Smurfit Westrock - Earnings Call - Q1 2025 TU

Executive Summary

• Solid quarter with Net Sales $7.656B, Net Income $382M, Adjusted EBITDA $1.252B and 16.4% margin; diluted EPS $0.73. Guidance reiterated for Q2 EBITDA ≈$1.2B and FY 2025 $5.0–$5.2B, with ~$100M incremental economic downtime in Q2 versus Q1.
• Consensus snapshot: Primary EPS beat; revenue slightly below; EBITDA in-line/slightly above and met company guidance (see Estimates Context).
• Integration advancing with ~$80M synergies recognized in Q1 and closures of >500k tons of capacity to sharpen the footprint; management emphasized “value over volume” and owner-operator model.
• Near-term stock catalysts: capacity rationalization economics ($50–$60M annual EBITDA benefit; ~$100M capex avoidance over 5 years), progress on synergy capture, European pricing pass-through vs energy/OCC cost trajectory, and tariff uncertainty backdrop.

What Went Well and What Went Wrong

• What Went Well

  • North America margins improved to 16.8% on sharper commercial and operating focus; consumer packaging shipments +1% Y/Y with food and bev strength.
  • LATAM delivered 22.5% Adjusted EBITDA margin, with pricing actions offsetting FX and lower volumes; continued investment and expansion pipeline.
  • Synergy program on track: ~$80M captured in Q1; full-year recognition ~ $350M, exiting at $400M run-rate; quick-win projects expected to add >$40M EBITDA in NA within 2 years.
  • “I am pleased to report a strong first quarter performance… Adjusted EBITDA of $1,252 million… driven by good results across all three segments” – Tony Smurfit.

• What Went Wrong

  • Q2 incremental economic downtime now ~$100M vs prior ~$10–$15M expectation from year-end, reflecting system balancing ahead of closures.
  • EMEA margins compressed (15.1% vs 17.6% PY) on higher energy/recovered fiber/labor costs; Europe paper market facing new capacity start-ups and elevated energy costs.
  • Adjusted Free Cash Flow negative $(144)M on heavy capex ($477M) and integration/restructuring costs; cash from ops $235M.
  • Revenue modestly below consensus; near-term demand outlook remains uncertain with choppiness in March/early April and tariff-related risks.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Smurfit Westrock 2025 Q1 results webcast and conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. 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 (Head of Investor Relations)

Thank you, Sharon. As a reminder, statements in today's earnings 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 provide any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's earnings release and in the appendix to the presentation, which are available at investors.smurfitwestrock.com.

Before handing over to Tony, I would ask that you limit your questions to two, and should you require any clarifications on what we are discussing today, myself and Frank will make ourselves available after the call. I will now hand you over to Tony Smurfit, CEO of Smurfit Westrock.

Tony Smurfit (President and CEO)

Thanks, Ciaran, and good morning, good afternoon, everybody. I'm joined here today by Ken Bowles, our CFO, and I'm delighted to again report a strong first-quarter performance across all of our regions, in line with our stated guidance. I'm particularly happy at the structural improvement we have shown in our North American region, which, you will all recall, is in the early days of our integration together. Our EMEA and APAC region's performance was good, given the environment was somewhat challenging, while our Latin American region performed very well, driven by our value approach. I'm delighted to say that our synergy program also remains strongly on track and is expected to deliver the $400 million of promised synergies within the tight time frame we have set.

Moreover, having put the two businesses together, we now see very significant operational improvements that will garner at least the same again in additional benefits. This is something the team is working on day in and day out to ensure that Smurfit Westrock continues with the objective of becoming the highest-performing company in our sector. As you're all aware, we and the management team are all stakeholders in the company, and through the lens of being owner-operators and treating capital as our own, we continue to review our asset base at all times, both through investment and return on capital, optimizing our system to ensure that our assets are and will be, in the future, best in class. We are relentless in our pursuit of excellence and will continue to adjust and develop our asset base as we go forward.

We have proven over the years that we are effective stewards of capital, having successfully navigated many different challenges over the decades. The key to the development of Smurfit Westrock will be ensuring that we have a well-invested asset base that can be developed for the benefit of our customers to ensure the best quality, the best service, the best innovation, and the highest standards to give our customers and our business leaders the chance to win in their marketplaces. As such, we'll continue to invest in our asset base to ensure these objectives are met. Across our regions, we're reducing our cost base in our paper mill systems, investing to improve reliability and output, and ensuring we have the best converting machines available to meet the needs of our modern customers.

We have recently authorized an initial investment of around 25 converting machines across our system to begin implementation in 2026, which will also help to lower our operating costs so that our shareholders can be rewarded for these investments. We remain excited about the number of opportunities we see to continually optimize our system for growth, but also for cost takeout. In line with all of that, as and when appropriate, we continue to look at rationalization opportunities within our system. While these are very difficult decisions to make, it is entirely in line with our philosophy of ensuring that our stronger assets get stronger, while at the same time increasing operating efficiency. In the last 48 hours, we've announced the closure of over 500,000 tons in paper capacity in the US, which, coupled with the recent actions in Mexico and the Netherlands, totals nearly 600,000 tons.

These actions will make the company stronger as we invest to ensure better longer-term returns across our business units. I remain very excited about the combination we created some 10 months ago. We have an unrivaled geographic scale, operating in 40 countries and many different product areas where we have strong leadership positions. What has been heartening in such a short period of time is to see the improvement in our North American business, where our commercial approach and the focus on plant-level autonomy has been embraced and is contributing to improved margins. At the same time, in North America, we have streamlined our operations and have significantly reduced SG&A costs by a reduction of over 1,800 people, and this being prior to the recent announcements. In our European market, which is currently on an improving trend, we continue to have industry-leading returns with our innovative and sustainable packaging offering.

