Smurfit Westrock Plc (NYSE:SW) Q3 2025 Earnings Call Transcript

Smurfit Westrock Plc (NYSE:SW) Q3 2025 Earnings Call Transcript October 29, 2025

Smurfit Westrock Plc misses on earnings expectations. Reported EPS is $0.55 EPS, expectations were $0.68.

Operator: Good day, and thank you for standing by. Welcome to the Smurfit Westrock 2025 Q3 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I’d 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 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 revise 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 release and in the appendix to the presentation, which are available at investors.smurfitwestrock.com. I’ll now hand you over to Tony Smurfit, CEO of Smurfit Westrock.

Anthony P. J. Smurfit: Thank you very much, Ciaran, for the introduction. Today, I’m joined by Ken Bowles, our Executive Vice President and Group CFO, and we appreciate all of you taking the time to be with us. I am very happy to say that we have again delivered on guidance in what is a challenging environment with an adjusted EBITDA margin number of USD 1.3 billion and an adjusted EBITDA margin of 16.3%. The quarter was characterized by some challenging months, specifically July in our North American region and August in Europe. Nonetheless, we were able to come through with the numbers we predicted and planned. Since our combination, our North American business has shown great improvement over the course of the last 16 months on both the commercial and operational front, that’s reflected by an improved adjusted EBITDA margin of 17.2% for the quarter.

As you will have heard us say, as we got to understand the legacy Westrock business, we have taken strong actions to remove uneconomic volume within our portfolio of businesses. This, of course, has resulted in a loss of volume as we transition and reposition our business. While there will be a time adjustment to this reposition, we believe we are clearly on the right track as we are already seeing quality customer wins. In addition to changing our customer portfolio, we’re also continuing to rightsize the business by closing down inefficient or loss-making operations including the recently announced closure of a corrugated facility in California in addition to the 8 previously announced closures. In paper, we have already announced approximately 500,000 tons of capacity closure in both containerboard and consumer board grades.

These footprint optimizations will be a continuing feature as we develop and grow our business. Turning now to EMEA and APAC. Our adjusted EBITDA margin of 14.8% is highly creditable given the environment that exists in the European sphere. We believe it clearly demonstrates the power of the integrated model, which is producing this resilient margin in an environment of paper overcapacity. Our mills continue to run optimally, while at the same time, our converting business are capitalizing on their outstanding leadership position in innovation. We believe this, combined with our insights into sustainability and the significant pending regulations from the European Union should give our customers confidence to help them in navigating this environment.

In our LatAm business, with an excellent EBITDA margin of over 21% due to our strong market position principally — these are principally in Brazil and our Central Cluster. Our sequential margin showed a small fall in the last quarter as a result of some operational issues in one of our larger mills in our Central Cluster, which is now being resolved. The region still has significant growth opportunities for us to develop in the years ahead. Turning now to the group and regional highlights. What I’m very happy with is the initial potential of the combination as evident in our cash flow performance in the quarter, with operating cash delivered USD 1.1 billion and an adjusted free cash flow of approximately USD 850 million — USD 580 million.

One of the things that especially pleases me about this number is that we’re really only starting to get going on working capital optimization as we continue to focus on operating excellence. I’m also very happy to have the people in the new Smurfit Westrock have come together and adapted to the culture of the company and its values of loyalty, integrity and respect and safety adoption by everyone in the workplace. The group has also been working effectively on the synergy program, which Ken will speak on further, which is exceeding our expectations, especially when one looks at the commercial improvements that we can see across the businesses. Finally, in the group, not only in North America, but also in Latin America and Europe, we continue to optimize our asset base with the recent closure of a facility in Brazil and the transfer of equipment to other operating units, together with constant trimming of our assets in our European sphere.

In terms of the regions, as I’ve mentioned, we continue to make excellent progress across our North American system. For example, in corrugated, our loss-making units have declined by almost 50% in a 1-year period with today, over 70% of our corrugated operations solidly profitable. And we expect significantly more progress to occur as we replace and swap out uneconomical volume. In our consumer business, this business is very well positioned with substantial investments and restructuring already done. With strong positions in SBS and CUK, we’re actively working to transfer customers from CRB to these grades and have already switched about $100 million worth of business. We do, however, believe in offering all 3 substrates to our customer mix.

Our first Global Innovation Summit was held in Virginia in September. And the rollout of our Experience Centers in our North American region, while in its infancy, is now happening. In EMEA and APAC, our integrated model is really proving the success of our business. Our mills are well utilized, and our outstanding position and innovative offering is retaining and developing customers. One of the great opportunities for us has been the effective integration of our consumer operations into our European business. We have a vastly greater customer base to introduce to our consumer operations into Europe, and moving these businesses back to local sales and manufacturing accountability has already started to see some significant benefits. And finally, during the quarter, the rationalization of 2 of our German converting plants has been agreed.

This will significantly strengthen our leading German position as we await the inevitable upturn. Turning to Latin America. I’m increasingly excited about our Brazilian operations. The legacy Smurfit and legacy Westrock businesses are a perfect fit with one concentrated on recycled containerboard and the other on virgin kraftliner. Our converting businesses have quickly adopted our value over volume focus, which is already showing significant improvements. In our Colombian business, we experienced significant growth of 8% due to our commercial offering and the market developing as a growing exporter of fruits and vegetables. Across the region, we’re capitalizing on many of the growth and development opportunities we have. For example, in Chile and Peru, where our volumes grew by 15% and 25%, respectively, during the third quarter.

