What Mondi (MNDI) Said on Its Q3 Earnings Call

Mondi LON: MNDI reported underlying EBITDA of €196 million in the third quarter, as higher selling prices and positive order books helped offset planned maintenance shutdowns and faster-than-expected input-cost inflation.

Chief Executive Officer Andrew King said the quarterly result included no forestry fair-value gain, compared with underlying EBITDA of €167 million in the second quarter, when the company recorded a €43 million forestry fair-value loss. Price increases introduced earlier in the year lifted average selling prices during the quarter, though King said inflation remained elevated and accelerated beyond the level anticipated at the half-year stage.

“Overall, we delivered a resilient performance in the third quarter,” King said, citing the effects of maintenance shuts and input costs. He added that Mondi had announced further price increases across certain paper grades, although these take time to be fully reflected in earnings.

Energy Costs Increased Sharply

Chief Financial Officer Mike Powell said wood costs were broadly in line with the company’s prior expectations. Mondi had indicated a €35 million increase in wood costs in the second half versus the first half, with roughly half of that movement occurring in the third quarter compared with the second quarter, he said. Powell did not expect a large additional change in wood costs in the fourth quarter, although costs remain high.

Energy-related costs were a larger source of pressure. Powell said gas prices averaged €63 per megawatt hour in the third quarter, up 35% to 40% sequentially, compared with €44 per megawatt hour when the company finalized its prior balance-sheet reporting. Gas and other energy-related costs added roughly €20 million to €25 million to costs in the quarter, he said.

Mondi does not hedge energy costs, according to Powell, noting that the group generates approximately 80% to 85% of its own energy. However, the company remains exposed to purchased gas as well as related costs such as transport, logistics and biomass energy.

King said the operations with the most direct gas exposure are Mondi’s standalone Duino recycled mill and, to a lesser extent, its unintegrated fine-paper operations at Neusiedler. He said the company reviews downtime decisions based on the profitability of marginal production, while emphasizing that most of Mondi’s businesses have low costs in their respective markets.

Management said that, based on spot prices at the time of the call, pricing increases were expected to offset inflationary cost pressure in the fourth quarter. King cautioned, however, that energy markets remain volatile and that the outlook could change quickly.

Pricing Momentum and Uneven Demand

King said Mondi has seen material price increases across its portfolio despite competitive conditions and oversupply in certain recycled-paper markets. He said industry inventory levels were at reasonable levels and that producers were taking downtime rather than manufacturing unprofitable marginal volumes.

Containerboard price increases are still being passed through by box converters, King said. Demand for boxes remained muted in northwestern Europe, while southern Europe was more robust and Poland continued to grow. Mondi recorded about 1% like-for-like volume growth in its business year over year, which King characterized as a reasonable result against a largely flat European market.

Competition remains widespread, management said, including in Poland, where industry demand growth has been stronger but where competitors have also focused investment and capacity. Germany, meanwhile, remains competitive amid low growth in the broader market.

The company said sack kraft markets were comparatively stronger. King said Mondi was implementing its third sack-kraft price increase of the year, supported by input-cost inflation and good order books. Traditional industrial uses in Europe were broadly flat to marginally growing, while demand in markets including Latin America and Mexico was performing well. North American demand was weaker, particularly in agricultural applications.

Growth in e-commerce mailer bags has supported demand for extensible sack kraft, King said. The applications can replace plastic wrap and, in some cases, corrugated boxes. Specialty kraft papers serving more consumer-oriented applications were softer, however, as additional European capacity and alternative lower-grade products added pressure.

Portfolio Actions and Operating Priorities

Mondi continues to pursue operational excellence, cost optimization and improvements in plant-network efficiency. King said the company was transferring customer volumes from converting plants scheduled for closure later in the year.

During the quarter, Mondi completed the sale of one solid-board converting plant and agreed to sell a second. King said the divestments involved operations acquired with Schumacher that were not central to Mondi’s corrugated packaging activities. He described the sales as not material financially.

The company said Schumacher’s German corrugated converting operations still have underutilized capacity, although Mondi has been cautious about pursuing volume too aggressively amid weak German demand. Management said it achieved approximately 1% volume growth across its corrugated box business in the third quarter.

Looking ahead, King said higher packaging-paper prices should support fourth-quarter performance, though elevated energy and other input costs remain a near-term challenge. “We remain very positive in terms of the longer-term fundamentals,” he said, pointing to pricing momentum, good order books and a reasonable volume position.

About Mondi (LON:MNDI)

Mondi plc, together with its subsidiaries, engages in the manufacture and sale of packaging and paper solutions in Africa, Western Europe, Emerging Europe, North America, South America, Asia, Australia, and internationally. The company operates in three segments: Corrugated Packaging, Flexible Packaging, and Uncoated Fine Paper. The Corrugated Packaging segment provides virgin and recycled containerboards for fresh fruit packaging and heavy and fragile goods transport packaging applications; and corrugated solutions, such as corrugated boxes and packaging products.

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