With a very well-invested asset base and highly motivated people, we have many exciting growth projects in certain regions and certain business areas, while at the same time continuing to tackle our cost base. With regard to our LATAM business, you will see that we continue to execute as a result of our leadership positions and our market-facing approach. We continue in Smurfit Westrock to see obvious cost takeout opportunities. I have authorized us to implement close to 140 quick-win projects, as we call them, that will deliver around $50 million of extra EBITDA in the North American region and over 60 projects in the European and APAC region, which will deliver $20 million in 2026 and beyond. These projects give guaranteed cost takeouts with IRRs ranging from 25% to 150%.

In Latin America, we remain focused on expansion, where we see an opportunity, especially in our Brazilian market, to grow rapidly with new facilities in different parts of the country. I'll now hand you over to Ken, who will take you through our financials.

Ken Bowles (CFO)

Thank you, Tony. Good morning and good afternoon, everyone, and thank you again for taking the time to join us. As you can see from the highlights here in slide nine, the business delivered a strong first-quarter performance with net sales of over $7.6 billion, adjusted EBITDA in line with our guidance of $1.252 billion, and an adjusted EBITDA margin of 16.4%. This is a significant improvement compared to the combined performance of the business for the same period last year, showing double-digit growth in adjusted EBITDA for the group and an improvement in our adjusted EBITDA margin. The performance reflects not only our relentless focus on cost, quality, and efficiency, but the incremental benefits of our synergy program and some early-stage benefits of our operational changes, including our operating model, and all underpinned by our strategy of value over volume.

As Tony has outlined, we are well on our way now as a combined business, and while the geopolitical outlook is uncertain at this moment in time, we are confident in the future success of Smurfit Westrock thanks to the unrivaled geographic footprint and product portfolio, our experienced management team, and the dedication and commitment of our people to our customers. Packaging, at the end of the day, is a local business, and with the vast majority of our business operating in the FMCG sector, we are, and have proved to be in the past, a highly resilient business. Turning now to the reported performance of our three segments in the quarter, and starting with North America, where our operations delivered net sales of $4.7 billion, with adjusted EBITDA of $785 million, and an adjusted EBITDA margin of 16.8%, an excellent outcome.

Compared to the combined results in the first quarter of last year, we saw a significant margin improvement due to higher selling prices, which more than offset cost headwinds on energy and labor and higher mill downtime, coupled with lower corrugated volumes year on year. Corrugated box pricing was higher compared to the prior year, while box volumes were down 4.7% on a same-day basis and 4.3% on an absolute basis. Our third-party paper sales saw a low single-digit decline in the quarter, while consumer packaging shipments were 1% higher when compared to the prior year, as growth in food and beverage products more than offset a decline in our smaller home, beauty, and healthcare product lines. We have taken significant actions to streamline the central functions of the segment and to continue to optimize and invest in the asset base.

Ultimately, we are changing the business model to drive profit responsibility at the mill and the box plant, while retaining strong central capital controls, where we see significant opportunity to drive profitable growth and higher cash generation through the cycle. Looking now at our EMEA and APAC segment, where we delivered net sales of $2.6 billion, with adjusted EBITDA of $389 million, and an adjusted EBITDA margin of 15.1%. Exiting what was a challenging year for the industry in this region, our operations continue to demonstrate resilience as sales remain stable, and our adjusted EBITDA outcome was only moderately lower compared to the prior year on a combined basis, leaving an EBITDA margin of over 15%, a testament to the skill and dedication of teams locally in continuing to deliver for our customers and manage a volatile cost environment.

Higher corrugated box prices year on year were more than offset by headwinds, predominantly on energy, recovered fiber, and labor. Corrugated box volumes were broadly flat on an absolute basis, but 1.5% higher on a same-day basis. To consolidate our leadership position in this region, we've continued to make significant investments through new converting machines, upgrades to corrugators and safety systems, and substantial investments in our bag and box business, all ensuring we meet the evolving needs of our customers with market-leading quality, innovation, and service. Our LATAM segment again remained very strong in the first quarter, as you can see here, with net sales of $500,000,000, adjusted EBITDA of $115,000,000, and an adjusted EBITDA margin of over 22%. Again, when looking at the comparative performance year on year, adjusted EBITDA and adjusted EBITDA margin were significantly higher in the first quarter of 2025.

Corrugated box volumes were 6.3% lower on a same-day basis, with Argentina remaining an outsized drag on the region's demand picture, along with our value over volume strategy playing out as expected in Brazil, as we continue to roll through a sizable portion of uneconomical legacy contracts. Nonetheless, by leveraging our strong track record in quality and service, we successfully implemented pricing initiatives that more than offset a negative currency translation impact and lower box volumes to deliver this strong result. Latin America is a region we are proud to have operated in since the 1950s and benefits from growing economies and a diverse customer base. By leveraging our deep understanding of each local market, Smurfit Westrock is well positioned to continue to drive long-term success in this region.

Turning now to slide 11, and I'm pleased to confirm that our synergy program is progressing well as planned, and we are on track to deliver $400 million of full runway synergies exiting 2025. We expect to realize approximately $350 million in adjusted EBITDA this financial year, with $80 million being recognized in our first quarter reported earnings of $1.252 billion. Moreover, we see at least $400 million of additional opportunities following from a sharper operating and commercial focus. The drivers of this medium-term target are multifaceted and involve a long-standing value over volume philosophy, the rationalization of high-cost capacity, and consolidation of production to more efficient plants, and through the rollout of our operational best practice and our suite of unique innovation tools.

Finally, as we noted in the release, consistent with our disciplined approach in running a balanced system, and before we see the impact of the announced capacity closures, we expect to incur additional downtime in the second quarter, costing approximately $100 million over the first quarter. While the demand outlook is uncertain, we expect second-quarter adjusted EBITDA to be approximately $1.2 billion, and our current estimate for full-year adjusted EBITDA is between $5 billion and $5.2 billion. With that, I'll pass you back to Tony for some closing remarks.

