DS Smith Profit Jumps, Looking To Sell Plastics Division
Packaging company DS Smith Plc has reported a 32% jump in first-half adjusted operating profit as it sold more boxes at higher prices, and said it was exploring options for a potential sale of its plastics division.
The company said its board concluded that the unit is an attractive asset with good growth prospects. Three sources had told Reuters in October that a deal could be worth around $800 million.
DS Smith said sales at the plastics division, which makes up 6% of total revenue, rose 2% for the first half, adding that higher polymer prices and the lag in price recovery had hurt short-term profitability.
The company has been raising prices for its boxes to improve margins and offset higher pulp and paper costs. It supplies recyclable packaging material to companies including Amazon.com Inc, British fashion chain Next Plc and for brands such as Aldi, Tesco, Primark, Auchan and IKEA.
Adjusted operating profit from continuing operations rose to £304 million for the six months to Oct. 31, from 231 million pounds a year earlier, the FTSE-100 firm said.
The acquisitions it made in North America helped add £32 million to its profit. The 80-year old company entered the United States last year with an 80% stake buy in Interstate Resources for $920 million.
Commenting on its performance, Russ Mould, investment director at AJ Bell, said “On paper, it is hard to find any major faults with DS Smith’s results. There is growth in first half adjusted operating profit, dividends and return on sales. Market demand remains strong for packaging to service the e-commerce boom.
“So why has its share price fallen on the results? There are three potential reasons. The first is that higher polymer prices have hurt profitability in its plastics division, which has now been put up for sale. Second, investors in general seem to be increasingly worried about the pace of global economic growth.
“Third, corrugated box volume growth has actually slowed down in the half-year period, rising by 3.2% versus 5.2% growth reported in its previous full financial year. This may have spooked investors and led them to fear that DS Smith’s purple patch is coming to an end.”