Smurfit Westrock (SW) Q2 2026 earnings call transcript

I'll now hand you over to Tony Smurfett, CEO of Smurfit Westrock.

Thanks, Ciarán. I'm happy to be joined today by Ken Bowles, our EVP and CFO. Our second quarter results demonstrate the continued progress we have made in Smurfett Westrock with an adjusted EBITDA of 1.14 billion and an adjusted EBITDA margin of 14.2%. This is especially impressive when set against the very significant input costs we have absorbed with only early stage momentum on price recovery.

Cost increases, especially in freight, have been a feature of the quarter, and as a result, we have raised container board prices. These will be recovered through our converting operations as we progress through this year and into next.

Market conditions for practically all paper grades remain as tight as I can remember. Our focus remains on being the most innovative packaging partner, delivering superior quality and service for our customers, and the go-to sustainable packaging partner of choice. And as such, we remain committed to improving all aspects of our business. We're also relentless in our approach to cost takeout, which we have again demonstrated through asset optimization with a number of closures in both our North American and EMAA and APAC regions.

We have also continued focus on our owner-operator model, which I'm happy to report is showing considerable progress as we develop the new Smurfit Westrock culture.

Turning to the regions and firstly to North America, I'm happy to report progress and development across practically all areas. Most importantly, our full team for the future is now in place and delivering both cultural and operational change. Nearly all our paper mill system is fully booked and no commercial downtime is anticipated for the remainder of the year.

We have implemented pricing initiatives in both domestic and overseas markets, and shortage of supply is the current issue surrounding this business area. In our corrugated box operations, I'm delighted to report continued progress as we adopt our business model. Our number of recurring loss makers has considerably reduced, and our focus on innovation and customer service is attracting significant new business.

Our quality and service metrics continue to improve. For example, year-to-date, our quality metric has improved by over 25%. In our consumer business, we have also made significant progress with new investments coming online which will improve both productivity and our cost position. Importantly, we have also won new business because of our grade-agnostic approach that we have adopted. In our EMA and APAC region, I am very proud of the outperformance this region continues to deliver. The region consistently offers customers the most innovative and sustainable packaging as customers navigate a complex environment.

Our recent innovation event, intended by over 200 customers, demonstrated the depth of knowledge that we offer across all paper-based substrates.

In our fully integrated mill system, similar to North America, we're fully booked, and we expect to remain in this position. Our corrugated business remains very solid, with a better performance forecast for the second half, as we recover input costs with the normal lag period. Our consumer business is now fully integrated and there are many cross-selling and development opportunities that we're developing across Europe and Asia.

Turning to LATAM region, we continue to see a strong performance across most countries in which we operate with two larger countries, Brazil and Colombia, performing very well. Our approach to innovation across the region is a significant differentiator and our market positions give us opportunities for growth. This region is an attractive region for both internal investment and acquisitions as we look to the future. I'll now turn you over to Ken to take you through some financials.

Ken Kempf Thank you, Tony. Overall this is a strong second quarter performance for the group and as a reminder we've included detailed adjusted EBITDA bridges in the appendix for those who want to understand the quarter in more detail. At a high level, freight costs globally represent a significant headwind driven largely by higher fuel costs and shipping rates due to the ongoing conflict in the Middle East, and higher domestic transportation costs in both Europe and North America. Despite that, our teams across all regions did an excellent job mitigating those cost pressures through operational execution, pricing initiatives, and disciplined cost management. In North America, we continue to make significant operational and commercial progress. While corrugated volumes are down 4.8% on a same-day basis, or 4.5% on an absolute basis.

This is very much in line with our expectations as we continue to execute on our value over volume strategy. Importantly, we are seeing further improvement at stand with good order books and a strong pipeline of new corrugated business moving through August and into September. We remain focused on improving the quality of our customer portfolio, winning business where a decentralized operating model provides real value, while exiting lower margin business that does not meet our return requirements. Selling price remained a headwind in the quarter due to a small pass-through impact of weaker container index pricing in February and also coming before higher index pricing was realized in some of our paperboard grades which came this month. As mentioned, the region also absorbed a substantial portion of the group's freight inflation, yet still delivered a very resilient performance.