Tony Smurfit (President and CEO)

Yes, thanks, Ken. While we're just a little over nine months into our transformation journey, we have delivered and will continue to deliver meaningful progress. I'm very happy how Smurfit Kappa and WestRock have come together to create Smurfit Westrock, with operational and cultural integration progressing very well. As Ken has said, our synergy program and operational and commercial focus are delivering a meaningful improvement in our business. We continue to see significant opportunities to develop the business across all our regions and product lines. Equally, as we've demonstrated by our recent actions on capacity rationalizations and cost takeout, there are continual opportunities to reduce our operating costs, underpinned by our disciplined approach to capital allocation.

While we are still at the early stages of our journey at Smurfit Westrock, with the innovation, the quality, and service that we can give to our customers, we are confident that we will deliver for all stakeholders. While there is no doubt that we are in uncertain times, we believe the actions we are taking today and will continue to take will translate to superior operating and financial performance in the months and years ahead. With that, operator, we will go over to questions, and thank you all for listening.

Operator (participant)

Thank you. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We will now go to your first question. Your first question comes from the line of Charlie Mercant from BNP Paribas. Please go ahead.

Good morning and afternoon. Thank you for taking my questions. I'll stick to two as requested. Firstly, just on your 2025 guidance, I just wondered if you could elaborate a little bit around what are the assumptions that go into that. Are you, for example, assuming the similar kind of box volumes in the North American business for the remainder of the year that you saw in Q1, or maybe a bit lower given the run rate seems to be sort of deteriorating, at least at the moment? Are you, for example, in Europe assuming that a second board price hike, which many have mooted but has not yet been recognized, is successful? Have you factored in OCC? Yeah, just digging into some of the assumptions there.

The second question is just your comment about the plan for 25 new machines next year, I think it was. Early days, I appreciate, but does that mean that CapEx in 2026 could be much higher than 2025 or within the kind of envelope that you have previously been indicating? Thanks.

Tony Smurfit (President and CEO)

Let me take a bit of it, and I'll ask Ken to jump in when I miss something. On the second part, CAPEX, we haven't really even thought through yet what our CAPEX number is going to be in 2026. We're obviously front-running a lot of the programs that we have in place for our STRAT plan to ensure that we get the benefit of these growth opportunities, primarily growth opportunities and cost reduction opportunities, some of them are, to be able to implement during 2026 and get the benefit of as early as possible. Obviously, our CAPEX plans are going to depend on what the environment is and what we see the future environment is. We feel very comfortable with the assets that we bought. We feel very comfortable with the positioning of the company.

The question is what growth is going to be there and what opportunities do we have for cost takeout is going to really reflect on how much we spend. It is very early days, Charlie, but I think we are just getting a jump on a relatively small amount of capital for 2026. The good news is for anyone who is listening is that we do not have a huge pipeline of big projects going forward into 2026 or 2027, so we can adjust pretty easily the organization as to how the environment is. That has always been a key tenet of this company, to make sure that we have the agility to be agile, and that is what we will continue to be.

Obviously, as I mentioned in my notes, we are all owner-operators, and we want to make sure that whatever we do is in the best interest of the shareholders for the short, medium, and long term. That will decide what we spend in 2026 and beyond, but no decisions yet. We are not, to use the euphemism, at all ahead of our skis here. With regard to the box volumes, what we are saying is we do not anticipate very significant box volume improvement. In fact, probably because of our value strategy, we will probably continue to improve our earnings, but probably lose some volumes. At the same time, we are seeing very, very significant adoption by our people about the way that we are managing the business.

I think that's going to be extremely beneficial for the company as we move forward, both in regard to profitability, because at the end of the day, that's what I believe it's about, profitability, but equally about winning business through the innovation approach that we've had in Europe. You can see our margins in Europe have very significantly outperformed our peers, and we expect the same to happen going forward. It'll take some time. Rome isn't built in a day, and making sure that everybody understands the innovations that we have, the applications that we have. We've just hired a brand new innovation officer for the United States. He's with us two years. He's learning the ropes. He's an excellent guy, apparently. We're going to bring that forward. Finally, to your last point about the hike, there are so many moving parts at the moment.

Waste paper has gone up a lot, or recovered fiber has gone up a lot, but energy has come down a bit. We just have to wait and see over the next week or so to see what's going to happen with the second increase. The first increase is solidly in both North America and in Europe, and I think that's going to benefit us going forward into the rest of the year, especially if volumes come back.

Ken Bowles (CFO)

Yeah, I think the only probably two small things out there, Charlie. I think on the CAPEX question, I sort of go back to the comment Tony made in his script, which was around disciplined capital allocation and the respective of how we see the outlook. Our capital allocation always kind of fits into that. We phase in time as we see fit, depending on the environment that's ahead of us. Equally, as Tony said, we're not carrying a lot of CAPEX into 2026, so lots of flexibility and agility. On the other side of kind of guidance, a lot of the assumptions haven't really changed from where we were. If you think about where we are now, I think the big impacting factor there is the $100 million of incremental downtime Q1 to Q2.

I think if we went back to the year-end, we probably saw that Q1 to Q2 incremental cost year on year was probably in the order of $10 million-$15 million. That is really the big impact between where we see Q2 now versus where we might have seen it back in February and indeed the full year versus where we see it now.

Great. Thanks.

Tony Smurfit (President and CEO)

Thanks, Charlie.

Operator (participant)

Thank you. Your next question comes from the line of Phil Eng from Jefferies. Please go ahead.

