Q1 2025 Earnings Call Transcript

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. [Operator Instructions].

Please be advised that today's conference is being recorded. I would now like to turn the conference over to Ciaran Potts, Smurfit Westrock, Group VP Investor Relations. Please go ahead.

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 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 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.

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 regions 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 timeframe 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 in 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, and as and when appropriate, we continue to look at rationalization opportunities within our system. And while these are very difficult decisions to make, it is entirely in line with our philosophy of ensuring that our stronger assets get stronger but 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 U.S., 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 plants-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 take-out 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 take-outs 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.

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 on slide 9, 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 experience 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 report of performance for 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. As a result of the combined results in the first quarter of last year, we saw 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 continued to demonstrate resilience as sales remained 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 and continue to deliver for our customers and manage a volatile cost environment. We also saw a higher corrugated box price this year, near a 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 have continued to make significant investments through new converting machines, upgrades to corrugators and safety systems and substantial investments in our bag and box business.

We continue to 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 half a billion, adjusted EBITDA of $115 million and an adjusted EBITDA margin of over 22%. Again, when looking at the comparative performance year and 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 in outsized drag on the region's demand picture, along with our value of our 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 run rate synergies exiting 2025. We expect to realize approximately $350 million in adjusted EBITDA this financial year, with $80 million being recognized in their 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 our longstanding value over volume philosophy, the rationalization of high-cost capacity and consolidation of production to more efficient plans, and to the rollout of our operational best practice and our suite of unique innovation tools. And 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.

And while the demand outlook is uncertain, we expect second quarter adjusted EBITDA to be approximately $1.2 billion, and our current estimate for a full year adjusted EBITDA is between $5 and $5.2 billion. And with that, I'll pass it back to Tony for some closing remarks.

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 take-out, 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's no doubt that we are in uncertain times, we believe the actions we're taking today and will continue to take will translate to superior operating and financial performance in the months and years ahead.

And with that, operator, we will go over to questions and thank you all for listening.

Thank you. [Operator Instructions]. And your first question comes from the line of Charlie Muir-Sands from BNP Paribas. Please go ahead.

Charlie Muir-Sands: Good morning, good 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 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 deteriorating, at least at the moment. And 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? And have you factored in OCC? Yes, just digging into some of the assumptions there. And then 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've previously been indicating? Thanks.

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 to get the benefit as early as possible. You know, obviously our CapEx plans are going to depend on what the environment is and what we see the future environment is.

And we feel very comfortable with the assets that we bought. We feel very comfortable with the positioning of the company. And 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. But it's very early days, Charlie, but I think we're just getting a jump on a relatively small amount of capital for 2026. And the good news is for anyone who's listening is that we don't 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.

And that's always been a key tenant of this company is to make sure that we have the agility to be agile and that's what we will continue to be. And obviously, as I mentioned in my notes, that 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. And so that will decide what we spend in 2026 and beyond. But no decisions yet and we're not, to use the euphemism, we're not at all ahead of our skis here.

With regard to the box volumes, what we're saying is we don't anticipate very significant box volume improvement. In fact, probably because of our value strategy, we'll probably continue to improve our earnings but probably lose some volumes. But at the same time, we are seeing very, very significant adoption by our people about the way that we're managing the business. And 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. And 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 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.

So we're going to bring that forward. And then 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. So we just have to wait and see over the next week or so to see what's going to happen with the second increase.

But the first increase is solidly in both in 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.

I think there are 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 discipline capital allocation and irrespective of how we see the outlook, our capital allocation always kind of fits into that. So we phase in time as we see fit depending on the environment that's ahead of us. But equally as Tony said, we're not carrying a lot of CapEx into 2016, so lots of flexibility and agility.

On the other side, 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 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 to 15 million. So that's 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.

Charlie Muir-Sands: Great. Thanks.

Thanks, Charlie.

Thank you. Your next question comes from the line of Philip Ng from Jefferies. Please go ahead.

Hey, guys. Congrats on a solid quarter in a tough environment. And then Tony can much appreciate it 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.

So 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? And, Tony, when you kind of look at your footprint holistically, whether it's the U.S., perhaps Europe as well, are there still any noticeable opportunities to take out more capacity? I'm particularly curious in Europe and on the SPS side for the U.S.

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, so the full year impact of those two mill closures from an adjusted EBITDA perspective is probably in the order of 50 million to 60 million of incremental EBITDA through the system of those closures.