Our mill system remains generally full, order books are healthy, and commercial momentum continues to strengthen. In our EMEA and APAC region, Smurfs & Westrock continues to outperform through disciplined commercial execution, strong cost management, and an unwavering focus on customer service, quality, and innovation. Corrugative volumes were up 1.9% on an absolute basis, or 1.5% on a same-day basis. Our middle system operated at full capacity, and the integrated nature of our business continues to be a significant source of competitive advantage. Despite ongoing freight and energy cost inflation in the region, which has led to near-term margin compression, the team delivered another strong result supported by positive volume growth and continued productivity, procurement, and footprint optimization initiatives.

Latin America again delivered another excellent quarter. Demand remained healthy across our key markets as corrugated volumes continued to grow. The region continues to benefit from its strong market positions and the operational improvements delivered through recent investment programs. As a result, Latin America continues to generate attractive margins and strong returns while also presenting significant opportunities for future growth.

Our approach to capital allocation remains unchanged. We have a business with strong cash generation, strong balance sheets, and a significant opportunity to create value through disciplined investment and execution. As a team with deep industry experience, we continue to view internally deployed capital as the lowest risk and highest quality use of capital, an approach that remains central to the future success of our business.

Fundamentally, that is a returns-focused approach. Our balanced capital expenditure program is focused on improving our asset base, increasing efficiency, and supporting growth in attractive markets. As a reminder, the average annual CapEx across our plan is approximately $2.5 billion a year, with an average project spend of approximately $4 million, and no project of scale in any one year.

We currently expect to spend between $2.4 and $2.5 billion in total in CapEx this year, which is well in excess of maintenance capital and in line with our DNA.

As we outlined earlier this year, we also see substantial free cash regeneration over the coming years, and I would note that again today we announced a quarterly dividend of 45.23 cents per ordinary share.

Underlying all of this is a balance sheet with significant strength and flexibility. As profitability and returns improve, we believe we are well positioned to continue to invest behind growth and cost-take-out opportunities, while at the same time increasing returns to shareholders. We are committed to maintaining a strong investment-grade credit rating and are firmly positioned in that space with BAA2 rating and positive outlook from Moody's, BBB with stable outlook from S&P, and BBB Plus with stable outlook from Fitch.

So the message is a simple one. Discipline investment, discipline capital allocation, and a clear focus on creating long-term value for shareholders.

Now, as we look at the rest of the year, the main change in our full-year outlook is indeed the higher freight cost environment. As we discussed, events outside our control have resulted in significantly higher freight costs across the group, and this remains the most significant headwind we face in 2026.

While we have implemented pricing initiatives to recover costs, there is naturally a lag before those actions are fully reflected in realized pricing and earnings. As a result, the cost impact is being felt immediately while the recovery comes through over time.

Current energy costs are broadly in line with the assumptions we highlighted previously, while lower economic downtime in the region of $100 million, alongside continued operational execution and significant cost-take-out programs across the group, are helping to offset some of that freight and other cost pressures. However, as I'm sure you can appreciate, that inflationary cost environment is not showing signs of abatement, and we will continue to evaluate all options available to us as we progress through the remainder of this year.

Taking all of that into account, we now expect Fulier adjusted EBITDA to be in the range of 4.9 billion to 5.1 billion. However, demand remains healthy across practically all paper grades, and we remain confident in the long-term earnings potential of the group. And with that, I'll hand you back to Tony for some concluding remarks.

Thank you, Ken. When we set out our medium-term plan in February, we presented a program of self-improvement led by operating excellence and disciplined capital allocation. We're also driving a much sharper commercial focus, delivering quality, value, and innovation for our customers. I'm very happy to report that we continue to make progress towards these objectives. Firstly, the performance-led culture of Smurfit Westrock is accelerating with the right people, with the right skills and the right motivation to meet our objectives. The company is also progressing the transfer of best practice, knowledge and innovation across our regions as we roll out our experience centers to ensure our customers have access to the worldwide knowledge of our over 2,000 designers globally.

As a company, we have always been, and will always be, committed towards having well-invested, world-class assets in a capital-affilicient way. We know that this is the secret to ensuring to give our shareholders, which include many within Smurfit Westrock, longer-term market-leading returns. And I think we're well on our way to this objective. Global paper markets today are as strong as I have seen in my lifetime within this industry. What we've previously characterized as a generally better industry environment is now a significantly stronger and better operating environment. This provides us with a stronger, fundamental backdrop to deliver on our medium-term plan. Our mills provide security of supply to our world-class converting operations, which in turn deliver quality, service and innovation for our customers.