Philip Ng (Managing Director)

Hey, guys. Congrats on a solid quarter in a tough environment. Tony, Ken, much appreciated in terms of the increased transparency in the deck and providing us 2025 guidance. It's just helpful for all of us to kind of think through, just given all the volatility. I guess first question, you guys announced sizable mill and box footprint optimization. Any color on how to kind of size up the cost savings associated with this? Tony, when you kind of look at your footprint holistically, whether it's the US, perhaps Europe as well, are there still any noticeable opportunities to take out more capacity? I'm particularly curious in Europe and on the SBS side for the US.

Tony Smurfit (President and CEO)

Hey, Phil. Thanks for your feedback. It's good to see we're kind of progressing in that sense. In terms of the benefits of the two mill closures, if you take them in two buckets, if you like, the full-year impact of those two mill closures from an adjusted EBITDA perspective is probably in the order of $50 million-$60 million of incremental EBITDA through the system of those closures. From a CAPEX perspective, if you take a kind of five-year general cycle of maintenance capital, there's probably a capital saving of somewhere in the order of $100 million from those two closures in terms of maintenance capital avoided.

Yeah. On the second question, Phil, we continue to look at our system. I'm a little bit blue in the face at the moment by saying that we've been very impressed with what we've seen in the legacy WestRock mill system. Primarily, we've been very happy with what we've seen. Unfortunately, we don't like to close things, but we'll continue to optimize our system going forward, obviously as and when necessary. As you will have seen, we've taken two machines out in Mexico, and they're really small. In Holland, with their legacy Smurfit Kappa machines that have done well for us for many years, it's come their time.

We have taken out a legacy Smurfit Kappa mill, which in the bigger scheme of the Smurfit Westrock system, it was fine in the Smurfit Kappa system, but as part of the Smurfit Westrock system is obviously one of the weaker mills. That is why we figured that is the right one to move on. With regard to, in answer to your question, we will continue to look at all issues in all grades across all the world, just depending on how the situation evolves. That is what we have always done in our company. With regard to specifically SBS, what I would say to you is we are continuing to look at all of our system, and we have a strategic plan and process that we are continuing to develop. When we are ready, we will let the market know about what our thinking is in the various different grades.

You'll have seen we've taken out a CRB mill today, obviously, we're looking at the market and seeing where things go. When we're ready, we'll address that issue.

Philip Ng (Managing Director)

Super. From a demand standpoint, you guys are taking some economic downtime. It sounds like economic downtime ahead of your closure in North America. Tony, just would love to get your thoughts on what you're seeing out there. Certainly, a lot of choppiness with the tariffs in the U.S. and whatnot, consumer weakening. Any color on how interquarter trends progress, April trends? It was pretty encouraging to see your consumer business, if I heard you correctly, up one. I think your biggest competitor is seeing a more muted outlook on demand. Any color on what you're seeing interquarter and how you kind of think about the balance of the year on the demand side, whether it's container board or your consumer packaging business?

Tony Smurfit (President and CEO)

Yeah. It's a long question. Let me try and address it. I think that we did see a lot of weakness in March and the first two weeks of April. It seems to be steadying itself. Our order books are getting better in the second half of April than they were in, let's say, the six weeks prior to that. That gives us some encouragement. It's a bit difficult to say. I know our competitors are talking about second-half recovery. We're not banking on that, frankly. We see we'll wait and see what happens. If it comes, then we'll be very happy because a lot of our costs are under control. We'll be very happy if demand comes back in the corrugated and container sector. We're not, as I say, banking on a very strong recovery.

We were banking on some recovery, but not a significant one from where we are. With regard to the consumer business, yeah, we had a reasonable first quarter. That market has got choppy. There is no question that there are competitive threats out there that we continue to monitor. That is something that has got more choppy in the consumer side of things, for sure.

Ken Bowles (CFO)

Yeah. Phil, you did hear that right. Keep in mind that 75% of our consumer business is food and beverage. Generally, in times like this, it presents slight more resilience than, say, the home health and beauty pieces.

Philip Ng (Managing Director)

Okay. Appreciate all the great color and the good work.

Tony Smurfit (President and CEO)

Thanks, Phil.

Operator (participant)

Thank you. Your next question comes from the line of Mike Roxlin from Truist Securities. Please go ahead.

Michael Roxland (Managing Director)

Yes. Thank you, Tony, Ken, for taking my questions and congrats on all the progress.

Tony Smurfit (President and CEO)

Thanks. Mike.

Michael Roxland (Managing Director)

First question, I just want to follow up on what you just mentioned, Tony, in terms of not banking on a second-half recovery. Can you give us a sense just in terms of how you're thinking about the demand trajectory in two weeks and how that corresponds with your guide for the year?

Tony Smurfit (President and CEO)

Yeah. I mean.

Michael Roxland (Managing Director)

Especially like container board.

Tony Smurfit (President and CEO)

We're sort of saying it'll be somewhat similar with a little bit of upside because the comparators are a little bit better in the second half. A little bit better than it is in the first half. Honestly, if you look at it, Mike, you'll see the container board side of things. If there's any demand recovery, it will look very strong indeed. We remain still very optimistic on the sector. It's a question of when demand comes back. I do think there needs to be some sort of level of consumer confidence coming back into the market to see that happening. As we sit here, as of, I think it was this week or late last week, the consumer confidence index in the U.S. market was not very strong. We do need to see consumer confidence coming back.

I think that comes back to the whole question of tariffs and uncertainty and getting some certainty in that area for the consumer to feel good in the North American market. Conversely, in the European market, I think things are actually a bit better. I mean, while demand isn't strong, it's reasonable. Most of our markets are doing well, or reasonably well, with one or two exceptions. We feel good about the European market and our positioning and the pass-through of the first price increase that's gone in. We'll wait and see whether the second one goes in or not. We feel good about the European market. Latin America, you see the results is very strong for us. We took some—we've taken some decisions that we don't—we believe in trying to make money, and we believe in trying to give our customers excellent service.

