Detailed narrative
North America Performance and Demand Trends
The North America segment reported adjusted EBITDA of $597 million and a 13.3% margin, significantly impacted by $55 million from weather events and $74 million from downtime, with half being unplanned. Demand was tepid in Q1 due to muted consumer confidence and logistical issues in Mexico.
However, management noted much improved demand and strengthening order books across all paper and converting products as Q2 began, with price increases announced for containerboard and some consumer grades. The company secured over 600 new corrugated customers in Q1, and April's new customer volume was up 30% on March.
EMEA and APAC Regional Strength
The EMEA and APAC business delivered a strong quarter with $421 million in adjusted EBITDA and a 15.2% margin, outperforming peers. This performance is attributed to the company's innovation platform, which provides significant value to customers. The company recently hosted over 200 customers at a sustainability and innovation event in Amsterdam.
Despite not being affected by higher energy prices in Q1 due to hedging, energy price rises are expected in subsequent quarters. Consequently, higher recycled paper prices (EUR 100 per ton) and increases in kraftliner and specialty grades have been implemented, expected to translate to higher converting product prices in the second half of the year.
Latin America's Consistent Growth
Latin America continued its strong performance, achieving $109 million in adjusted EBITDA and an adjusted EBITDA margin exceeding 20%. The region benefits from Smurfit Westrock's position as the only pan-regional player, supplying both global and regional customers. During the quarter, the company completed a corrugated box plant acquisition in Ecuador, aligning with its strategy for organic growth and selective acquisitions.
Brazil and Colombia showed good volume growth and significant future growth opportunities, with generally tightening markets and improved pricing across the region.
Strategic Vision and Asset Optimization
The company's medium-term plan targets $7 billion in adjusted EBITDA and a 19% group adjusted EBITDA margin by 2030, aiming to generate $14 billion in discretionary free cash flow. This plan focuses on unlocking the potential of the North American business, outperforming in EMEA and APAC, and delivering dynamic growth in Latin America.
Smurfit Westrock is also reviewing its London Stock Exchange listing, with an anticipated conclusion in May, to ensure its structure reflects trading patterns and reduces complexity and costs. The company is optimizing its system, including the regrettable but necessary closure of 4 converting operations and 1 paper mill (200,000 tonnes/year capacity) in the U.K. and Netherlands, citing high costs and unsuitable long-term width.
Cost and Pricing Dynamics
Management discussed the interplay of demand and pricing, noting a rapid shift to strong demand across most paper grades, leading to a sold-out position. While some pre-buying due to announced price increases is possible, the company believes capacity reductions over the last 18 months are having an effect.
The first $50 per ton price increase is expected to be fully implemented by July 1, with the second $50 increase (announced for June) potentially by September. Cost inflation, particularly in energy ($270M-$290M for FY26) and freight ($50M headwind for FY26), is being partially offset by reduced labor headwinds ($50M for FY26) and lower downtime ($40M benefit in Q2 YoY).