I’d like to give you a sense of the excitement that exists and is building in — within Smurfit Westrock company today. We’re a stronger and better company through the adoption of the owner-operator model. Everyone across our world is now responsible for their own P&Ls. This has unleashed a tremendous enthusiasm and internal competition to do better and lends itself perfectly into having a performance-led culture where everybody is responsible for what they do. I’m especially pleased that we have now initiated global and regional leadership programs, whereby over 300 managers will have started our group programs. In Smurfit Westrock, people are at the heart of everything we do, and we ensure that they have the tools to succeed in their job and to realize their potential.

And our synergy programs and optimize asset base, together with our innovation offering and transfer of best practice will, we believe, contribute to superior performance in the future. I’ll now hand you over to Ken, who will take you through the financials.

Ken Bowles: Thank you, Tony. Good morning, everyone, and thank you again for taking the time to join us. On Slide 8, you’ll see the business again delivered another strong performance in the third quarter, with net sales of $8 billion, adjusted EBITDA in line with our stated guidance of $1.3 billion, a very solid adjusted EBITDA margin for the group of over 16% and a strong adjusted free cash flow of $579 million. The performance reflects the strength and resilience provided by a diversified geographic footprint and product portfolio, particularly in the challenging macroeconomic environment, and of course, the commitment and dedication of our people to delivering for all our customers. Turning now to the reported performance of our 3 segments.

And starting with North America, where our operations delivered net sales of $4.7 billion, adjusted EBITDA of $810 million and adjusted EBITDA margin of 17.2%, an excellent outcome. In the region, we saw continued margin improvement, predominantly due to higher selling prices, our operating model in action and the benefits of our synergy program, alongside input cost relief on recovered fiber, which combined to more than offset lower volumes and headwinds and items such as energy, labor and mill downtime. Corrugated box pricing was higher compared to the prior year, while box volumes were 7.5% lower on an absolute basis and an 8.7% on a same-day basis. An outcome very much in line with our ongoing value over volume strategy, which we estimate accounts for about 2/3 of that volume performance.

Third-party paper sales were 1% lower, while consumer packaging shipments were down 5.8%. With shipments in our smaller Mexican operations being lower than our U.S. business, which saw volumes down 3.7%. Our differentiated, innovative and sustainable approach to packaging continues to resonate with customers, which, coupled with the empowerment of our people to drop uneconomic business and the implementation of our owner-operator model is driving continuous business improvement across the region. Looking now at EMEA and APAC segment, where we delivered net sales of $2.8 billion, adjusted EBITDA of $419 million and adjusted EBITDA margin of 14.8%. Despite the challenging market backdrop, our operations remained resilient with adjusted EBITDA moderately ahead of the prior year.

This performance reflects the skill of our local teams in managing a highly volatile cost environment and underscores the effectiveness of our integrated operating model, where we have consistently delivered an operating rate in our containerboard mills in the mid-90s. Higher corrugated box prices year-on-year alongside lower recovered fiber costs and a net currency translation benefit were partly offset by headwinds on energy and labor and lower third-party paper prices, while corrugated box volumes remained flat on both an absolute and same-day basis. We believe we are the market leader in Europe with strong market positions and a proven operating model, supported by our best-in-class asset base, which allows our people to continue to deliver high-quality sustainable packaging solutions for all our customers.

This position is supported by our approach to innovation, where we have a large data set and bespoke applications that place the customer at the center of that conversation. Our LatAm segment again remained very strong in the quarter with net sales of $0.5 billion, adjusted EBITDA of $116 million and adjusted EBITDA margin of over 21%. Corrugated box volumes were flat year-on-year or 1% higher on a same-day basis, with the demand picture in the region showing a marked improvement with strong demand growth in Argentina, Colombia and Chile, amongst others. All while our value over volume strategy continues to deliver strong results in Brazil as we have now largely phased out unprofitable legacy contracts with volumes, with volumes there moving into a more neutral position.

The region successfully implemented pricing initiatives to offset higher operating costs [ and delivered ] another consistently strong performance with a small step down in EBITDA margin year-on-year due to a now resolved issue in one of our operations during the quarter. As the only pan-regional player, we believe that Latin America continues to be a region of high-growth potential for Smurfit Westrock, both organic and inorganic, and one where we are well positioned to drive long-term success. Slide 10 outlines our proven capital allocation framework. I don’t propose to go through each of these [ frameworks ] today, but I would note that in February, we plan to provide detail on how we see capital allocation underpinning the achievement of our long-term business goals.

What is new is that our CapEx target for 2026 will be between $2.4 billion and $2.5 billion, broadly in line with the current year. We continue to invest ahead of depreciation and so this level remains accretive to earnings as we invest behind identified growth, efficiency, sustainability and cost takeout opportunities. The core tenet of our capital allocation framework is that it must be flexible and agile. This was our approach at Smurfit Kappa and continues to be our approach at Smurfit Westrock. It is a proven track record of delivery, and we are already seeing the benefits of it since forming Smurfit Westrock a little over a year ago. Our approach to allocating capital is disciplined and rigorous and requires that all internal projects are benchmarked against all of the capital allocation alternatives and is, therefore, always returns focused.

On our synergy program, I’m pleased to confirm we are delivering as planned and on track to deliver $400 million of full run rate savings exiting this year. And finally for me, as noted in the release, the year-to-date has been characterized by a challenging demand backdrop, and as a result, we expect to take additional economic downtime in the fourth quarter to optimize our system. If you recall, we set out our guidance for the year in April. And given the impact from the above, we are now marginally adjusting that guidance range to where we now expect to deliver full year adjusted EBITDA of between $4.9 billion to $5.1 billion. And with that, I’ll pass you back to Tony for some concluding remarks.

