. a lot of what we have done On Hedging. and in effect, generally, the Hedging Would Be A Net Incremental Positive to anything you do on That Paper Price. there is No Incremental P&L hit In That Sense. They are not-- they are not future-led. Ultimately, You are Just Contracting Gas, that kind of standard-set prices Rather Than Spot In That Sense. So Everything We have Done And Built Around Price Increases Around, You Know, Testliner, Particularly In Europe, takes into account where we sit in the hedging curve. Generally, a conservative view on where that might go.

But always the idea that hedging plus the price increase should land you in a slightly better overall at the end of the game. So in reality, not that the hedging does not necessarily matter in that sense. Always acts as a better moderator or better basis in terms of how you get through in terms of full margin recovery. But the price increases do take account of all the hedging we have not had in place in the before these 2.

Anthony Paul J. Smurfit: I did add some color to that, though. We would not hedge at these levels because, you know, if the energy price falls backwards in a hurry and you are-- you are stuck at a 100, you are gonna be really seriously uncompetitive. For a period of time. So we just think that it would be, and we do not believe that anyone in the industry or to any great extent is hedging at these levels because know, they are so remarkable that nobody would have actually ever anticipated that gas could get to this level. And now, you know, people would be very afraid like us that if you hedge at these levels, you could get your.

You could get caught with your pants down. So we are not gonna be in that situation. And, we will ride it. And as I say, if it stays at these levels, either there will be a lot of downtime or there will be further increases or there will be there will be, closures. And because it just cannot you know, your 10-to-1 ratio versus The United States and gas, which is just unsustainable for European industry.

Ken Bowles: Because you know, it is it is not back, but still really what you are thinking about in the context where hedging sits in an integrated system like Europe, which is probably a 100% integrated. it is about cost certainty at the mill side. That you do not just tell me to get trapped on 1 side or the other, that hedging curve. And if you go back to kind of, you know, very high prices venture back at 2021, 2022, equally, we stepped into the hedging market while that happens. And then brought back in when we needed. So it is it is about through an integrated model, really does cost certainty to start and recover at the end.

So hedging tends to be a bit in the middle. it is been a it is been a wonderful trend in the past, but. And it will be the future. At the moment, though, Tony said, it is not a place to go.

Philip Ng: Okay. Helpful color. And I guess bigger picture, Tony, you have owned the WestRock asset for some time now. In terms of your journey, in terms of, you know, some of the goalposts that you would wanna call out, things that you would still wanna work on as we think about 2027 and beyond. What are some of things you wanna highlight? You know, it might be your customer mix, in terms of you know, the mix of, regional versus national. But anything to just call out just because, obviously, the profitability has been masked A bit by the inflation.

So just kinda give us some goalposts where you are and what are some of the next things we should look forward to as we look out to 2027 and beyond.

Anthony Paul J. Smurfit: Yeah. I think, Philip, that is a that is a really great question. I mean, I am sitting in the Tres Barras mill down in Brazil. So just to take our. Just take it by region. Take our Latin American region. You know? This is 1 of the most. 1 of the world's great assets. And with great management team and continuing to grow and have great ideas for the future. So if I look around our Latin American business, really strong, great The WestRock combination between the 2. I will give you a very good example because I was here yesterday.

You know, they used to have a huge side reel issue in this mill that they would sell at heavily discounted prices. Because of the combination, we now no longer have a side reel issue in this mill, so we are able to run full out and get full contribution for all of the paper that we make. And it is made this mill much more profitable. And that is just 1 small example. In our European business, the combination there was no corrugated assets, but the consumer business has improved radically in Europe and is really set for a very strong growth together with our corrugated business.

As we as we move to the owner operator model And you know, has been a really successful combination. And then when you look to the North American market, what I would say the most the most pleasing thing for me has been how the management team have really adopted what we talk about as being the owner operator model. They are very enthusiastic. We are seeing wins in the corrugated area. Our consumer business we need to. Our end market consumer margins are not where we want them to be, but we will get there because the teams. The plants are in very good shape. The teams are very, very well organized.

And so we will progressively move that margin up. Without anything to do with the underlying paper pricing as we as we refocus that business in the future. If you take our mill system, what I would say is we have some really great mills. And we have some mills that continue to need work and that is the. Once we fix those mills that need to have that need work, then the mill system will be, you know, as good as any that we have anywhere else in the world. So our mill system you know, is progressing We have got a whole new management team there that it is really moving things forward in a positive way.