Smurfit Westrock's converting operations are networked to and connected with our over 30 innovation hubs across the continents and regions. This drives the continuous transfer of knowledge, application and innovation, enabling Smurf at West Rock to provide our customers future packaging needs today. As we enter the second half of 2026, we have set a strong platform for the recovery of input costs and enhancement of our returns. This is especially true as we look into 2027 as we continue to execute on our strategic plan across all regions and fully implement all pricing initiatives.

As we set out in February in a progressive step-by-step manner, we're building a stronger, better, and more resilient Smurfit Westrock as we progress towards our medium and longer-term objectives. I'm very confident in our team. I'm very confident in our offering to the marketplace. I'm very confident in our ability to execute, and I'm very confident in the long-term future of our globally integrated platform that will deliver value for all stakeholders.

And with that, thank you for taking the time to listen to us. I will hand it over back to the operator, Sharon, to get questions to us.

I suppose, Gabe, it's probably a slightly more nuanced picture than that, given where pricing went. I mean, a lot of that kind of pricing offset from the recovery would have seen true because corrugated pricing in the first and last number of months. It was probably on the paperboard side, if you remember, the likes of SBS came down, which is negatively impacting the positive sentiment around that kind of pricing column. So we are absolutely beginning to see the benefits of the pricing initiatives that are true back in the quarter one into quarter two in corrugated pricing. But just for this particular quarter, given where SBS went here and your other paperboard grades too, but principally SBS, you're getting a kind of natural negative offset within the total price for the overall group.

So I think the simplest way of thinking about it is, yes, progress continues and the recovery happens on the corrugated side, which you'll see more in quarter three, quarter four. But for this quarter, you're seeing the impact of paperboard prices lower year on year and the impact of that.

Yeah, I think, Gabe, you understand, and the same in Europe, that there is always a lag period as container board prices come in. And that can be, depending on the customer, to one month to up to six months, again, depending on the customer and depending on the region. And so container board prices really rose, actually fell in 20 euros in the first quarter and then came back up by 120 in the second quarter. So the full effect of that is going to be felt in quarter three and quarter four. And any other pricing initiatives will be felt either very late quarter four or into quarter one of next year.

You know, our expectation, Gabe, is that either in the third or fourth quarter, we will be better in volumes than last year. And certainly in talking to the folks in North America, we would expect to see positive months coming up in August and maybe even September. So the acquisition of new business has continued to pace during the second quarter. Obviously, it takes a little while to get that in. And then we're starting to lap easier comparisons because all of the large e-commerce customer that we didn't continue with, we're not doing that. So therefore, that will make it a relatively easier comparison as we go into the second half of the year. So I think we're pretty optimistic about either later part of the third quarter or fourth quarter being able to be positive versus last year.

Thank you.

Thanks, Mike.

yeah I would say you're talking about are you talking about paper are you talking about corrugated I actually if you don't mind telling both okay well if you as I said to you in my in my narrative you know our paper markets uh Mike are as strong as I've ever seen we are in a basically with the exception of one small grade that we produce a little bit of which CRB, we're basically sold out in all paper grades.

In fact, one of the reasons why, if you look into the fourth quarter, we are very late in deliveries on our export orders. So we're in very much catch-up mode in our system as we look through the remainder of this year and even into the first part of the next year on all brown paper grades. There are also some things happening on the bag and sack paper markets with relation to e-commerce that are causing those markets to be very tight as well. So when you look at the brown grades, we are really sold out for the foreseeable future.

And that's obviously very encouraging. When you look at, as I say, the consumer grades, our C. U. K. business has been very strong and is sold out. And our S. B. S. business, as we've developed new applications and really targeted a lot of smaller growth areas, but a lot of smaller things are adding up to a lot of growth for us. And so we're in our S. B. S. system sold out. And as I say, we've just got some small, very small open capacity in a small business area for us in CRB. But that's not, as I say, very significant. So paper and then that's in the North American market. In the European market, same situation is essentially true.

You know, we've tightened up over the summer and really all paper grades are sold out till the end of the year. and then in our Latin American business, again, similar scenario in our paper markets, we're short of capacity. So very strong change in the marketplace in the last six months in paper. With regard to boxes, it's a little bit more nuanced. Obviously, it depends very much on the markets, and within markets, it depends on regions within markets. So, you know, for example, the Californian market isn't as strong as we would have expected it to be because of produce. And, you know, you take obviously in Europe, if you take the southern European markets, the heat waves there are affecting a little bit agriculture.