Anthony P. J. Smurfit: Thank you, Ken. I hope you get a sense from my earlier commentary and Ken’s performance summary that we believe that Smurfit Westrock is very well positioned for continued performance as well and the economic growth as it revives, I would say the company has never been in better position. Throughout the company, all of the people that are aligned with this approach, and we can already see the tangible benefits of this as many loss-making operations move into profit and thankfully, with much more to come. Reflecting the generally well-invested asset base, our capital spend for full year ’26 is expected to be in a $2.4 billion to $2.5 billion range. We believe this level enables us to accelerate cost takeout, increase operating efficiency and capitalize in high-growth areas.

In parallel, we recently announced restructuring initiatives, which also allow us to continue to optimize our asset base. As a more general point, our philosophy has generally been to buy and not build. As we have typically acquired at a fraction of the replacement cost is invariably cheaper with an enhanced returns profile. On acquisition, our objective is always to optimize through measured capital allocation decisions. We will discuss this further in February, and Ken has already touched on this. The delivery of our synergy program, together with our ongoing capacity rationalization remains a constant focus. With a significant headcount reduction of over 4,500 people and an unrelenting focus on the owner-operator model, we believe our performance to date is an indication of our potential.

We remain confident that our footprint remains unrivaled with strong and leading market positions in the majority of the markets and grades of paper in which we operate. There is no question in our minds that since Smurfit Kappa and Westrock combined, we are building a stronger and better business with management aligned with shareholders and developing our performance-led culture. Over the last 16 months, we have taken significant steps to build this better business, and we are increasingly confident in the future prospects. While for sure, the current economic outlook is somewhat muted, our view is that the steps we are taking, investments we’re making, the alignment we have with shareholders and the culture we’re building within Smurfit Westrock positions us to go from strength to strength as economies improve.

We end full year ’25 and enter ’26 as a better and stronger Smurfit Westrock. To that end, in February ’26, we will be setting out our longer-term targets, which are a bottom-up approach from all of our businesses, which will be designated to identify prospects for this company as we look forward into the future. So thank you for your attention, and I look forward to taking any questions that you may have. Thank you, operator. Over to you.

Q&A Session

Operator: We will now go ahead with the first question. This is from Mike Roxland of Truist Securities.

Michael Roxland: Congrats on all of the progress. Tony, you mentioned obviously, weakness in the European market from both demand and price, is there anything you could do to expedite cost takeout? You mentioned, obviously, continuing to trim assets in Europe, rationalizing the 2 German plants. But given the weakness that persists there right now, can you expedite cost takeout to try to get things rightsized faster?

Anthony P. J. Smurfit: Yes. I think — Mike, thanks for the question. I would say that we have done a really good job over 15 years of optimizing our capacity in Europe. Obviously, there’s always little things to be done, but we’re running our system pretty well full in Europe with the exception of August and probably December, where we’ll take some downtime because those months typically are months where the corrugated box plants close for holidays. So our system is pretty well optimized. Obviously, we continue to look at it. We’re basically a low-cost producer in the European market. And when you look at our returns and you look at some of the other competitors’ returns that have been publicly available. And obviously, we get a sense of how some of the private guys are doing.

We’re far exceeding the returns in Europe. And — so unfortunately, it is a question you’ve already seen a number of mill closures around the place. I think we’re going to see more, and I think that the pain is very, very real, and you can see even some public companies with negative EBITDA margins in the containerboard business in a very significant way. So I think the old saying, the worse it gets, the better it will get, well, it’s pretty bad right now. And I think when it turns, it will turn very sharply. And so that’s what we are waiting for. Obviously, as I said, that doesn’t mean we’re sitting on our hands doing nothing. We’re continuing to close a few facilities here and there, not very big ones, but we’ve done a number of stuff. And we have a very, very active cost takeout program across all of the business to mitigate all of the wage inflation that we’ve had over the last number of years.

But — so cost reduction programs do not stop. They’re continual, and we continue to look at our asset base and will trim if necessary.

Michael Roxland: Got it. And then just 2 quick follow-ups. Any color you can provide in terms of how demand trended in both North America and Europe in September and what you’ve seen thus far in October and any outlook for November? And then just quickly on consumer because it was interesting, you mentioned transferring $100 million of CRB business to SBS and CUK. Can you just help us frame the logic behind those moves? Is it just a matter of wanting to run SBS more efficiently at a higher rate? And is there any margin uplift associated with that shift?

Anthony P. J. Smurfit: Yes. Taking your second question first. I mean, basically, as the SBS price has trended downwards. Because SBS, you can run with a stiffer sheet and you can use a lower grammage, it’s basically become competitive with CRB. And there are positive qualities to SBS versus CRB in the sense of brightness and transportation costs, so — and runnability on printing machines. So I’m not saying that CRB is all bad. It’s not. There are certain customers that will really want CRB. There are certain customers that really want SBS, and there are certain customers who want CUK. And clearly, where the positioning is right now, it’s just advantageous for our customers to look at SBS and so we’ve taken that opportunity as well as some of the CRB issues where, again, you’ve got some opportunities to — especially in the freezer for frozen products to move into CUK, which is something we’re actively promoting.

And I think, as I said, we’ve $100 million or so already transferred in the last 4, 5 months, and I think more to come. On the first question, Mike, just remind me what was it?

Michael Roxland: Demand trends.

Anthony P. J. Smurfit: Demand trends. I don’t — I could say that we were expecting to see an uptick in October, and we did not see it. Now you have to remember, Mike, one of the things that has happened is that we took on, as in legacy WestRock took on business in the latter half and first half of last year that we were running in the second half of last year. And a lot of that business that was taken on was not necessarily very economic for us. So we have been addressing that during the first half of this year. And inevitably, that’s when we tend to see that exiting again. Some of it will come back as we are a good supplier. We’re very reliable and high quality and high service supplier. So we expect some of it to return at prices as we’ve seen already in Brazil, for example.

