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DS Smith shares gain as weak profit expectations met

DS Smith shares rose on Thursday after the packaging group announced its full-year results for the 2023/24 fiscal period.

Despite a weak consumer demand environment and high inflationary pressures, the company delivered adjusted operating profit of £701 million, meeting weakened management expectations.

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“This was always going to be a challenging set of results for packaging giant DS Smith. The paper and packaging market hasn’t been kind,” said Matt Britzman, equity analyst, Hargreaves Lansdown.

“A mix of lower prices and soft user demand has hit the top line hard. The good news is that the outlook is improving, and trends toward the end of the year pointed to volume growth and the potential for price tailwinds later in the new year. Longer-term demand shifts, like the move from plastic to paper, should hold DS Smith in good stead”

While like-for-like box volumes declined by 2% year-on-year, the company witnessed an improving momentum, with the fourth quarter registering a 2% growth compared to the same period in the previous fiscal year.

Revenues sank 17% and Profit before tax plummeted to £504m.

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While the impact of box and other volume declines led to a £35 million reduction in adjusted operating profit, DS Smith’s cost mitigation actions and reduced raw material costs partially offset the decline in sales prices. The company’s raw material costs decreased by £661 million, and cost mitigation initiatives and reduced other costs totaled £398 million, resulting in an overall decrease in costs, excluding the impact of volume declines, of £1,059 million compared to the previous fiscal year.

“Higher inflation has caused input costs to rise whilst also impacting demand for most businesses and DS Smith is no exception. This link up will allow some synergies in that regard and also help the business to stand up to the increasingly robust competition in this area,” said Adam Vettese, analyst at investment platform eToro.

While investors will be interested to see the progress DS Smith has made, their main focus will be on a recent merger approach from International Paper.

DS Smith has received a recommended all-share offer from International Paper to combine the businesses and create an international sustainable packaging solutions leader.

DS Smith shares were 1.9% higher at the time of writing.

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