In doing that, when you find out the business that you're losing tremendous money on, you tend to let it go because I don't want to run bad business across expensive machines. That is a message we're putting into our organization all over the place. Obviously, there's a consequence to that. If you've got some bad business, you're going to have to let it go. There's an adjustment period of time. When we look at the second half, there will be a lot of moving parts, but we still feel very comfortable and happy with our value over volume concept. As I say, I think it's been well embraced by our people.

Michael Roxland (Managing Director)

Got it. I appreciate all the color, Tony. Just a quick follow-up. Kenny mentioned additional downtime of $100 million in Q2. You had been originally thinking maybe $10 million-$15 million back in February. Where are you taking this downtime? Is that mostly in container board? Is there some in box board? Can you give us a sense of the tons that you're taking out? Lastly, just on the synergies, it sounds like now you're aiming for $350 million in synergies in 2025 with an exit rate of $400 million. Why the shift there in the synergies? Thanks very much.

Ken Bowles (CFO)

If you remember, yeah, take the second one first, Mike. We would have got a little bit back in 2024. So really, it's a bit of 2024, the 350 in 2025, and then you're exiting. In terms of phasing, I think 80 in quarter one, if you wanted to kind of keep it really simple, the balance across the three quarters for the rest of the year will probably get you there. Again, we get the end of quarter two, I can look back and tell you what we achieved. No real change or phase. It's probably more we picked up a bit in late 2024. When you add them to the 2025, you exit 2025 at 400.

In terms of where we're taking it, I can't really get into specifics, but it's across the system generally. Where we kind of need to take it, Mike, is the simplest way to put it. Where we feel it's most applicable. Remember, a lot of the mills anyway will be taking downtime for maintenance or some CapEx projects, but not really a split specifically on container board versus paper board, but across the system.

Michael Roxland (Managing Director)

Got it. Thank you. Good luck in 2025.

Ken Bowles (CFO)

Thanks, Mike.

Operator (participant)

Thank you. Your next question comes from the line of Gabe Hayde from Wells Fargo. Please go ahead.

Gabe Hajde (Research Analyst)

Gentlemen, I'll echo everyone else's nice work in the first quarter here. Thanks for all the detail.

Tony Smurfit (President and CEO)

Thanks, Gabe.

Gabe Hajde (Research Analyst)

I wanted to ask, we're a little less familiar, as you guys all know, about the European market. First quarter, again, margins really good. Just curious, kind of from a timing phasing standpoint, I'm assuming second half kind of stronger than first half, taking into account the pricing that's flowing through. Tony, I think in the last call, you mentioned that the competitive landscape being a little bit different over there. I think there are three machines kind of starting up as we speak. Just any feedback from that early days in terms of the market?

Tony Smurfit (President and CEO)

Yeah. I mean, clearly, the outlook for the European container board market, if you take it over the next year or so or 18 months, is not as robust as the United States outlook. There are new machines starting up. They're not really in the market just yet, Gabe. They're about to start in the next three, four months and start ramping up then. Frankly speaking, as I've said before, I have no idea if I was running one of those machines where I'd be selling my product because a lot of the market is integrated, and going overseas isn't a gift. I don't—and all of the people that are coming into the market have existing capacity. It's not in their benefit to reduce pricing. Therefore, we'll see what happens in the European market.

The outlook is we've got a very well-integrated system, and you know our model, and it produced 15% returns in probably when you see other people in single-digit returns and even lower than that. When the market does recover, I think you can see we're building off a very strong and powerful base with our system. With regard to the first question was?

Ken Bowles (CFO)

Oh, I think the first question was the market dynamics on price and that in the second half and how it works. It's not that dissimilar necessarily to North America, Gabe, in the sense that as paper prices come true to the market, it does take about three to six months before we begin to see them in the box price. Any incremental paper price, for example, that you might get in the second half of this year or early second half really won't begin to make a meaningful appearance in quarter four at the beginning of next year. Not necessarily that different in terms of dynamics. Probably slightly more as a group now, probably slightly more weighted on index than non-index than we might have been before as Smurfit Kappa was broadly 50/50, probably closer more to 60/40 now.

In terms of the dynamics of pushing box prices through from a paper price, broadly similar. I suppose the backdrop for the paper side to follow on from Tony's comment is just to keep in your head that things like energy in the European context remain, you could argue, elevated and supportive to broadly where paper is because we still have, albeit say this morning, EUR 31 a megawatt hour. That is a long way away from the norms of 15 we might have seen years ago. To Tony's point, the cost input backdrop around, be it energy or OCC, is quite different than when those mills and machines were initially started up or touted go back four or five years.

The return dynamic is quite, quite different from now than it was then, which is also useful in terms of when they might come on and how they might come on.

Gabe Hajde (Research Analyst)

Understood. I'll try to be brief. The closures that you announced yesterday, I don't recall if I saw a timeline associated with it. Kenny, you rattled off a lot of numbers. I feel like I heard an incremental $450 million of, I'll call it synergy or performance improvements, I think is what you said. The number you gave us, the $60 million of kind of income statement savings, that was on a per-mill basis or that was an aggregate for what you just announced? Thank you.

Ken Bowles (CFO)

Aggregate for the system, Gabe. The impact across the entire system from shutting those two mills gives you a full year benefit of a just deeper dive plus $60 million in terms of the saving on the CapEx line of broadly $100 million over five years. In terms of the $400 million, that's back to the commercial opportunities we kind of talk about at least equal to the synergy target we put out. The $400 million is broadly banked at this point, as you can imagine. We've always talked about, go back to quarter three, I think, is when we first talked about it, still see significant value to be driven out. That falls into that second bucket of more at least $400 million.

