DS Smith: Inflation can’t keep profits boxed up for Amazon cardboard provider
DS Smith reported soaring profits and trading in line with expectations in its full year results this morning, as the package specialist continued to show strong resistance to high inflation and rising paper costs.
The London-listed group – which delivers boxes and paper products to companies including Amazon and Brewdog – saw pre-tax profits up 71 per cent to £661m, with “excellent” adjusted operating profit growth of 35 per cent in the 12 months to April 2023.
The box-maker said its strong performance was driven by effective cost mitigation and improved products, which successfully offset a “challenging inflationary environment.”
Chief Executive Mike Roberts, said: “Our service levels have remained very high, supporting our customers through our robust and flexible supply chain.”
“While economic conditions have continued to be volatile and box volumes have remained lower than normal, trading for the year to date is in line with our expectations. Our strong customer relationships in the resilient FMCG sector, together with the investments we are making to drive cost efficiencies and growth, give us confidence for the future.”
DS Smiths’ strong performance comes in spite of a year which saw Russias’ war in Ukraine damage supply chain routes and contribute to soaring inflation and an ongoing cost-of-living crisis which has seen paper costs soar.
Paper mills in Europe in particular have been impacted by high costs, as a result of the price of natural gas prompting rising bills.
DS Smith has also been impacted by strike action from staff, which saw 1000 staff in the GMB union vote to walk out in November last year.
Matt Britzman, equity analyst at Hargreaves Lansdown, said “unpacking the disappointing volume numbers, markets had been warned this was happening as de-stocking and weak consumer demand in the face of a tricky economic backdrop took hold.”
“But pricing is the bigger driver of performance and it’s taking the reins. The benefits of price actions taken over the last couple of years are now feeding through to the bottom line, with underlying operating profit creeping above the guided range of £850-£860m.”
Britzman added: “The outlook comment was vague, and it’s not too surprising that management didn’t give any specifics on volumes. But I’m choosing to interpret “in-line with expectations” as a positive, markets are already pricing in profit declines this year and these comments suggest forecasts don’t need to go any lower.”