We expect some of it to return at a certain point in the future at the prices that make it economic for us. And if it doesn’t, well, so be it, we’ll go out and get some other business. But when you lose big chunks of business, Mike, it tends to go and get 10 chunks of smaller business, it tends to take you a little bit longer, and that’s what we’re seeing. But we have a huge pipeline of business in our system. We won’t land at all. But certainly, our people are very comfortable and confident that we’re going to get it. And as I said in my script, we’re already seeing some very significant customer wins in high-quality names at levels that are going to be good for us to run that.

Operator: Next question is from Phil Ng from Jefferies.

Philip Ng: So Tony, you mentioned you’re going to be taking some economic downtime in the fourth quarter. Curious what markets, is this North America? Is this Europe? How should we quantify the EBITDA impact? And appreciating you’re walking away from — you’re taking a value-over-volume approach. But as we kind of think about how that translates, how should we think about that spread of your volumes versus the market overall, call it, the next 12 months?

Anthony P. J. Smurfit: Yes. With regard to — I’ll let Ken take the downtime question. But with regard to — we’re sort of figuring out that — we believe that the market is down somewhere around 3% or 4%, and we’re probably down — 5% of our loss of volume is due to our own decision making. That’s the sort of number that we — it’s not going to be 100% accurate in that. It could be 3%. It could be 4% market down, but you saw one of our larger peers was down 3% in the quarter, and one would have said that they’re probably winning some business in the marketplace. So therefore, taking that as a trend then I would say that the market is probably down a little bit more than that 3%.

Ken Bowles: Yes. Philip, I think to take the second part of that question first, I think the simplest way to quantify the EBITDA impact is broadly, if you think about where our guidance was, [ where we’re bringing to, ] call it, somewhere between $60 million to $70 million is the incremental impact of downtime in the fourth quarter versus what we previously would have said. I think, look, if we think about operating it in Europe and us in the mid-90s, unlikely to see any material — for the remainder of the year, any material incremental downtime in Europe. So predominantly, it’s going to be across the North American region because Latin America, we don’t really see any downtime there either.

Philip Ng: Ken, do you expect your inventory to be in a pretty good spot as you exit this year in North America?

Ken Bowles: It’s getting there, Philip. It’s — supply chains in North America is different than Europe in the sense that they’re very, very long. So it takes a while to kind of get back to what you might like as kind of optimal inventory. The working capital as a percentage of sales for the group is probably around 16%, which is kind of higher than we’d like it to be. At Smurfit Kappa, we were down in kind of 8% and 9%. Don’t expect us to get there over time, but certainly, somewhere in the middle there that the right answer is. You have to remember, as a third-party seller, Westrock over the years had grown into a number of different grades and a number of different widths of paper. So part of the optimization here is kind of bringing it back to not quite Henry Ford.

We’re getting it back to a place where it’s a reasonable set of grades and flute sizes and widths that we feel are optimal for not only the paper system, but the corrugated system and a need for our customers. So it’s all part of — it all really comes back to helping our customers understand what their boxes need rather than just supplying what they think they might want. So I don’t think we’ll exit this year in perfect shape, Philip, but I think as we kind of move through ’26, it gets incrementally better as we kind of understand the supply chains a bit better and rationalize kind of external board grades.

Anthony P. J. Smurfit: Philip, if I can just add on to that, I’m really very excited about as we optimize our supply chain system and work through our board grade combinations that together with the corrugated businesses in our system, that this is going to present a big opportunity for us. But it needs careful thought and planning because as Ken has just rightly said, the distances in America are very big, and we’ve got to make sure that we get that right, but there’s a lot of opportunity there for us to reduce stock.

Philip Ng: Got it. And sorry, one last one for me. Tony, I thought your comment about pivoting some of your CRB and CUK business to SBS was fascinating. That sounds like a pretty attractive value prop for your customers. You gave us the CapEx guidance for ’26 as well. Embedded in that, is there any mill conversions that you’re possibly thinking in SBS? Or you feel pretty good about some of the opportunities you see in front of you on the SBS side, you’re going to largely keep your footprint intact at this point?

Anthony P. J. Smurfit: If you — if I could just ask you to hold off until February for that because we’ll give you a full answer then because clearly, we’re working through some different strategies in relation to that, and then we’ll give you a better — once we’ve organized that, we’ll tell you about that. But basically, we have some very, very good assets that we will continue to look at. And obviously, there’s some that we will continue to evaluate and give you a better answer to those in February.

Operator: Next question is from Gabe Hajde from Wells Fargo Securities.

Gabe Hajde: I wanted to ask about the guidance, the CapEx guidance for ’26 and maybe a little bit differently. I’m just curious if the organization for the year, if there’s anything strategically that you guys are focused more on cash flow for 2026 versus EBITDA. Sometimes that drives different operating behavior. I’ll just stop there.

Ken Bowles: Gabe, no, not necessarily. I think it’s more a case of the reality is that Smurfit Westrock should be — and if you look at this quarter, particularly, a strong free cash flow generator irrespective of the CapEx cycle. I think what we’ve always done, though, is be very disciplined about when we place capital into the system and indeed adopting a kind of portfolio approach where you don’t have, a, too many big programs in any particular year, any big systems that are taking all the impact in a particular year and no region that kind of has that impact. But I think it’s fair to say that when we went through the cycle this year and to Tony’s earlier point to Phil, building towards February, when we look at the capital requirements for ’26, the reality is that all we feel we need to keep the system going and improving and growing is somewhere between $2.4 billion and $2.5 billion.