In terms of the mills, think about it as full year run rate, 50-60, and CapEx avoided over a five-year cycle of about 100. We can circle back, Gabe, to kind of button those down if there's any confusion.

Tony Smurfit (President and CEO)

Just to finish off the point on the two mills, there is asset value underneath those that will be released over time that will be at least 50% of the cash cost back.

Operator (participant)

Thank you. Your next question comes from the line of Lars Selliberg from Seaport Research Partners. Please go ahead.

Thank you for taking my questions. I just want to come back a bit to what you're seeing in your customer business with regards to tariffs and think in particular the cross-border trade from Mexico, but also from the European side. Are you starting to see any directional changes on your customer's business due to those tariffs? That's the first question. The second one, you of course, in your earlier investment programs, you've had this agility that you spoke to deploy capital when the timing is right. Can you give us a sense of how you should think about incremental self-help benefits into 2026, 2027 as the synergies literally will be on the books already exiting 2025?

Tony Smurfit (President and CEO)

Lars, I'll give that very difficult question, second one, to Ken. I'll take the easy one on tariffs. Like the USMCA, which is the main trade between Canada and Mexico and the United States, is in force for 90 days. Obviously, because we did a lot of cross-border trade with customers, mainly on the consumer side, we have been adjusting our supply chains over the last three months to ensure that what is produced in Canada and sold in America is now produced in America. Equally the other way around. Less so for Mexico because most of the stuff that's produced in Mexico is for consumption in the United States. What we're seeing is very little at the moment.

We've tried to model what tariffs would cost us if they were implemented as pure cost to us, if they were implemented as originally portrayed by the U.S. We are sort of seeing a number, an annualized number of around $100 million without any offset to that in pure trade for ourselves if we're not able to get that back. Obviously, that's not what our intention and workaround would be. Obviously, the big effect of tariffs is completely unknown to us. If the tariffs come in and it causes demand destruction, that is where we would be affected considerably more than any direct effects. That is an issue of consumer confidence. That is an issue of general consumer demand. We are definitely seeing a lot of nervousness out there with customers, but not yet any material issue other than the uncertainty that we're all seeing.

Ken Bowles (CFO)

Hey, Lars. On the soft question, the quick win program. You know as well, and we've done a number of these over the years. Generally, these are projects that will deliver the returns within an 18-24 month timeline. It's the only reason they get approved in the first place and particularly work well in inflationary environments and high-cost environments like we are now because they allow you to take costs out fairly quickly. There's a lot of projects here that add up to the numbers, but not a necessarily kind of big impact in any one particular part of the business system. It's small projects in each individual location, all adding to in a system of RSIs, all adding up to a decent benefit.

You should think about these if they start this year, logically fully implemented between 18-24 months at the outset with some incremental benefits for the shorter-term projects as we go through it. Two years max.

Tony Smurfit (President and CEO)

I think, Lars, just to make the point that these are just some we've selected. If I were to go to the three regional managers that I have and said, "You have free reign to go ahead," we'd find a lot, lot, lot more to reduce costs. It is just a question of management and fitting them in the envelope that we want to do. As I said earlier to Phil, not to make sure that we don't get too far ahead of our skis in the whole issue of CapEx deployment. We are very religious in making sure that we stick to our knitting of what made the company Smurfit Kappa great and to make sure that we make the new Smurfit Westrock the kind of company we believe it's going to be.

Just one clarification point. When you talked about the cost benefits or even depositors from the closures, what is the timing of getting that benefit through?

It'll be second half.

Essentially, when are you closing the mills?

Second half, we have to go through a process called the WARN Act, which is the U.S. requirement of 60 days. Sometime, certainly by the end of July, we'll have completed that process in all likelihood. With regard to the other closures or potential closures that we've asked to speak to the Works Council about in Germany, that will be somewhere between six months and a year depending on the plant and depending on the movement of the volume.

Understood. Thank you and good luck.

Thanks, Lars.

Operator (participant)

Thank you. Your next question comes from the line of Detlev Vinkelmann from J.P. Morgan. Please go ahead.

Detlef Winckelmann (VP)

Hi, guys. Thanks for the call. Just a quick one on your $100 million of economic downtime in Q2. I just want to kind of get a sense of how that plays into the full year number. Are we assuming that that tonnage stays down in Q2, Q3, Q4, or is there some sort of assumption that that tonnage is downtime is maintained or contained just to Q2? Thanks very much.

Tony Smurfit (President and CEO)

It's just for Q2. Obviously, in Q3 and Q4, we won't have the output of the other container board mills. In a sense, we'll be getting the benefit of that tonnage onto the existing mills. It's a one-off. There will always be maintenance downtime, dead leaf, and there will be other bits and pieces of downtime and probably some machines not working the way we want them to work. Basically, the downtime that we're planning because of this situation in Q2 is a Q2 issue.

Ken Bowles (CFO)

Yeah, exactly.

Detlef Winckelmann (VP)

Cool. Thanks very much. That's all from me. Thanks.

Tony Smurfit (President and CEO)

Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Patrick Mann, Bank of America.

Patrick Mann (Research Analyst)

Good day. Thanks for taking my question. I've got two. The rationalization of the mills and the 600,000 tons you've taken out, but you've also spoken a bit about optimizing the packaging and the downstream operations. Does it change your net paper position at all? How does that factor into these optimization decisions? The second question is, the quick win projects, does that form part of the operational and commercial improvement, sort of at least the same $400 million synergies, or is it a sort of different bucket of capital allocation? How should we think about it? Thanks very much.