So we could spend a long time talking about the nuances of different markets. But I would say if you just take it broadly speaking, Latin America is, you know, positive in general. I would say that Europe, with the exception of one or two markets, is positive or very positive. And then in North America, depending on the region, is basically flat to slightly positive for us as we look forward. But as I say, a lot of the things that we're doing, Mike, are self-initiative.

We have done a lot of heavy lifting, but we still have a lot of heavy lifting to do. I mean, you know, we still have loss-making corrugated box plants, which, you know, many of which are our own fault. And, you know, we will turn those around in time. If I had a magic wand to be able to turn them around, I would.

But, you know, they do take a little bit of time. But we've made really very, very considerable progress on our corrugated converting operations in North America. and in our consumer businesses, again, we've made very considerable progress in developing those businesses. You know, we need a little bit more price in some of those, but basically, you know, I'm really happy. And then if you turn to Europe, you look at our business. We have a very strong market position across all of the countries.

And, you know, we've absorbed all the input costs during the first and second quarter of this year. and now we're about to get it back. And clearly, if there are more paper-led initiatives, then the benefit of those will be into 2027 across all three regions, actually.

That's great, Carl. Thank you.

Yeah, I mean, I think we're, I would say, Mike, as you know us, we continually evaluate our footprint. We've just closed down a longstanding asset in the UK, which is producing over 200,000 tons of recycle board, because it came to the end of life, so to speak. And, you know, it was either invest or in a suboptimal scenario. But that asset stayed alive for a long period of time. And, you know, I would say the CRB business, we continue to evaluate the mill system that we have.

And, you know, they're all very cash or they're mostly all very cash generative and produce decent enough quality into our integrated system. So we're going to continue to work with them, but obviously we keep them under evaluation, as we do all of our assets, and we'll see what the future holds. But clearly they're earning cash, and they're in the marketplace, providing the quality and service that we need, and they're not in any drag on us. So I think, as I say, we want to offer our customers the full suite of products, which is CRB, SBS, C-U-K. And that approach has worked really well as we've looked at over the last six months, giving our customers what they need.

And at the end of the day, you know, that approach has worked really well for us. And we've seen some switches out of CRB into SBS, add a saving for the customer and also a benefit for us. And if you remember, Mike, as well, this time last year we were closing St. Paul, that CRB mill to kind of optimize and tighten that system anyway internally.

Thanks, Mike.

Yeah, Philip, as you know, we are a company committed to profit centers in all aspects of our business. So, you know, our box plants have to absorb, well, first of all, we as a company have to absorb all the cost inputs that we're getting. then we have to pass those cost inputs into our paper system and ultimately into our box system.

And each one has to make a return. Each of our systems have to make a return because otherwise they're not economically viable. And, you know, I always look at it like this. If you're an independent box maker and there are plenty out there, there's obviously not as many. It depends on the market you're in. But if you're an independent box maker, you must make a return on the paper price that's in the market. And so, you know, the same holds true for our box facilities. If the paper price goes up because of supply demand or the paper price goes up because it's been forced up because of cost inputs and we make decent returns in our paper system, ultimately, that doesn't mean that we shouldn't make decent returns in our box system because there's an independent market out there that is buying paper exactly the same price as we're transferring to our box system at.

and they have to make a return too. Otherwise, I can't evaluate where to put capital. And so we have been religious, really, about how we think about our business. And so our converting operations need to be commercial. What we bring, as you know, Philip, is all of the knowledge of packaging all over the world into our system. And then if we have the owner-operator at the packaging plant who's really good at what he does, He brings that into his plant, and then he offers that to his customers, which can be very considerable savings for our customers by packaging differently.

And that's what we continue to offer to our customer base globally, and that's what's worked. That's why if you look at our European system, yes, we're in the low period right now because we've absorbed cost. We're starting to push through paper prices, and then ultimately we get into box prices. and we have effectively, if everything stood still, we'd have two profitable systems, you know, offering innovative packaging for our customers and that's our business model and that's what's worked for us over 90 plus years.