And from a CapEx perspective, if you take a kind of a five-year general cycle of maintenance capital, there's probably a capital savings somewhere in the order of $100 million from those two closures in terms of maintenance capital avoided.

On the second question, Phil, we continue to look at our system. And 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. And unfortunately, we don't like to close things, but we'll continue to optimize our system going forward.

But obviously, as and when necessary, and as you will have seen that we've taken two machines out from in Mexico. And they're really small and in Holland, without their legacy Smurfit Kappa machines that have, done well for us for many years and just come, it's come their time. And we've 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. And that's why we figured that that's the right one to move on.

With regard to, and so 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. And that's what we've 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're continuing to develop. And when we're ready, we'll let the market know about what our thinking is in the various different grades that you'll have seen.

We've taken out a CRB mill today, but obviously we're looking at the market and seeing where things go. But when we're ready, we'll address that issue.

Super. From a demand standpoint, you guys are taking some economic downtime, 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 intra-quarter trends progress, April trends? And then 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. So any color on what you're seeing intra-quarter 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?

Yes, 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. So that gives us some encouragement. So 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'll wait and see what happens. If it comes, then we'll be very happy because a lot of our costs are under control. So we'll be very happy if demand comes back in the corrugated and container sector.

But we're not, as I say, banking on a very strong recovery. We're 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's no question that there's competitive threats out there that we continue to monitor. And that's something that it has got more choppy in the consumer side of things for sure.

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

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

Thanks, Phil.

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

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

Thanks, Mike.

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 2H and how that corresponds with your guide for the year?

Yes, I mean, we're sort of saying it will be somewhat similar with a little bit of upside because the comparators are a little bit better in the second half. So a little bit better than it is in the first half. You know, 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.

So we remain still optimistic – sorry, not still – still very optimistic on the sector. It's a question of when demand comes back. But, you know, I do think there needs to be some sort of level of consumer confidence coming back into the market to see that happening. And, you know, as we sit here, as of, I think it was this week or late last week, the consumer confidence index in the United States market was, you know, not very strong.

So we do need to see consumer confidence coming back. And I think that comes back to the whole question of tariffs and uncertainty and getting some certainty in those – 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, there's – while demand isn't strong, it's reasonable.

And, you know, most of our markets are doing, you know, well or reasonably well with one or two exceptions. So we feel good about the European market and our positioning and the pass-through of the first price increase that's gone in. And we'll wait and see whether the second one goes in or not. So we feel good about the European market.

That in America, you see the results as very strong for us. We, you know, we took some – we've taken some decisions that we don't – we believe in trying to make money for – and we believe in trying to give our customers excellence. And, you know, in doing that, you know, 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. And that's a message we're putting into our organization all over the place.

And, you know, there is obviously there's a consequence to that if you've got some bad business that you're going to have to let it go. And there's an adjustment period of time. So, you know, 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. And as I say, I think it's been well embraced by our people.

God, and I appreciate all the color, Tony. And just a quick follow-up. Just, Ken, you mentioned additional downtime of $100 million in 2Q. You had been originally thinking maybe $10 million to $15 million back in February.

Where are you taking this downtime? Is that mostly in container boards? Is there some in box boards? And can you give us a sense of the funds that you're taking out?

And then lastly, just on the synergy, it sounds like [indiscernible] with exit rate if $400 million, why the shift there in the synergies. Thanks very much.

If you remember, yes, I will take the segment first Mike. You would have to get little bit back in '24 so really it's a bit of '24 [indiscernible] you are existing and in terms of phasing I think '18 quarter one if you wanted to kind of keep it very simple the balance across the three quarters and for the rest of the year can get you there and again we get to the end of the quarter two, I can look back and tell you what we achieved. But no real change of phase. It's probably more of we picked up a bit in late '24, when you add them to the '25 you exit '25 at 400. In terms of where we're taking it, we 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.

So where we feel it's most applicable. And remember, a lot of the mills anyway will be taking downtime for maintenance, just a CapEx project, but not really a spit specifically on container board versus paper board, but across the system.

Got it. Thank you. And good luck in '25.

Thanks, Mike.

Thanks, Mike.

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

Gentlemen, [indiscernible] nice work on the first quarter here. Thanks for all the detail. 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. And Tony, I think in the last call, you mentioned 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?

Yes, 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. You know, 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.

