Q2 FY24 earnings report: Sappi exceeds expectations, Berry Global sales drop by 6%

SOUTH AFRICA – JSE-listed paper and packaging manufacturer Sappi has reported positive financial results for the second quarter of the financial year 2024 (Q2 FY24).

The company achieved earnings before interest, taxes, depreciation, and amortization (EBITDA), excluding special items, of US$183 million, marking a 10% increase year-over-year (YoY).

This growth was primarily driven by robust demand for Dissolving Pulp (DP) and significant cost savings across the company.

DP sales volumes rose 2% compared to the previous year, supported by high operating rates in viscose staple fiber. This segment’s profitability benefited from reductions in wood and chemical costs.

In addition, the demand for packaging and specialty papers rebounded, with sales volumes increasing by 9% YoY.

However, selling prices remained under pressure following declines in the latter half of FY23. The graphic paper segment also experienced a gradual recovery in demand, with a 7% increase in sales volumes YoY.

Despite a structural decline in demand from 2022, cost savings contributed to improved profitability in this segment.

Sappi’s European operations continued a slow recovery, driven by higher sales volumes, cost savings, and successful capacity utilization following mill closures.

Strong paperboard sales volumes in North America helped offset lower graphic paper demand.

The company anticipates continued improvement in its packaging and specialty paper markets, particularly in North America and South Africa.

However, rising pulp market prices could negatively impact profitability in the paper business, particularly in Europe. Planned maintenance shutdowns at the Saiccor and Somerset Mills are also expected to affect group profitability in Q3.

Sappi remains committed to its strategic shift away from graphic paper markets. Capital expenditure for FY24 is projected at approximately US$500 million, with a significant portion dedicated to the ongoing Somerset Mill conversion project, which is focused on growing renewable packaging and biomaterials.

Berry Global Sales Drop by 6%

Meanwhile, packaging manufacturer Berry Global has reported a 6% decline in net sales to US$3.07 billion for Q2 FY24, down from US$3.28 billion in the same period last year.

The downturn was attributed to a 5% negative impact from the pass-through of lower resin prices and a 2% decline in volumes.

Operating income for the quarter also decreased, falling to US$208 million from US$301 million YoY, largely due to goodwill write-offs in the consumer packaging international segment, an unfavorable volume impact, and a negative price-cost spread from the timing of resin cost pass-throughs.

Berry’s earnings per share (EPS) for Q2 FY24 decreased to US$0.98 from US$1.42 in the prior year.

North America’s consumer packaging net sales decreased by 3% to US$751 million, driven by a 3% volume decline, and operating income decreased to US$77 million.

Year-to-date, Berry’s net sales decreased to US$5.92 billion from US$6.34 billion a year ago, with EPS falling to US$1.48 from US$2.27 in FY23.

Looking ahead to the full FY24, Berry forecasts an adjusted EPS range of US$7.35-US$7.85 and anticipates generating a cash flow from operations between US$1.35 billion and US$1.45 billion.

Berry CEO Kevin Kwilinski highlighted, “Berry once again delivered solid financial results, meeting our expectations. Our teams performed admirably, navigating through an extended period of sluggish macroeconomic demand and persistent inflation in our primary raw materials at the beginning of fiscal 2024.

“We implemented additional structural enhancements across our businesses, leading us to increase our original cost savings target from US$140 million to US$165 million.

“For fiscal 2024, we anticipate a US$55 million contribution from this program, with an additional US$25 million expected in fiscal 2025. We remain steadfast in our commitment to prudent management and strategic advancement.”

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