Yeah, Phil, I think within there, I think I heard that the idea that you know the latest round of kind of price increases and the price environment might lead to incremental capacity entering the market I think I sort of go back to you know that sort of basic point around return on capital because you know as you know on average the cost of doing anything in North America has increased significantly over the last number of years. So if you do decide to bring capacity into the market, it's going to be at higher cost than you might think and takes time. In reality, you don't, you know, you can't bring in capacity today or tomorrow, it takes two, three years to get towards a meaningful kind of ramp-up phase.

So I think, yes, the current price environment could be attractive for people, but I'd equally say that's got to be balanced about the amount of capital that you need to put into the market to kind of achieve a return that's acceptable over the longer term.

Yes, I actually like to use the baseball analogy. I'd say we're somewhere between first and second base. I think, you know, we're off first base and we're heading towards second. And we'll get to second and then we'll be safe on second. and then we'll move on to third and then fourth in the next couple of years. I think it's amazing to me to see the considerable progress we've made in many of our facilities. I think we're down to, again, it's a little bit difficult to say how many loss makers we are because of the movements in paper prices. But if you said what's the number of loss makers that we have that we're still worried about, is probably around 20, of which for sure we're going to solve 10 of them.

And then the other five we'll just have to see how they do over the next period of time, depending on the market, depending on the mix. So we've come down from 40 plus, how many? Maybe 80.80 loss makers at the beginning. So we're really doing well. But then getting to break even is one thing. and then going from break-even to 8% or 9% is another. And so it's a journey, and as I say, somewhere between first and second. But really, I'm really happy with the teams and how they're embracing the new culture and the leadership.

But, you know, it's not perfect everywhere, obviously. And, you know, we continue to bring in new people. And one of the things I'm really happy about as we're continuing to attract real talent into the business, which is the sign of a winning team, not a losing team.

Oh, it's 10 out of 100. Okay.

You know, in Europe, we have three or four that we look at, and then in consumer, there's one or two. And in Latin America, there's practically none. So, you know, that's on the converting side. But that doesn't mean, Philip, that they're all where they need to be, even the ones that are positive. You know, they need to be – we've got some great box plants, and we've got some not-so-great box plants, and, you know, those not-so-great box plants need to improve as well. So it's a continual work by the team over there, led by Don and Rick and Nikki, and of course, Laurent.

You're entirely right. We're around 3%, somewhere between. On a static basis without paper and coming in, we've turned it from being heavily loss-making to small EBITDA positive, somewhere in the 3% to 4% range, depending on the month. But that obviously will change as we move forward. So yeah, you're about right.

Thank you for that, Tony.

Hey, George. Ken here. No, none of that 100 is assumed in the 26 number, because by the time it gets implemented, works through the indices and everything else, there's not a lot left to 26, to be honest with you. Very much kind of sets a platform foundation for 2027.

Thanks, George.

Hilary, obviously, we're not going to talk about what our competitor is doing. We just have to consider what we do. And, you know, we have been thinking for the previous couple of weeks that we would be going for an increase. And we did at the net level that we thought was correct. But Ken, do you want to say something?

Yeah, Hilary, I think it's really it's about an inward look where we see cost. inflationary system where we see the need to kind of restore margin that we might have given up over that kind of cost inflation particularly freight across the rest of the year and energy so really it's an inward looking model that takes everything we're doing balance against cost takeout and all the programs and the capital we've injected that says that broadly where we think we need to be is at that hundred dollars a ton in terms of output pricing to kind of get us back to where we need to be okay got it thank you for that and then as a follow-up you know obviously the container board market looks like it's getting really tight and the pricing momentum is building, but we also saw a price increase in the SBS market in July, and I think you also announced the price increase effective August.

Yeah, the SPS market is much better than it was at this time last year. A lot of the work that we've done over the last 18 months in attracting new business into our SPS system is working. And there are some quite exciting new grades that we're bringing into SPS, as well as, as I discussed before, our agnostic approach to grades. grades, so we're able to offer customers SPS instead of CRB or sometimes instead of C-UK. But basically, the market is much better. But you do have to remember, Hilary, that the market actually went down at the end of last year. And so this isn't about price increases. This is about price recovery. And I think that we need a price recovery in this grade from when it went down.

and we're in a sold-out position. So, of course, we've announced the increases to reflect that.

Thanks, Hilary.

Yes. Yes, Mark, it is, yeah. Okay. So it's not reflected in Pulp and Paper Week yet. Yes.