And, you know, 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, you know, going overseas isn't a gift. So, you know, I don't and all of the people that are coming into the market have existing capacity, so it's not in their benefit to reduce pricing. So, therefore, we'll see what happens in the European market. But, you know, the outlook is, you know, we've got a very well integrated system and you know our model and it produced, you know, 15% returns in probably when you see other people in, you know, single digit returns and even lower than that.

So, you know, when the market does recover, I think you can see, you know, we're building off a very strong and powerful base with our system. And with regard to the first question was?

Well, 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 they're similar necessarily to North America, Gabe, in the sense that, you know, as paper prices come through to the market, it does take about three to six months before we begin to see them in the box price. So, you know, 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 at quarter four at the beginning of next year. So, not necessarily that different in terms of dynamics.

Probably slightly more, you know, as a group now, probably slightly more weighted on index and non-index than we might have been before. Smart for capital was broadly 50-50, probably closer more to 60-40 now. So, but in terms of the dynamics of pushing, you know, box prices through from a paper price, broadly similar. I suppose the backdrop for the paper side to follow up from Tony's comment is just to keep in your head that things like energy, you know, in the European context remain, you could argue, elevated and supportive to broadly where paper is.

Because, you know, we still have, albeit say this morning, 31 Euro megawatt hour, that's a long way away from the norms of 15 we might have seen years ago. So, the cost, 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 to go back four or five years. So, 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.

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. And, Ken, 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. And then 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.

Aggregate for the system, Gabe. So, the impact across the entire system from shilling those two mills gives you a full year benefit of adjusted EBITDA, plus $60 million. In terms of the, and a saving on the CapEx line of broadly $100 million over five years. In terms of the $400, that's back to the commercial opportunities we kind of talk about in, at least equal to the synergy target we put out.

So the $400 is broadly banked at this point, as you can imagine. But we've always talked about, going back to quarter three I think is when we first talked about it, still see significant value to be driven out. And that falls into that second bucket of more at least $400. But in terms of the mills, think about its full year run rate, $50 to $60, and CapEx avoided over a five year cycle of about $100. We can circle back, Gabe, to kind of, to button those down if there's any confusion.

And 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, you know, at least 50% of the cash cost back.

Thank you. Your next question comes from the line of Lars Kjellberg from Stifel. 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, you know, 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. But can you give us a sense of how you should think about incremental self-help benefits into, you know, '26, '27 as the synergies literally will be on the books already exiting '25?

Lars, I'll give that very difficult question to the second one to Ken. I'll take the easy one on tariffs. You know, like the USMCA, which is the main trade between Canada and Mexico and the United States, is in force until for 90 days. And, you know, we obviously, because we did a lot of cross-border trade with customers, mainly in 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 now produced in America.

And then equally the other way around and less so for Mexico because most of the stuff that's produced in Mexico is for consumption in the United States. So what we're seeing is very little at the moment. You know, 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. And we're sort of seeing a number of 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.

And, you know, obviously that's not what our intention and work around 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. But, you know, that's an issue of consumer confidence.

That's an issue of, you know, general consumer demand. And, you know, 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.

Hey, Lars. On the soft question, a quick win program. So you'll know as well, and we've done a number of these over the years. So generally, you know, these are projects that will deliver the returns within an 18 to 24-month timeline.

It's the only reason they get a lot of money. And particularly work well in inflation environments and high-cost environments like we are now because they allow you to take costs out fairly quickly. And, you know, there's a lot of projects here that add up to the numbers. But, no, 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 in a system of our size, all adding up to a decent benefit. But you should think about these if they start this year, you know, logically fully implemented between 18, 24 months at the outset with some incremental benefits for the short-term projects as we go through it. But, you know, two years max.

And 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. But it's just a question of management and fitting them in the envelope that we want to do. And as I said earlier, to fill, not to make sure that we don't get to the end of the year.

So, you know, we're, you know, we are very, we're very, very religious in making sure that we keep, stick to our knitting of what made the company Smurfit Kappa great and to make sure that we, we make the new Smurfit Westrock. So, you know, we're very, very religious in making sure that we keep, stick to our knitting of what made the company Smurfit Kappa great and to make sure that we, we make the new Smurfit Westrock. The kind of company we believe it's going to be.

And just one clarification point, when you talked about the cost benefits or even the positives from the closures, what is the timing of getting that benefit through? Essentially, when they're closing the bill.

Second half, we have to go through a process called the Warren Act, which is the United States requirement of 60 days. And so sometime, sometime, certainly by the end of July, we'll have completed that process in all likelihood. And then with regard to the other closures, 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 plan and depending on the movement to the volume.

