Cardboard box maker DS Smith predicts earnings to exceed forecasts

Cardboard packaging supplier DS Smith now expects annual profits to be higher than expected, despite a slowdown in demand for corrugated boxes.

The London-based company, whose packaging, paper and recycling products are used by the likes of Amazon and Tesco, said ‘very strong’ sales growth and solid cost containment had led to higher profitability.

Adjusted operating profit for the six months ended October 31 is now estimated at at least £400 million, compared to £276 million in the same period last year.

DS Smith shares rose 9.6 percent to £2.65 in early trading on Monday following this announcement, marking it as the highest riser on the FTSE 100 Index.

However, since the start of 2022, the company’s stock price has fallen by more than a third as pressures on the cost of living have increased and the pandemic-induced boom in online shopping has abated.

Businesses have increasingly reported a decline or modest increase in e-commerce sales this year, amid an uptick in store purchases due to the lack of Covid-related restrictions.

Miles Roberts, chief executive of DS Smith, nevertheless told investors this morning: “I am very pleased with the performance over the past year and the momentum in our business.”

“We remain focused on delivering for our customers and controlling our costs in an inflationary environment.

“While the macroeconomic outlook remains uncertain, this year’s performance is better than our previous expectations, and we look forward to the rest of the year with confidence.”

DS Smith told investors early last month that sales of corrugated boxes had fallen slightly in the first quarter.

It also reported that nearly all input costs had risen dramatically, particularly for energy, which has skyrocketed as pandemic-related restrictions have eased and the war in Ukraine has escalated.

To offset these higher costs, it has increased packaging prices and sought to limit the amount of cardboard used in products.

In addition, the company has covered more than 90 percent of natural gas costs for this fiscal year and approximately 80 percent for the following 12 months.

Russ Mould, investment director at AJ Bell, said: “Despite declining volumes, DS Smith has shown real pricing power. Innovation in the industry means there’s something more it produces than the soggy old cardboard boxes sitting in your attic.

“DS Smith’s ability to keep a tight grip on costs, despite significant inflationary pressures, is another tick and shows that this is a well-run business.”