So obviously, Mark, Given the generally longer lag periods for those grapes, it really won't be effective. Assuming that pulp and paper puts it in, it really won't be effective until the start of next year.

Obviously, a lot of it depends on the cost, Mark. But let me just say that we have announced an 80-euro ton increase to our customers and recycle board over the last couple of days. So we expect to see that implemented as we go through September.

And that reflects the significant higher energy costs and other costs that we've had in the European sphere over the last two or three months. But maybe I just put it into the context that You know, our European business is a tremendously good business with people who've been through this kind of cycle before. And if you look at the last cycle where we are a better company today than we were then because of their investments, because of our efficiency, you know, our margins were in the 18 plus percent level. And there's no reason why, given a static state, that we won't get back to those levels at some future date. Whether that's first quarter, second quarter of next year, I don't know.

But clearly our opportunity is to grow from these relatively low margins that we have, albeit that they are way outperforming the industry from what we've seen, that we believe that those are the kind of margins that we can get back to. Perfect. Appreciate that.

That's correct, yeah. I mean, our business is always, on the way up and way down, a lag business. Our box business depends on the customer you have, but very few, but some customers are year-to-year contracts. Some customers are six months. We have been shortening contracts to be three months, but by the time it gets published and then three months, it's really four months for most of the larger index customers. But equally, when the prices move down, especially for a grade that's as volatile as recycled paper, then clearly you hold on to the margin that you've recovered.

And also, it's important to note that when the paper price moves, it's most of the time not just paper price. There's some inflationary costs driven into that as well.

Or is there something like in North America it certainly supply demand as well In Europe is any of that being introduced into this equation or is it still really cost It depends on the grade but I would say that in recycled paper it more related to cost When it's related to craft liner, it's related to supply, demand, and cost.

We did not. Not yet.

Detlev, as well as that, you have some sack paper in there and some bag paper in there. So those are all, you know, they're all going up as well as the craft liner and container board piece of our business. So, you know, one of the things that we have to get out of is some of the export tons that we have taken. So we're behind delivering on those. But, you know, by the end of this year, hopefully we'll have finished all of our, let's call it low price tonnage.

And we will be applying to the export markets the same metrics that we see in the domestic markets. Obviously, depending on the market, the pricing will be somewhat different. but basically those tons will be going up in a similar manner over the coming six months or so.

Yes, that's 100% true. I mean, obviously, the local domestic price is higher than the export price at this moment in time. But, you know, we have to keep evaluating that. But yes, as a fundamental rule, we believe in integration in our own system to ensure that we use our own tonnage within our system. But obviously, the system that we've inherited is much bigger than just that. So we continue to be in the export market and committed to the export market. It's important because probably some of our export customers are listening to this. we are still committed to the export market, but obviously we want to make sure that we get paid the correct amount when we deliver it to the export market, which will happen going forward.

Because as you know, a lot of the supply-demand issues are people are pulling away from the export market. So clearly that creates an opportunity for us at a proper price.

Our inventory level is a very good question. We sometimes have inventory in the wrong place and we sometimes have inventory of the wrong grade. We're still very early into this, Anthony, and so our whole logistic system is still under a rate of change. And yes, the answer to your question is we do have some inefficiencies still because our stock levels are not necessarily where we want them to be, because we don't necessarily have all the right grades and the grade optimization program that in a couple of years from now will be, I would say, much, much better. because clearly a lot of what we bring to the party is making sure that we have the right SKUs in our system and making sure that the paper mills run the right grades of paper that suit those grades of paper and the box plans convert those grades.

So there's still a lot of work to do, and as such there are some inventory issues that we have to use the wrong papers from time to time. But so far, so good. And talking to the team as recently as yesterday, we are managing with some issues, but we are managing. So, so far, so good. With regard to pre-buying, I would say that there was very little pre-buying.

In fact, I would say maybe the opposite. I would say that people did not expect for the market to change so rapidly. And that is why a lot of export orders are unfulfilled still. People were keeping their levels of stock pretty low because they could get paper pretty well when they needed it. And if you remember back to the first quarter, we had a very poor first quarter because of the freezes and all the issues that were happening. and I think it's been a bit of a surprise how quickly the effects of the supply-demand have been felt in the second quarter and as such nobody would have been pre-buying or to any great extent nobody would be pre-buying prior to that.