Understood. Thank you and good luck.

Thank you.

Thank you. Your next question comes from the line of Detlef Winckelmann from JP Morgan, please go ahead.

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

It's just, it's just for Q2 and obviously, in Q3 and Q4, we won't have the output of the, of the other container board mills. So, so, you know, in a sense, and we'll have got the benefit, we'll be getting the benefit of that, that tonnage onto the existing mills. You know, so it's just, it's a one off. There will always be maintenance downtime, and there will be other bits and pieces of downtime and, you know, probably some machines not working the way we want them to work, but basically, you know, the downtime, the downtime that we're planning because of this situation in Q2 is a Q2 issue.

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

Thank you.

Thank you. Your next question comes from a line of Patrick Mann, Bank of America. Please go ahead.

Hey, good day. Thanks for taking my question. I've got two. The rationalization of the mills and the 600,000 tonnes you've taken out, but you've also spoken a bit about, you know, optimizing the packaging and the downstream operations.

Does it change your net paper position at all? And does that, or how does that factor into the environment? And then 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.

Hey, Patrick. It's Ken here. Yes, so the quick win project program will form part of that second 400, and that's why it's on the same timelines we would have talked about of achieving that 400 over 18 to 24. So it fits into that kind of bucket. I suppose, you know, what we're trying to do here is, as we kind of progress through the quarters, give you more kind of building blocks, how that 400 is built, and this is now in a place to kind of, you know, get on top of that.

So as we kind of progress through the quarters, give you more kind of building blocks, how that 400 is built, and this is now in a place to kind of, you know, get on with those quick win programs, projects, that gives you some level of kind of certainty around where that's going to come from in terms of, you know, through the income statement, through the capital line, and the returns of it. So no form is part of the 400. Actually, for both mills, for St. Paul and Forney, it does improve our integration levels a little bit. I think for, 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.

Yes, and just to add to that, Patrick, just on the quick wins, I mean, that forms part of it, and that's 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. And so that's why it gives us a lot of optimism for the future.

Thank you.

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

Thanks very much, and thanks for all the colors so far. I wanted just to come back to the first half to second half bridge, if I could. You're essentially assuming about 100 million to 300 million pickup in EBITDA. I caught you right.

You are looking for volumes to be flat to up modestly, so 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. So, presumably, you get synergies and some additional net productivity in the second half, and you've got the cost takeout.

And so, kind of 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. And so I was hoping to get some color on why that you think is happening. And if we don't get a more sustained pickup in demand in Europe, does that just come back, roll back over?

Thanks so much.

I'll take the second one and let Ken take the first part of your question. I mean, on waste paper, you know, it was a very big surprise to us, Mark, to be honest. You know, we had expected, we've been modeling somewhere around 120, 130 for the year, and all of a sudden it goes to 170, 180, you know, in the space of literally six weeks. And it happened because there was an auction in Italy, and one major player who was bringing on new capacity panicked, and then all the other people who were bringing on new capacity panicked, and they bid up the price.

And so the question of the sustainability of it is a very good question. We'll wait and see. But, you know, it is, while demand is not fantastic, it's not bad, it's certainly better than last year, and, you know, they're not making that much more waste paper. So, you know, it doesn't take a whole lot to flip it and move it, and, you know, I think the reason, you know, when one guy panicked in southern Italy or in Italy at a particular auction, it made a ripple effect throughout Europe, and that's what happens, because everybody needs this stuff.

As you know, Europe is a, fundamentally it's a waste-based market, and so that's what happens, and we'll see about the sustainability of it as we go through the summer. But, you know, there is new capacity in, demand's not bad in Europe, you know, stocks are low in paper, they're about 100,000 tons less than last year, and as I say, demand is reasonably good. So, you know, that's what caused it.

Hey, Mark. In terms of just broad building blocks and probably less half one to 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 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 to here.

Year-on-year about 350 million, call it, labor and inflation around that in the order of about 200 million. Other raw materials generally, you know, probably a headwind of about 100, 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 negative against that. You can see, though, you know, if you look at the pricing environment and the backdrop to that, which we would have talked about already today, you know, sequentially year-on-year, box pricing in North America is up broadly 8%, quarter-on-quarter, probably 3%.

So you can see that begin to come through the second half. Clearly the paper impact is coming through there as well. And the biggest piece there, back to OCC, was 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 to 150. So 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.

Super helpful, Ken. One last follow-up. 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?

