DS Smith – Inflation Can’t Box In Demand
Ignoring the impact of exchange rates, DS Smith plc (LON:SMDS)’s full year revenue rose 26% to £7.2bn. This was helped by a 5.4% increase in like-for-like corrugated box volumes, thanks to strong demand among fast moving consumer goods and other consumer-related sectors, which make up about 80% of overall volumes.
Price increases offset rising input costs, which meant underlying operating profit was up 29% to £616m, slightly beyond management’s guidance.
Q1 2022 hedge fund letters, conferences and more
The group’s expecting corrugated box volume growth of 2-4% in the current year, with price increases and cost management offsetting inflationary costs.
A final dividend of 10.2p per share was announced. This brings the total for the year to 15.0p, up 24%.
Shares rose 2.6 following the announcement.
DS Smith's Earnings
Laura Hoy, Equity Analyst at Hargreaves Lansdown:
“DS Smith saw demand for the cardboard boxes it makes continue with strength even though the group passed input cost inflation on to consumers. This is the benefit of DS Smith’s business—from the Amazon boxes lining the streets to the brightly coloured packages lining supermarket shelves, the group has an endless pool of consumers. At some point rising prices will eventually hit volumes, but given packaging is only a fraction of overall shipping costs, that’s still a long way away.
DS Smith used the pandemic as a springboard and it is impressive how far it has come. The group’s using some of the excess cash running through the business to fund expansion, while the rest goes toward paying down debt and rewarding shareholders. For now it looks like the group’s got the balance right.
The only question mark is whether demand will hold up moving forward. DS Smith’s customers won’t need more boxes if existing ones remain on the shelves, and ecommerce could start to slow as people rein in their spending. With the cost of living squeeze looming large in the background, this isn’t out of the question. But with a finger in several different industries, DS Smith is well placed to cope with this.”
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