And that ultimately means that we don’t end up with any kind of big build for CapEx going into ’27 , for example. But it’s a normal phased approach. So no, there’s never a case of trying to, if you like, try and get to a free cash flow number at the expense of EBITDA, that never is. I think it actually becomes more of a virtuous circle, which is you place capital into the system, we expect the returns out which should drive return on capital employed in one sense and also drive EBITDA. And then that capital goes back into the system. I sort of — I look backwards, look forward a little bit here, Gabe, in the sense that as Smurfit Kappa, we place extra capital in the system, increase ROCE, increase the dividend, delevered and grew. So I think it’s a model, if you like, from an owner-operator perspective and a philosophical perspective, that’s worked in the past.

So no, it’s not that we take that kind of that choice. It’s actually that’s the capital we think the business needs to kind of drive and grow.

Anthony P. J. Smurfit: Yes. And I’ll just add to that, Gabe, that the whole philosophy of our company is to remain agile, as Ken as said, we adapt to the situation that’s around us. And one of the key tenets of our business is never to overinvest and have too much investment going forward that we can’t back out of, so to speak, so that we’re in a position to be able to flex if we need to because that’s what really hurts companies, if you can’t pivot depending on the environment, either positively or negatively. And so that’s been the hallmark of the success of Smurfit Group, Smurfit Kappa and now hopefully in the future, Smurfit Westrock.

Gabe Hajde: I wanted to switch gears to Europe. You guys provided a little bit of color as to the — I know the number kind of jumps off the page where you’re underperforming the market. But over in Europe, I think up a little bit, 0.2% is pretty impressive. You talked about the mills running mid-90s. Can you provide a little bit of color in the markets whether it’s geographic or end-use markets where you guys are doing particularly well? And then I guess, maybe a little bit on the margin side. Obviously, prices kind of came up quite a bit in the spring and early summer and have come down, basically kind of given back a lot of that. How should we think about that flowing through? Is that hitting Q4? Or is that really more of an H1 ’26 event?

Anthony P. J. Smurfit: Just on the markets, in general, I would say that the — there’s no real change to what we’ve said previously that Germany continues to be a laggard, some of the other markets in the U.K. The Benelux tend to be basically flat with some positive movements in Eastern Europe and in Iberian Peninsula, which is growing strongly. So in general, there’s no real change into how the markets are operating. We sometimes flatter to deceive in Germany where things get really good for a couple of weeks and then go back to the norm. So I think we haven’t seen any material positivity in the German market yet. But inevitably, that will happen. And as I mentioned in my script, we’re about to close 2 facilities with improved facilities in the incoming plants that are receiving capital. So when Germany does turn around, we’ll be even better positioned than we were before to take advantage of that. With regard to…

Ken Bowles: On pricing, actually, third quarter in Europe, we saw prices tick up by about another 0.5%. So not quite done there yet on pricing. I suppose, ultimately, without a crystal ball and forecasting, I think where pricing goes from here depends on — really depends on the same question we’ve had all day, which is where does demand go. Because ultimately that will feed into what happens with paper prices. But irrespective of that, it’s very much a kind of second quarter, third quarter question on ’26 anyway based on where we sit now. But I think it’s fair to say that both regions have done really well in terms of pricing given the backdrop, I think particularly Europe in terms of price increases received and held, if you like, even through the third quarter. But I think it’s demand dependent really in terms of where it goes from here.

Anthony P. J. Smurfit: I think as well, Gabe, if you look at where the paper price is at the moment, it’s uneconomic for at least 75% of the business, I would say. And I think that we’re lucky that we’re very integrated. We’ve got our own customer. Our paper mills have our own customer, which is ourselves. And we’re able to run basically full, but most of the others, demand is relatively weak. And unless you’re in the top quartile, you’re not making any cash at this moment in time. And I would say you’ve seen that from the results of a number of players in the marketplace. And inevitably, that will change. The question is, is it first quarter? Is it second quarter? Is it third quarter? And how much hurt will be in the market before then?

Operator: Next question is from George Staphos from Bank of America Securities.

George Staphos: Congratulations on the progress. Tony and Ken, I guess, I have 2 questions for you. First of all, regarding the North American converting operations in corrugated. I think you had mentioned that 70% of the business now is at — and I forget exactly how you termed it, but better or acceptably profitable levels. If you could talk a bit more about what that means, recognizing that the margin in North America is maybe one of the proof points there. Can you help us quantify how you’re determining the 70%, if that’s the right ratio? And what else needs to occur to move the ball further, recognize you made a lot of performance already — progress already? Secondly, on the boxboard side, you made a couple of interesting comments about ultimately, in essence, the customer is going to choose a substrate that makes most sense.

Each of them, whether it’s CUK, SBS, CRB has — have their own unique aspects. The fact that you’re being able to move the SBS to a customer, when in theory, they would have already been in a grade that — using your discussion point, they already would have liked to have been in, i.e., CRB. What’s causing the move to SBS? Is it just purely where price is right now? Or what else are you reminding people of in terms of SBS’ performance versus the other grades?

Anthony P. J. Smurfit: Okay. Let me take the second one first, and I’ll come back to the North American corrugated. Basically, on the 2, we’ve seen the SBS piece is more about brightness. There’s a brighter sheet. Caliper, you can get the same performance from a slightly lower caliper. And then I would say, printability, stroke, machine efficiency on the customers’ lines, which — the 3 reasons why we’ve been able to sell SBS versus CRB. Of course, there will be some customers, George, as I said in my thing that will want CRB because it’s a fully recycled sheet. And that’s fine, too and — if people want that. But we are selling SBS, and it’s competitive with where SBS price has gone. It’s basically competitive now with CRB.