We have we have recruited some great people into the business. So our you know, our people aspect of North America is really progressed very strongly. And so if you say, why am I excited? Because I can see the potential of this business. But of course, I am really frustrated by the fact that you know, we are we are making all this progress, and it is not easy for anyone to see. Because you get $700 of unexpected cost, $700 million of unexpected cost, you sort of go-- you are scratching your head a little bit to say, okay. We need to recover that.

And we do, but it is pushing the it is pushing the game forward, which is know, never where we wanna be. We wanna be we wanna be winning from the front rather than trying to trying to catch up. But we are where we are because we do not have control out of things outside of our control. But you know, I am very, very excited about the future of this company and the combination of this company. Because, you know, is going to be very powerful in the years ahead.

Philip Ng: Okay. Appreciate the color. Thank you so much. Thank you very much, Philip.

Operator: Thank you. And the final question today comes from Pallav Mittal from Barclays. Please go ahead.

Analyst: Hillary. Thanks for taking my questions. A couple of them. Firstly, clearly, energy and freight costs are much higher than what we were expecting 3 months ago. And you have said hedging levels are low for very obvious reasons. If we assume a spot rate and things say this way, how much of an increase are energy and freight costs to be in 2027 versus 2026?

Ken Bowles: Oh, I will have. Have not got there yet. it is sort of back to we have not gotten near a budget yet. I think we have kind of see that in the round around where we think those forward curves are. But I would not given my forecasting and energy and freight for this year has been kind of changeable as we got through the year. I am not sure I would sit here yet and forecast energy and freight for next year. I think our opening at some would be at some point that cost backdrop has to abate slightly. But for the moment, I could not give you a view on freight or energy for 2027.

Analyst: Sure. And then if I could just check on CapEx, it seems that you have lowered your guidance by $150 million, so for 2026. Can you just help us understand what has changed there and does it mean that 2027 CapEx goes up slightly?

Anthony Paul J. Smurfit: No. Not really. We decided to just slow back a little bit. Because you know, the. When we took our number down for last quarter, we said we will we will just get the money back in our CapEx. But our plans are still the same. It will probably mean that 20, 31, we will have €150 million more or 2032, but I would not-- we have not stopped anything that we need to do it is just that we have delayed a couple of projects by a number of months. Not. there is nothing there is nothing of interest there. Sure. Then if I can just squeeze 1 on Europe, a quick 1.

You said the growth has been good in October. Can you just help us understand how your order books are looking for the near future? With the very near future, you know, we are actually okay. I mean, as I said, in North America, this month, you know, as in October, we will be lineball with last year. I do not want to predict that is gonna be the same in November and December, but November feels okay. But we have a large election happening in November, so we will have to see how that plays out to demand. In North America.

I think that Europe you know, we expect to have a we are we are a couple of percent up on a same day basis during the month of October. So you know, we hope that trend continues for the rest of the quarter. But we do not expect anything for it not to. And Latin America, you know, we have seen weakness in Brazil, actually. During the last couple of months. As the uncertainty of the election down here fed into the marketplace and you know, it has not hurt our profitability. But the demand levels were not where we would have expected in the last 3 months in Brazil.

But still, as I say, it has not affected our profitability we are still very well positioned in the country.

Analyst: Amazing. Thank you. Thanks, Mittal. Thanks, Mittal.

Operator: Thank you. And there are no further questions.

Anthony Paul J. Smurfit: I will now hand back to Tony Smurfit for any closing comments. Yes. Thank you, operator. As I mentioned on the call, I remain incredibly excited about the future of this company. We have done a lot during the last couple of years. Know, and obviously, we are not happy with the fact that we have absorbed so much cost so quickly. During the last 3 months and into the next 2 months. So, obviously, that has affected our results. But you know, we are in the process of recovering those costs. And we look forward to 2027 with great confidence and we appreciate your support, and we appreciate the time you have given us today.

So thank you all for being with us, and we look forward to, catching up with you either in person or on the next conference call. And if we do not, speak to you before then, we wish you a very happy Christmas, and New Year. I know it sounds a little bit early to be saying that, but, nonetheless, good luck in case I do not speak to you. Thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please standby.

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