Cardboard box maker DS Smith predicts earnings to exceed forecasts

Cardboard packaging provider DS Smith now expects annual profits to come in ahead of expectations, despite a slowdown in demand for corrugated boxes.

The London-based firm, whose packaging, paper and recycling products are used by the likes of Amazon and Tesco, said ‘very strong’ revenue growth and sound cost mitigation had led to enhanced profitability.

Its adjusted operating profits for the six months ending 31 October are now set to total at least £400million, compared to £276million in the same period last year.

DS Smith shares jumped 9.6 per cent to £2.65 in early trading on Monday following this announcement, making it the top riser on the FTSE 100 Index.

Since the start of 2022, though, the company’s share price has declined by over a third as cost-of-living pressures have grown and the pandemic-induced boom in online shopping has subsided.

Businesses have increasingly reported either a drop or modest rise in e-commerce sales this year amid a revival in store purchases due to the absence of Covid-related restrictions.

Miles Roberts, chief executive of DS Smith, nonetheless told investors this morning: ‘I am very pleased with the performance in the year to date and the momentum in our business.’

‘We remain focused on delivering for our customers and managing our costs in an inflationary environment.

‘While the macro-economic outlook remains uncertain, performance this year is ahead of our previous expectations, and we look forward to the remainder of the year with confidence.’

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

It also reported that almost all input costs had dramatically gone up, particularly for energy, which has soared as pandemic-related restrictions have been relaxed and the Ukraine war has escalated.

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

The company has additionally hedged more than 90 per cent of natural gas costs for this financial year and around 80 per cent for the subsequent 12 months.

Russ Mould, investment director at AJ Bell, said: ‘Despite falling volumes, DS Smith has demonstrated genuine pricing power. Innovation in the sector means there’s a bit more to what it produces than the soggy old cardboard boxes sitting in your attic.

‘DS Smith’s ability to keep a tight rein on costs, despite significant inflationary pressures, is another tick in the box and shows this is a well-managed outfit.’