And so therefore, we’re comfortable to sell it to customers, and we make good money at it at these current prices because, as I say, the caliper is lower. And we have basically our 2 SBS mills in the United States, are very good mills in Demopolis and Covington. So — and then the CUK has got some unique properties for the freezer and strength for the freezer and again, a caliper issue that can help make it competitive against the CRB sheet. So — but that’s — again, some customers will prefer CRB and we can offer them that too. So what we’ve been doing is because, obviously, we have got very, very good SBS mills and very good CUK mills that were — we would offer them that. And as you know, we’ve closed the CRB mill. So we have open capacity to be able to sell SBS versus CRB.

And that’s been a big positive win for us, George, as we look forward, and it’s going to be something that’s going to continue, I would say. With regard to our North American corrugated business, I mean, I think this is where you really see the owner-operator model in action. We have empowered our people to basically act locally, get involved in local markets again, think about their local customers and to think about profitability. And a lot of business was taken on in legacy Westrock under the basis of a combined profitability. That is not the way we think. We think that’s the road to [ predation, ] that’s road to death in our business where you have 2 sets of capital needs and 1 profitability. And that’s the way that we have, I suppose, continued to survive in Smurfit — legacy Smurfit, legacy Smurfit Kappa is that we treat capital as a very important thing.

And if you want to make a capital investment, you better be able to justify it. And if you got 2 operations with 1 profit that masks where you’re making the money, then you’re not making the right capital decisions. So what we’ve done is we’ve spent the first 6 months of our tenure as a combination, making sure that the P&Ls were done correctly, that the balance sheets of each plant were put into the right order. And then we’ve told our managers, this is — you’re now profitable for — you’re now responsible for your profitability. And of course, when you tell them that and they see customers with negative 30% or 40% margins based upon a fair paper price transfer, they’re going to do something about it, and we expect them to do something about it.

And if they don’t do something about it, they won’t be with us, frankly. So the reality is we are actively moving both at a national level and at a local level to make sure that accounts where you’ve got terrible margins are not run on our expensive valuable beautiful machines in our converting plants. And that’s a process that’s ongoing. It’s one of the reasons why, as I mentioned to an earlier question, a lot of business was taken on prior to us coming on board, which was not economic, frankly. And we’ve had to address that, and that’s gone away again. And sometimes it’s gone back to the same homes it came from, which is quite — kind of interesting. But so that’s how we’ve — pardon me.

George Staphos: No, please go ahead, sorry.

Anthony P. J. Smurfit: Sorry, George. So that’s how we’ve moved very quickly from people understanding their profitability to changing a lot of the plants. So we’ve gone from — we’ve cut our loss makers by 50%. And as we continue to address this, and there will be some plants that will make it. But inevitably, I’d say the vast majority will get to profitability in the next couple of years.

George Staphos: Tony, just a quickie and feel free to punt to February, if you’d like. On boxboard, recognizing it’s not the majority of your business, clearly. If there’s some rollback in tariffs, how might that change your overall view of the attractiveness of SBS? Has — said differently, has one of the things that’s changed in the calculation, your ability to move more SBS been the fact that maybe some of the folding boxboard that was coming to the market has been, I wouldn’t say, tariffed out, but certainly has more cost coming into the market. How should we think about that?

Anthony P. J. Smurfit: Thank you. I don’t think tariff really comes into our thinking here. I think Obviously, the price comes into our thinking because the price of SBS has come down a bit. So therefore, it’s more competitive as a grade versus other substrates. And obviously, FBB against SBS with the tariff is making it more challenging. But I still think that the FBB is going to be sold in the United States irrespective because the price — there’s a lot of capacity in FBB specifically in Europe, and they’re going to come anyway, I think, to the U.S. with all the added costs that’s with it. So I think it’s up to us to sell SBS. I think one of the things that for everyone here to understand that SBS is a myriad of different grades.

I mean you’ve got cup stock, you’ve got plate stock, you’ve got lottery cards, you’ve got cereal boxes, you’ve got freezer box. There like — there’s very, very many different grades of SBS that are sold at different price points, that are sold at different quantities to different customers. And so our hope and belief is that we can continue to develop newer grades into SBS that will allow us to earn a material return going forward. And there’s no evidence to say that, that should be otherwise. We’ve been getting new customers in lottery cards, for example, which is — it’s only 15,000, 20,000 tonnes, but every little bit helps, as they say, over here. And these are good grades of highly profitable business for us to develop in the years ahead.

Operator: Next question is from Charlie Muir-Sands from BNP Paribas Exane.

Charlie Muir-Sands: Just a couple, please. Firstly, on the revised guidance, it obviously implies a fairly wide range of potential outcomes on Q4. Just wondered if you could elaborate on the main outstanding uncertainties for the range. And then previously, you’ve been sort of talking about beyond the operational synergies, the $400 million, you talked about at least another $400 million of opportunities. I just wondered if you had any kind of updates on that. And then finally, you mentioned that one-off operational issue in Latin America. I just wondered if you could quantify that given it was relevant enough to call out again.

Ken Bowles: Charlie, I’ll take those. Start with the last one first. It was a kind of a continuous digester issue in [Technical Difficulty] in Colombia, which probably cost about $10 million in the quarter, but it’s $6 million now. So that’s the big impact there. In terms of the guidance range, it really, I think the more it has on the years gone past, December tends to be the swing factor here in terms of why we’ve kept a slightly — and I wouldn’t say the range is wider. I think we just moved down the midpoint a bit to take account of the downtime piece. But really, it’s going to come down to where you see December — sorry, where we see December. And as kind of Tony alluded earlier on, as we’re kind of exiting into the quarter, we’re not necessarily seeing a much improved demand backdrop.

