Smurfit Westrock Reports Third Quarter 2024 Financial Results
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Smurfit Westrock plc announced the financial results for the third quarter ended September 30, 2024.
Tony Smurfit, President and CEO, commented, "I am pleased to report an excellent performance for the third quarter, the first for Smurfit Westrock. The Net Loss for the quarter of $150 million was primarily due to transaction related expenses and purchase accounting adjustments totaling approximately $500 million. With Adjusted EBITDA of $1,265 million and an Adjusted EBITDA Margin1 of 16.5%, these results are a strong foundation to build upon.
"Our established track record of delivering value to our customers through service, quality and innovation is already beginning to yield results. Equally, we believe our focus on plant level autonomy, operational improvement and profitability will deliver in time, benefits at least equal to the stated synergy target of $400 million.
"Our third quarter performance, combined with our deeper knowledge of the Combination and continuing asset optimization, clearly points to the opportunities ahead for Smurfit Westrock. We are at the start of our journey to build the 'go-to' sustainable packaging partner of choice, a global leader with an unrivalled scale, geographic reach and product portfolio. Having spent the last number of months visiting our plants, it is also clear that our people are excited and motivated to be a part of this journey.
"We expect 2024 Full Year Combined Adjusted EBITDA of approximately $4.7 billion and we are increasingly excited by our immediate and longer-term prospects."
Third Quarter 2024 | Financial Performance
Smurfit Westrock's net sales increased by $4,756 million, to $7,671 million in the third quarter of 2024 from $2,915 million in the third quarter of 2023. This increase was primarily due to the positive impact from acquisitions of $4,693 million, of which $4,684 million related to the acquisition of WestRock, and a net positive volume impact of $98 million (excluding the impact of acquisitions), primarily driven by an increase in corrugated volumes. The above increases were partially offset by the net negative impact of a lower selling price/mix of $30 million and a net negative currency impact of $5 million.
Net income decreased by $379 million, to a net loss of $150 million, with a net income margin of negative 2.0% in the third quarter of 2024, from net income of $229 million, with a net income margin of 7.8% in the third quarter of 2023. This decrease was primarily due to a $4,148 million increase in cost of goods sold (including an expense of $227 million for the amortization of the fair value step up on inventory recognized on WestRock's inventory acquired) and a $657 million increase in selling, general and administrative ("SG&A") expenses, both driven by additional costs related to the acquisition of WestRock. Additionally, transaction and integration-related expenses associated with the Combination increased by $250 million. These increased costs were partially offset by the increase in net sales.
Adjusted EBITDA for the Company was $1,265 million, with an Adjusted EBITDA Margin of 16.5% in the third quarter of 2024, compared to Adjusted EBITDA of $525 million, with an Adjusted EBITDA Margin of 18.0% in the third quarter of 2023.
The Company's interest expense, net increased by $128 million, to $167 million in the third quarter of 2024, from $39 million in the third quarter of 2023 primarily due to increased debt in connection with the Combination partially offset by higher interest income on cash balances.
Other expense, net increased to $13 million from $4 million in the third quarter of last year primarily due to a $12 million expense recorded in the third quarter in connection with the sale of receivables under an accounts receivable monetization program acquired as a result of the Combination and partially offset by other movements.
Income tax expense decreased by $40 million to $33 million in the third quarter of 2024, from $73 million in the third quarter of 2023, primarily due to the loss in 2024 compared to a profit in 2023, the change in the geographical mix of earnings and the significant impact of transaction and integration-related expenses associated with the Combination which are only partly deductible for tax.
Net cash provided by operating activities decreased by $58 million, to $320 million in the third quarter of 2024, from $378 million in the third quarter of 2023. The decrease was primarily due to an increase in tax payments of $29 million, an increase in net cash interest paid of $162 million and a negative working capital change of $272 million, partly offset by an increase in consolidated net income adjusted for non-cash items.
Including capital expenditure of $512 million in the third quarter of 2024, and $202 million in the same period last year, free cash flow was an outflow of $192 million in the third quarter of 2024 and an inflow of $176 million in the third quarter of 2023. Excluding transaction, integration and restructuring costs of $310 million (net of tax) in the third quarter of 2024, Adjusted Free Cash flow for the period was an inflow of $118 million. Adjusted Free Cash Flow in the third quarter of 2023 was an inflow of $214 million.
Adjusted EBITDA for our Europe, MEA and APAC segment remained at $411 million in the third quarter of 2024, consistent with the same period in 2023. This was primarily due to a $37 million positive impact from the acquisition of WestRock offset by a reduction in Adjusted EBITDA (excluding the impact of acquisitions) primarily due to an increase in raw material, payroll and distribution costs, partially offset by an increase in net sales and a decrease in energy costs. The Adjusted EBITDA Margin in the Europe, MEA and APAC segment was 15.5% in the third quarter of 2024, compared to 18.8% in the third quarter of 2023.
Adjusted EBITDA for our North America segment increased by $714 million, to $780 million in the third quarter of 2024, from $66 million for the third quarter of 2023. This increase was primarily due to a $724 million positive impact from the acquisition of WestRock partially offset by a $10 million decrease in Adjusted EBITDA (excluding the impact of acquisitions) primarily due to an increase in raw material costs. The Adjusted EBITDA Margin in the North America segment was 16.8% in the third quarter of 2024, compared to 16.4% in the third quarter of 2023.
Adjusted EBITDA for our LATAM segment increased by $42 million, to $116 million in the third quarter of 2024, from $74 million for the third quarter of 2023. This increase was primarily due to a positive impact of $56 million from the acquisition of WestRock partially offset by a reduction in Adjusted EBITDA (excluding the impact of acquisitions) primarily due to an increase in payroll and other costs. The Adjusted EBITDA Margin in the LATAM segment was 23.1% in the third quarter of 2024, compared to 22.0% in the third quarter of 2023.