Ken Bowles (CFO)

Hey, Patrick. It's Ken here. Yeah. The quick win project program will form part of that second 400. That is why it is on the same timelines we would have talked about of achieving that 400 over 2018 to 2024. It fits into that kind of bucket. I suppose what we are trying to do here is, as we progress through the quarters, give you more building blocks to have that 400 is built. This is now in a place to get on with those quick win programs, projects that give you some level of certainty around where that is going to come from in terms of is it through the income statement, through the capital line, and the returns of it. No form is part of the 400.

On the other one, yeah, for the two, actually for both mills, for St. Paul and Forney, it does improve our integration levels a little bit. I think on the container board side, it goes from about 86% to 89% integrated on container board and from about 67% before to about 71% on paper board.

Tony Smurfit (President and CEO)

Yeah. Just to add to that, Patrick, just on the quick wins, I mean, that forms part of it. That is why we said at least $400 million because we do see many opportunities, both commercial and through CapEx, to develop this business in a much more material way than before. That is why it gives us a lot of optimism for the future.

Ken Bowles (CFO)

Thank you.

Operator (participant)

Thank you.

Tony Smurfit (President and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Mark Weintraub from Seaport Research Partners. Please go ahead.

Mark Weintraub (Senior Analyst)

Thanks very much. Thanks for all the color so far. I want to just come back to the first half to second half bridge if I could. You're essentially assuming about $100 million-$300 million pickup in EBITDA. If I caught you right, you are looking for volumes to be flat to up modestly. Hopefully that's a positive. We've got less downtime assumed. You've got pricing in Europe that should, in particular, but also in the U.S., that should be flowing through. Presumably, you get synergies and some additional net productivity in the second half, and you've got the cost takeout. On the flip side, what are some of the negatives that you might be assuming?

One, which I have a specific question to, is waste paper in Europe is a bunch higher right now, which is kind of confusing to me in that the demand environment has been not that great. I was hoping to get some color on why that you think is happening. If we do not get a more sustained pickup in demand in Europe, does that just come back, roll back over? Thanks so much.

Tony Smurfit (President and CEO)

I'll take the second one and let Ken take the first part of your question. I mean, on waste paper, it was a very big surprise to us, Mark, to be honest. We had expected we've been modeling somewhere around $120-$130 for the year, and all of a sudden it goes to $170-$180 in the space of literally six weeks. It happened because there was an auction in Italy, and one major player who was bringing on new capacity panicked. Then all the other people who were bringing on new capacity panicked, and they bid up the price. The question of the sustainability of it is a very good question. We'll wait and see. It is, while demand is not fantastic, it's not bad. It's certainly better than last year. They're not making that much more waste paper.

It does not take a whole lot to flip it and move it. I think the reason when one guy panicked in Italy at a particular auction, it made a ripple effect throughout Europe. That is what happens because everybody needs this stuff. As you know, Europe is fundamentally a waste-based market. That is what happens. We will see about the sustainability of it as we go through the summer. There is new capacity in. Demand is not bad in Europe. Stocks are low in paper. They are about 100,000 tons less than last year. As I say, demand is reasonably good. That is what caused it.

Ken Bowles (CFO)

Yeah. Hey, Mark. In terms of just broad building blocks and probably less half one, half two, probably more just to kind of revisit the year to year, but probably more kind of relevant in terms of what we've just spoken about before. I don't think much has necessarily changed now we're thinking about it. I think if you think about some of those bigger cost buckets, as we would have talked about maybe at the year-end in terms of where we go full year to full year, in reality, energy is still quite a significant headwind here and here, about $350 million, labor and inflation around that in the order of about $200 million. Other raw materials generally probably a headwind of about $100 million. And that downtime piece year on year is probably costing somewhere in the order of about $150 million year on year.

They're the big kind of negatives against that. You can see though, if you look at the pricing environment and the backdrop to that, which we would have talked about already today, sequentially year on year, box pricing in North America is up broadly 8%, quarter on quarter probably 3%. You can see that begin to come through through the second half. Clearly, the paper impact has come through there as well. The biggest piece there, back to OCC, we're not necessarily seeing it in Europe, but in North America, certainly a relief on OCC, probably year on year, giving you the benefit of somewhere between $100-$150. Those big cost buckets haven't really moved around a lot since we would have spoken.

Clearly, as we've spoken a lot today, the demand backdrop and volumes, clearly the biggest variable that we kind of have to pin down as we kind of go through the second half.

Mark Weintraub (Senior Analyst)

Super helpful, Ken. One last thought. How about FX? I mean, we've had some big moves in dollar euro. I would have thought just on a translation basis, that might have some implications. Can you kind of walk us through how that works for you guys?

Tony Smurfit (President and CEO)

Negative for us, though.

Ken Bowles (CFO)

Yeah, we've been negative so far, but it's kind of not necessarily material as we sit here today, given that the dollar has come back a bit. We can help you model some of that, Mark, depending on where we go. We can give you some stats on taking a euro dollar pair in terms of where you see it. Not at the moment, slightly negative, but not material. That's probably the best way to think about it for the first quarter, particularly in Latin America.

Mark Weintraub (Senior Analyst)

Thanks, guys.

Tony Smurfit (President and CEO)

Thanks, Mark.

Operator (participant)

Thank you. Your next question comes from the line of Kevin Fogarty from Deutsche Bank. Please go ahead.

Kevin Fogarty (Director)

Thanks very much. Afternoon, everyone. Thanks for taking my question. A number of them have been answered, but it's just the four non-exceptionals that we might see this year. Obviously, you've got some associated with the capacity closures and adjustments you've announced today. Could you just sort of step us through what else we should be thinking about? I know you've kind of previously flagged the sort of 2, 3, 5 relating to synergies delivery. Is there anything else we should be thinking about, sort of accelerated depreciation or anything associated with the closures or any kind of more widely sort of restructuring charges that might hit this year?