But equally, in our natural sense, we haven’t given up hope and a sense of optimism that things won’t get better even before the end of the year. So I don’t think we can be that negative on the outlook. So really, it’s around where does December sit in that conversation. In terms of the bit in the middle, I think George actually pointed to part of this answer in his question, which is when you look at the margin performance in North America, given everything that they’ve been dealing with in terms of where volume is, the incremental downtime, the headwinds, the performance of the margin in North America probably tells you that a chunk of that additional operational commercial improvement is coming through in the numbers already. Where that goes to, that’s the kind of how long is the piece of string to kind of answer because look, it really depends on how many programs we can get at.

It sort of goes back to Tony’s point earlier on about the owner-operator model and really putting empowerment in the hands of every single GM or mill manager to drive their own business for the best returns, their cost takeout, their improvement programs, their delivery on CapEx. So yes, we’re still, I mean, very comfortable, if not more comfortable with the well in excess of where the synergies ended. But I think it’s fair to say we are beginning — without being able to quantify it exactly, we are beginning to see the benefits of that coming through simply in the margin performance in North America alone and particularly in the corrugated division.

Charlie Muir-Sands: Great. And you’ve obviously given us the 2026 CapEx and elaborated on the rationale for it qualitatively. But just in terms of the returns that you’re targeting beyond maintenance or onetime depreciation, what kind of thresholds are you typically setting for the investments you want to make in the business?

Ken Bowles: As a blend, Charlie, look, it won’t be any different than we’ve had before. It sort of goes back to that portfolio approach of trying to drive the incremental return and return on capital forward. So generally, no more than the old system, we would expect that entire portfolio to kind of be in that sort of 20% IRR range, delivering kind of mid-teens, at least in terms of where ROCE sits as a result. That is, of course, dependent on what those projects do, particularly cost takeout. You’re obviously going to get higher returns from sustainability, energy back-end projects. You might get lower returns in the early years, but history has shown us that as those projects embed and move forward, you have much better returns as they move out.

So not pinning it necessary to a target return in individual projects. But as a portfolio, it has to drive forward in terms of where ROCE is because ultimately, that goes back to my comment earlier on, this is about capital in and cash flow out. So not a dissimilar profile to what we would see — you would have seen previously in terms of how we characterize the deployment of capital and allocating capital in a kind of Smurfit context.

Operator: The next question is from Lewis Roxburgh from Goodbody.

Lewis Roxburgh: Just my first question is on cost. You mentioned in the last quarter, you expected some relief on OCC pricing. So I just wondered to see if that was playing out as expected and if you’re getting any other relief from the other buckets like energy or that might just spill into next year? And then just in terms of CapEx, I just wondered some more detail how much of that spend might be related to the legacy Westrock assets versus other projects as well and whether this is sort of the new normal or further increases might be needed to tie into those realization synergies?

Anthony P. J. Smurfit: I’ll take the second piece, Lewis, and then I’ll let Ken take the first piece. Basically, the CapEx number is slightly skewed towards the legacy Westrock assets because we are a very well-invested base in Europe and Latin America. So what we’re doing is we’re putting a little bit more capital into some of the box plants to improve the quality and service aspects to improve the corrugators. So all the things that we have done over the last 10 years in Smurfit Kappa, we’re now implementing over the course of years, not just next year but the years going forward to continue to improve the legacy Westrock business and make it better — even better than it is. So there’s a slight skewing towards legacy Westrock, but not massively material because, as I say, we’re in very good shape.

In Europe, we invested for growth, and we’ve got very good assets in our European business. And while there’s always growth opportunities like in Spain, like in Eastern Europe and specifically plant by plant. I think that as a whole, the European business is very well invested. And what we’ll do over the next 3 to 5 years is continue to develop out our Westrock asset base — legacy Westrock asset base.

Ken Bowles: Lewis, I’ll just take some of the bigger cost buckets and just — alongside fiber because it’s probably useful to kind of round some of them out for yourself and your colleagues. In terms of fiber, I think at the half year, we probably said that, that was going to be a tailwind of about [ 100. ] We probably see that in the about — as you sit here today, somewhere between 130, 140 of a tailwind. Energy, I think at the half year, we might have said about 250 of a headwind. Probably coming in now, we probably see that about the 180 space. Labor, similarly, we probably thought about 200, probably down around the kind of 180 space as well now. Downtime is probably going the other way in that, in a sense where we would have thought downtime was probably going to be 150.

It’s probably anywhere between 180 and 200 at this space given what we now see for the fourth quarter. So they are really the big cost buckets in terms of the incremental changes that we would have said Q2 versus where we see the year panning out.

Operator: Next question is from Anthony Pettinari from Citi.

Anthony Pettinari: On the full year EBITDA bridge, maybe Ken, just filling in on the pricing side. Can you give us an update on where you maybe thought pricing would shake out midyear versus where you are and where you might end up with the full year guide?

Ken Bowles: Yes. I think it’s pricing broadly, we would have thought to plug that in there. I think we probably see pricing coming out somewhere between, call it, 830, 840 versus where it would have been about 900 at the half year. So a small call off probably because of the fourth quarter and where demand is going, maybe a little bit of price weakness there, but not materially down versus what we would have thought.

Anthony Pettinari: And would that — would North America be 700 or 750? Or — between North American and Europe, how would that breakdown?

Ken Bowles: I’ll defer that, to read the segmental bridge [ to you guys when ] you get into the trenches with them later on. I think if that’s okay, I just have to [ take them ] with me here.