So no pre-buying and some logistical issues because of the tightness of the market but we're managing through it.

I think Anthony as well, just from a general point I think total industry levels across North America, but we're still in the range of 2.5, 2.6 million tonnes. So, you know, I think that would have been about 2.8, 2.9 as you exit the first quarter. So you can see if there are issues, it's coming out of inventories rather than kind of getting down towards low levels of inventory. Still fairly well stocked.

Yeah, and I think if I could just add one point, Anthony, to your important question, is that logistics is playing a hell of a role at the moment. You know, there are some, especially in the North American market, There are very significant costs. I mean, we're expecting costs to be 300 million more than we would have anticipated three months ago in North America and Europe.

And that's a function not only of the price of diesel, but it's also a function of availability of transportation. And that is creating some issues for delivery on time and things like that. So for sure, logistics is an issue, not only on the cost side, but also on the availability side. And that's something that does create some disruption. But, you know, as I say, we're managing through it with some cost, which obviously none of us like. There's 300 million that we didn't expect. But, you know, at the end of the day, you know, that's it is what it is. And it's the reason why we need further pricing initiatives in our marketplace because we need to recover these and to earn a decent return for our stakeholders.

Thanks very much, Andy.

Yanis, it's Ken here. I won't do the split by freight by region because we don't really break out the regions forward quarters like that. But I think it's fair to say at the back end of April, we would have seen freight generally is kind of ahead when they call it 50 million year on year. And that was at a place, if you think about it, where it looked like the Middle East was about to be solved, an MOU in place, part of the piece had been identified, and the world seemed to be setting down. I think it's interesting if you look at any of the indices that have come out, you can see a sharp spike towards the back end of May into June.

And as we continue into July, primarily on freight, and we clearly saw that heavily through May and June. So, you know, it was very much a changed environment, which led to a changed outlook on freight, which leaves us now in the position where we kind of see freight at about 300 million headwind year on year. I don't I wouldn't necessarily characterize that as either conservative or not. I think it's it's our best estimate based on where we see the cost coming out. And as Tony said, these are costs that we continue to need to recover, given that they seem to remain elevated and not abating. on the energy side. I think back then we probably would have said about, you know, in a range of 220 to probably 250.

It's probably still there or thereabouts. You know, seeing European, you know, TTF for gas go above 60 again last week, back below 58 to 57 this morning. So still very fluid, but, you know, we tend to be helped all through this kind of cost backdrop on energy because of a kind of hedging policy, which we don't use a lot now given the elevator prices, but we continue to have some hedges which come through and help moderate that slightly. But again, as Tony said this there, a lot of that is the reason why we've announced an 80-euro-ton increase across the border in Europe against the cost backdrop for Europe. So generally, I think where we see the outlook as we've seen it, you think about the simple bridge, it's broadly freight from our initial estimate to where we are now.

But the price increases that are announced and the ones that were announced this week should help to overcome that cost increase, particularly as we enter 2027 with little impact in 26, but more importantly, restore margin as we kind of move through this particular phase.

To be honest with you, Yanis, I don't remember what was anything specific. I mean, we're talking about small deviations. You know, I would say the thing to try and keep a focus on is that our acquisition of new customers continues apace. Our movement towards having local level responsibility and local level acquisitions of customers continues apace. We continue to see wins in the marketplace. We actually continue to see customers who've left us want to come back because our quality and services have improved very significantly in just a year. We're starting to apply the metrics that we have always done in Europe, in North America, and we're seeing very good progress on the operational side. So, you know, I think given the progress that we're making, you know, and a small deviation in a small region for agriculture can make that kind of difference.

The overall level of progress is what I see is very positive. And I'm sure that Nikki and her team on the sales side are going to deliver significant wins in the future. to get us back to where we need to be.

Thanks, Giannis.

Thank you, operator, and thank you all for joining us today. I would say that overall I'm really happy with how the progress of the integration between Smurfit and Westrock, Smurfit Capital and Westrock has gone. I think that the company has now got all the teams in place to make this company one of the great companies of the world. Obviously, we continue to be hit by costs that are non-expected and a significant cost environment that we are in the process of passing through.

And I have full confidence that we will pass those costs through. And we're really setting ourselves up for a better second half and a very good 2027. So thanks for your support. Thanks for your interest, and we look forward to meeting many of you and talking to many of you in the weeks and days and weeks ahead.

Thank you all.