Ken Bowles (CFO)

Essentially, no, Kevin. It's kind of as guided. The new information will be around those closures last night. The cash piece you would have seen about $99 million. And then the impairments of the fixed assets, accelerated depreciation, if you want, about $188 million. We'll take the impairments now, essentially, for the second quarter, and then the cash costs will go over the remainder of the year. Nothing beyond either what we guided already or indeed those impairments from last night.

Kevin Fogarty (Director)

As you go, related to synergies, it's kind of as expected, sort of 2, 3, 5.

Ken Bowles (CFO)

Exactly. Yeah, as expected, Kevin.

Kevin Fogarty (Director)

Great. All right. Thanks very much. Thanks.

Operator (participant)

Thank you. Your next question comes from the line of Gareth Jane from Barclays. Please go ahead.

Gareth Jones (Managing Director)

Hi. Good morning or good afternoon. Thank you so much. Two questions from me. One is, recently we have read that the Chinese container board importers who are no longer importing from the US, they are shifting some of their demand to Latin America. Is this something that you are noticing? Do these changing trade flows somehow position you in a better context versus your other peers who are more sort of geographically fixed? That was question number one. The second question was on future potential M&A. You have done acquisitions in prior cycles, in prior down cycles. Yes, you just did this acquisition eight months ago, and the balance sheet has leveled up to like two and a half times.

If we indeed get into a weaker macro cycle and there is some opportunity which is too good to pass, would you consider it?

Tony Smurfit (President and CEO)

I'll take the second one. I'll take them both, actually.

Ken Bowles (CFO)

Yeah, please.

Tony Smurfit (President and CEO)

Listen, our objective is to get our balance sheet down towards the 2.0 times. That's where we're solely focused on that. We will be making some smaller bolt-on acquisitions as and when if they make sense for the overall company. We're not going to do anything that's off the pitch, so to speak. We're very focused on making sure that we bed the organization down. We're very focused on making sure that we bed every part of the business down. There's still a lot of work to do, Joan, about making sure the accounting function works well, making sure that everything, the reporting is great, that the operations are improving, that the integration continues on its path. There's a lot to do before we would even think about a larger acquisition and do anything off the pitch, so to speak.

With regard to the Chinese flows, we are hearing that there are people who are having to adjust. We saw public quotes from some of our competitors taking downtime, and we believe that is continuing to happen. Because of the lack of exports, there are many mills that have specifically their focus on exporting to China out of the U.S. That would obviously be problematic for them right now. We do not do any significant amount of exports to China. We do a lot of exports to Latin America, where we have long-standing good relationships with excellent customers. We continue to keep those and develop those because we believe in long-term relationships in Smurfit Westrock. I do not think the Chinese thing is going to influence us negatively and can only be positive for us.

Thank you very much.

Thank you.

Operator (participant)

Thank you. We will now take our final question for today. Your final question comes from the line of George Stafford from Bank of America. Please go ahead.

Hi everyone. Good morning. Good afternoon. Thanks for all the details, Tony and Ken. There has been a lot of discussion on container board today. I am going to focus a little bit more on consumer board. You are nine months into the acquisition. What have been the learnings that you can share on kind of an open mic discussion about the value addness of being able to sell both consumer and secondary packaging? We should not call it that necessarily, but corrugated packaging across all of your customers. What has changed, perhaps, again, to what degree you can share versus what your perceptions might have been in July? Relatedly, within consumer, are there any differences that you can share in terms of how you are allocating capital, looking at the footprint and so on, relative to how you might go about your business in corrugated?

What should we take away, if anything, other than just you're aligning the footprint with the adjustment in CRB? The fact that you're taking some capacity out of CRB would suggest that there's a long-term plan. You're viewing it as an ongoing business within Smurfit Westrock. Any thoughts that you can share would be great. Good luck in the quarter. Thank you, guys.

Tony Smurfit (President and CEO)

Thanks, George. Good to hear you. Let me be, I think that there is a very good business here in consumer packaging. We've got some great people. We've got some great assets, and we've got some great opportunities. We will view this business the same way we view our corrugated business, our bag and box business, our sack business, and decide where the best returns are going to come from as we look at each individual capital request. We think we've got a superior offering or potentially have a superior offering, let me put it like that. We need to work on some strategic elements of it, George. That is something that we'll work through, and we'll communicate to the market when we're able to. We're literally nine months into this, and we are discovering a lot. You've asked what our findings are.

I think it's probably a little bit tougher of a marketplace than we would have anticipated. When I see the positives, I see we've got some incredibly good people and potentially incredibly good assets and incredibly good market positions to develop. That's the work in progress, to figure out how do we, where do we apply the capital and when, and what markets can give you the share or give the shareholders the best returns. That's still work in progress. I would say this is a potentially very strong market for us because there is a cross-sell opportunity. There is a good foundation of business that we can really develop and grow.

As I say, with regard to the specific grades, I mean, you will know that the—and I think I've been upfront on this—is that we do need to have a CRB strategy, and we do need to have an SBS strategy and a CUK strategy for all of our operations. We are in the process of developing that. When we are ready, we will come back to you and tell you what that is. We are not a million miles away from telling you.

That's good. Good to hear. Appreciate the thoughts. Good luck in the quarter. Thank you, guys.

Thanks, George. Appreciate it.

Ken Bowles (CFO)

Thank you.

Tony Smurfit (President and CEO)

Operator, I think that's our last question. With that, I would say to all participants and all those that asked the questions, many thanks for listening to us. We are very proud of what this company has already become. As I say, we are at the start of a long journey, a never-ending journey. My colleagues and myself are really excited about the future. Obviously, we're living in uncertain times, as you all know. When we get back to growth, this company is going to be extremely well positioned to take advantage of that in every way. Thank you for your time and your attention, and we look forward to seeing you in person or at the next quarter call. Thank you all.

Operator (participant)

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.