Anthony Pettinari: Yes, no problem, no problem. And I guess maybe just one follow-up. You mentioned energy projects, and I mean from other industrial companies and paper companies, we’ve heard a lot about cost inflation and particularly electricity with demand from AI and data centers. Can you just give us kind of a quick recap of where you are with kind of current energy projects, especially in North America and not to steal any thunder from February, but just how you think about the opportunity in energy at your mills going forward?

Ken Bowles: [ Well, where do we start? ]

Anthony P. J. Smurfit: Well, we just approved a large energy project in our Covington mill, which will actually move away from coal to natural gas. And that’s going to be the IRR on that is depending on where you think the price of the commodity is a minimum of 20% and a maximum of 80% — sorry, not even a maximum. It’s not the maximum is not capped, but realistically, a 50% return for the mill. So I guess what we will be doing, Anthony, is just taking every energy project as it comes and what kind of return we can get on it. Specifically, the only one that we’ve approved since we’ve come in is that one. We use gas primarily in most of our facilities. We do a little bit of coal where we have to, and obviously, in other places where we can remove it, we will be.

We have a large biomass project in Colombia, which is going to be coming on stream next year, biomass boiler, which is a considerable saving for us in energy. So we’re — we continue to look at energy projects. But with regard to how these AI data centers are affecting us, I haven’t heard that they’re driving any major cost increases for our mill systems where our mill systems are located.

Ken Bowles: I think kraft systems by their nature tend to be fairly well served from a power plant, back-end perspective anyway in that sense. And so not necessarily totally insulated, but generally CO2 positive. But great source of their own energy from a kind of a turbine perspective. In addition to what Tony said, we have a kind of progressive program. We electrified some boilers in Europe over the years. We continue to invest towards the reduction in CO2. I mean, the added benefit from the project Tony talked about there in Covington is it reduces our group CO2 by 1.2%. So very important, if you like, as you look forward to where our customers need to be on scope through emissions and things like that. So there’s always benefits above and beyond the pure EBITDA benefit we find to energy projects, and it sort of goes back to what we’re trying to get to in terms of low-cost producer and where those mill sits, which allows us to kind of be at the forefront of where we do that.

So generally, it’s always going to be a progression towards either less reliance on some fossils and something else and more sustainable renewable fuels. But the system in and of itself is fairly well set as we start off.

Operator: And the last question today is from Mark Weintraub from Seaport Research Partners.

Mark Weintraub: A few quick follow-ups. First off, so with other box shipments in North America, do you have a sense as to when you think you might be inflecting more positively versus the industry? How long is the process of sort of the shedding underappreciated business likely going to persist?

Anthony P. J. Smurfit: Maybe overappreciated business. We’ve given them boxes for nothing, Mark. So yes, I would say that — I would hope that from the third quarter on next year, you’ll start to see some positive movements. We’re still — we still have some businesses that are very poor piece of business that are under contract that will run out during the first and second quarter of next year. And then obviously, we’ll have to go out and replace those or we’ll retain them. We’ll see how the customer reacts to our discussions with them at that time. But if I look at the amount of backlog and pipeline that we have for new business, it’s colossal in the sense that I feel very comfortable that we’re going to start landing a lot of that business.

And we already have landed a lot of that business, frankly, but it just takes a little while to qualify and then get into the plant. So — when I — so I would say the third quarter of next year, you’ll start to see us inflecting versus this year with better quality business in all of our facilities.

Mark Weintraub: And then what’s your strategy? What have you been doing vis-a-vis outside sales of containerboard in North America into either export or domestic channels?

Anthony P. J. Smurfit: Yes. It’s — the export market, as you know, is weak and a lot of the capacity closures that have been announced in the industry have been geared towards the export market, specifically down into the South American market specifically. And so one of the things that I found out is that these people down in these countries have pretty big inventories. And I think we need some time for those inventories to shake out before we see movements in export prices to the positive because the export price is clearly too low for it to be viable for people to survive. We are selling some into the export market, but clearly, we don’t want to sell too much into the export market at that price that’s there. But I would say it will be like a eureka moment.

At some point, things will change, and people will — the price will move up very sharply in the export market because it’s too low at the moment. But all of the capacity that’s come out of the market isn’t really affecting it at this time because the stock levels of most customers down there are very, very high.

Mark Weintraub: And in the domestic channel, I mean, historically, the legacy Westrock business had sold a fair bit to independents, et cetera. Has that continued? Or has there been some change in that regard?

Anthony P. J. Smurfit: We do have outside customers, and they’re important outside customers, and they’re generally long-term outside customers, people that we served for a long period of time, and we continue to do that. And there’s been no real change on that as I can see it.

Mark Weintraub: Great. And one last quick one, just to squeeze in. So with the SBS from CRB, et cetera, I assume the customers are running that on the same machinery. And so is it pretty easy to switch back and forth between the grades depending on the variables at play?

Anthony P. J. Smurfit: Yes. I mean, basically, yes. I mean you might need a technician to run a lower caliper product on the board just to adjust the machine slightly, but there’s no real big — one of the things that we have heard from our customers is that our — the SBS runs better than the CRB. But I’m sure if you talk to somebody who runs CRB, they’re going to say the opposite, but that’s what — that’s what our people tell us from the customer. But I’m sure you can get someone else to say exactly the contrary. But I believe that to be the case because it’s a cleaner sheet.

Operator: Thank you. I will now hand the conference back to Tony for closing comments.

Anthony P. J. Smurfit: Thank you very much, operator. I want to thank you all for joining us today. We remain very excited about the future of the Smurfit Westrock business. We’re enthused about a lot of the changes that are happening — that have happened and that are already happening. And we look forward to the future with great enthusiasm. So thank you all for joining us, and I look forward to seeing many of you in the months ahead. Thank you all.

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