Yes, we've been negative so far, but it's not necessarily material as you see here today given that the dollar has come back a bit. But 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 per in terms of where you see it. But not at the moment, slightly negative, but not material.

It's probably the best way to think about it for the first quarter, particularly in Latin America.

Thanks, guys.

Thanks, Mark.

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

Thanks very much, everyone. Thanks for taking the question. A number of them have been answered, but it's just one of the exceptionals that we might see this year. Obviously, you've got them 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? Is there anything else we should be thinking about, sort of accelerated depreciation or anything associated with the closures or any kind of a widely sort of restructuring charges that might hit this year?

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 the impairments of the fixed assets, et cetera, depreciation, if you want, about $188 million. So we'll take the impairments now, essentially, for the second quarter, and then the cash costs will go out over the remainder of the year. So nothing beyond either what we guys already or indeed those impairments from last night.

Appreciate it guys. Related to synergies, it's kind of as expected, sort of two, three, five.

Exactly, yeah. As expected, Kevin.

Great. All right. Thanks very much.

Thanks, Kevin.

Thank you. Your next question comes from the line of Gaurav Jain from Barclays. Please go ahead.

Hi. Good morning or good afternoon. Thank you so much. So two questions from me.

One is, recently we have read that, the Chinese container bold importers who are no longer importing from U.S., they are shifting some of their demand to LatAm. Is this something that you are noticing and do these changing trade flows somehow position you in a better context versus your other peers who are more sort of geographically, fixed? So that was question number one. And the second question was on, future potential M&A.

So you have done acquisitions in prior cycles, in prior down cycles. And yes, you just did this acquisition eight months ago and the balance sheet is leveled up to like two and a half times. But if, if we indeed get into weaker macro cycle and there is some opportunity which is too good to pass, would you consider it?

Well, I'll take the second one. Well, I'll take them both actually. Listen, our objective is to get our balance sheet down to towards the 2.0 times. That's what 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.

But, we're not going to do anything that's off the pitch, so to speak. We're very focused on making sure that we bet the organization down. We're very focused on making sure that we bet every part of the business down. There's still a lot of work to do, Jain, 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.

So 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 down time, and we believe that that's continuing to happen. Because of the lack of exports, there are many mills with regard to that have specifically their focus on exporting to China out of the U.S., and that would obviously be problematic for them right now.

We don't do any significant amount of exports to China. We do a lot of exports to Latin America where we have longstanding good relationships with, excellent customers, and we continue to keep those and develop those because, we believe in long-term relationships in Smurfit, Westrock, and, I don't think the Chinese thing is going to influence us negatively and can only be positive for us.

Thank you very much.

Thank you.

Thank you. We will now take our final question for today, and your final question comes from the line of George Staphos from Bank of America. Please go ahead.

Hi, everyone. Good morning. Good afternoon. Thanks for all the details, Tony and Ken.

There's been a lot of discussion on Container Board today, so I'm going to focus a little bit more on Consumer Board. You're, nine months into the acquisition. What have been the learnings that you can share on kind of an open-mic discussion about the value-address of being able to sell both consumer and secondary packaging? Well, we shouldn't call it that, necessarily, but corrugated packaging across all of your customers, and what's 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're allocating capital, looking at the footprint and so on relative to how you might go about your business in corrugated, and what should we take away, if anything, other than just your lying 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 a, you know, an ongoing business within Smurfit. Any thoughts that you can share would be great, and good luck in the quarter. Thank you, guys.

Thanks, George, and 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. And so we will view this business the same way we view our corrugated business, our bag-and-box business, our SAC business, you know, and decide where the best returns are going to come from as we look at each individual capital request.

So, you know, 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, and that's something that we'll work through and we'll communicate to the market when we're able to. You know, we're literally nine months into this, and, you know, 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, but 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. So, you know, that's the work in progress is to figure out, you know, how do we, where do we apply the capital and when and what markets can give you the, give the shareholders the best returns. And that's still work in progress, but, you know, I would say this is a, you know, 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. But, you know, as I say, with regard to the specific grades, we, I mean, you know, 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. And, you know, we're in the process of developing that and when we're ready, we'll come back to you and tell you what that is. But we're 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.

So, 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. You know, we are very proud of what this company has already become, but as I say, we are at the start of a long journey, a never-ending journey. But, you know, my colleagues and myself are really excited about the future.

And, you know, obviously it would be, we're living in uncertain times, as you all know, and, you know, when we get back to growth, this company is going to be extremely well positioned to take advantage of that in every way. So 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.