Good day, and thank you for standing by. Welcome to the Smurfit Westrock 2025 Q3 Results Webcast and Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Ciaran Potts, Smurfit Westrock Group VP, Investor Relations. Please go ahead.

Thank you, Sarah. As a reminder, statements in today's earnings release and presentation and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our SEC filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's release and in the appendix to the presentation, which are available at investors.smurfitwestrock.com. I'll now hand you over to Tony Smurfit, CEO of Smurfit Westrock.

Thank you very much, Ciaran, for the introduction. Today, I'm joined by Ken Bowles, our Executive Vice President and Group CFO, and we appreciate all of you taking the time to be with us. I am very happy to say that we have again delivered on guidance in what is a challenging environment with an adjusted EBITDA margin number of USD 1.3 billion and an adjusted EBITDA margin of 16.3%. The quarter was characterized by some challenging months, specifically July in our North American region and August in Europe. Nonetheless, we were able to come through with the numbers we predicted and planned. Since our combination, our North American business has shown great improvement over the course of the last 16 months on both the commercial and operational front, that's reflected by an improved adjusted EBITDA margin of 17.2% for the quarter. As you will have heard us say, as we got to understand the legacy Westrock business, we have taken strong actions to remove uneconomic volume within our portfolio of businesses. This, of course, has resulted in a loss of volume as we transition and reposition our business. While there will be a time adjustment to this reposition, we believe we are clearly on the right track as we are already seeing quality customer wins. In addition to changing our customer portfolio, we're also continuing to rightsize the business by closing down inefficient or loss-making operations including the recently announced closure of a corrugated facility in California in addition to the 8 previously announced closures. In paper, we have already announced approximately 500,000 tons of capacity closure in both containerboard and consumer board grades. These footprint optimizations will be a continuing feature as we develop and grow our business. Turning now to EMEA and APAC. Our adjusted EBITDA margin of 14.8% is highly creditable given the environment that exists in the European sphere. We believe it clearly demonstrates the power of the integrated model, which is producing this resilient margin in an environment of paper overcapacity. Our mills continue to run optimally, while at the same time, our converting businesses are capitalizing on their outstanding leadership position in innovation. We believe this, combined with our insights into sustainability and the significant pending regulations from the European Union should give our customers confidence to help them in navigating this environment. In our LatAm business, with an excellent EBITDA margin of over 21% due to our strong market position principally in Brazil and our Central Cluster. Our sequential margin showed a small fall in the last quarter as a result of some operational issues in one of our larger mills in our Central Cluster, which is now being resolved. The region still has significant growth opportunities for us to develop in the years ahead. Turning now to the group and regional highlights. What I'm very happy with is the initial potential of the combination as evident in our cash flow performance in the quarter, with operating cash delivered USD 1.1 billion and an adjusted free cash flow of approximately USD 850 million. One of the things that especially pleases me about this number is that we're really only starting to get going on working capital optimization as we continue to focus on operating excellence. I'm also very happy to have the people in the new Smurfit Westrock have come together and adapted to the culture of the company and its values of loyalty, integrity and respect and safety adoption by everyone in the workplace. The group has also been working effectively on the synergy program, which Ken will speak on further, which is exceeding our expectations, especially when one looks at the commercial improvements that we can see across the businesses. Finally, in the group, not only in North America, but also in Latin America and Europe, we continue to optimize our asset base with the recent closure of a facility in Brazil and the transfer of equipment to other operating units, together with constant trimming of our assets in our European sphere. In terms of the regions, as I've mentioned, we continue to make excellent progress across our North American system. For example, in corrugated, our loss-making units have declined by almost 50% in a 1-year period with today, over 70% of our corrugated operations solidly profitable. And we expect significantly more progress to occur as we replace and swap out uneconomical volume. In our consumer business, this business is very well positioned with substantial investments and restructuring already done. With strong positions in SBS and CUK, we're actively working to transfer customers from CRB to these grades and have already switched about $100 million worth of business. We do, however, believe in offering all 3 substrates to our customer mix. Our first Global Innovation Summit was held in Virginia in September. And the rollout of our Experience Centers in our North American region, while in its infancy, is now happening. In EMEA and APAC, our integrated model is really proving the success of our business. Our mills are well utilized, and our outstanding position and innovative offering is retaining and developing customers. One of the great opportunities for us has been the effective integration of our consumer operations into our European business. We have a vastly greater customer base to introduce to our consumer operations into Europe, and moving these businesses back to local sales and manufacturing accountability has already started to see some significant benefits. And finally, during the quarter, the rationalization of 2 of our German converting plants has been agreed. This will significantly strengthen our leading German position as we await the inevitable upturn. Turning to Latin America. I'm increasingly excited about our Brazilian operations. The legacy Smurfit and legacy Westrock businesses are a perfect fit with one concentrated on recycled containerboard and the other on virgin kraftliner. Our converting businesses have quickly adopted our value over volume focus, which is already showing significant improvements. In our Colombian business, we experienced significant growth of 8% due to our commercial offering and the market developing as a growing exporter of fruits and vegetables. Across the region, we're capitalizing on many of the growth and development opportunities we have. For example, in Chile and Peru, where our volumes grew by 15% and 25%, respectively, during the third quarter. I'd like to give you a sense of the excitement that exists and is building in Smurfit Westrock today. We're a stronger and better company through the adoption of the owner-operator model. Everyone across our world is now responsible for their own P&Ls. This has unleashed a tremendous enthusiasm and internal competition to do better and lends itself perfectly into having a performance-led culture where everybody is responsible for what they do. I'm especially pleased that we have now initiated global and regional leadership programs, whereby over 300 managers will have started our group programs. In Smurfit Westrock, people are at the heart of everything we do, and we ensure that they have the tools to succeed in their job and to realize their potential. And our synergy programs and optimized asset base, together with our innovation offering and transfer of best practice will, we believe, contribute to superior performance in the future. I'll now hand you over to Ken, who will take you through the financials.

Thank you, Tony. Good morning, everyone, and thank you again for taking the time to join us. On Slide 8, you'll see the business again delivered another strong performance in the third quarter, with net sales of $8 billion, adjusted EBITDA in line with our stated guidance of $1.3 billion, a very solid adjusted EBITDA margin for the group of over 16% and a strong adjusted free cash flow of $579 million. The performance reflects the strength and resilience provided by a diversified geographic footprint and product portfolio, particularly in the challenging macroeconomic environment, and of course, the commitment and dedication of our people to delivering for all our customers. Turning now to the reported performance of our 3 segments. Starting with North America, where our operations delivered net sales of $4.7 billion, adjusted EBITDA of $810 million, and adjusted EBITDA margin of 17.2%, an excellent outcome. In the region, we saw continued margin improvement, predominantly due to higher selling prices, our operating model in action, and the benefits of our synergy program, alongside input cost relief on recovered fiber, which combined to more than offset lower volumes and headwinds from items such as energy, labor, and mill downtime. Corrugated box pricing was higher compared to the prior year, while box volumes were 7.5% lower on an absolute basis and 8.7% on a same-day basis. This outcome is very much in line with our ongoing value over volume strategy, which we estimate accounts for about 2/3 of that volume performance. Third-party paper sales were 1% lower, while consumer packaging shipments were down 5.8%. With shipments in our smaller Mexican operations being lower than our U.S. business, which saw volumes down 3.7%. Our differentiated, innovative, and sustainable approach to packaging continues to resonate with customers, which, coupled with the empowerment of our people to drop uneconomic business and the implementation of our owner-operator model is driving continuous business improvement across the region. Looking now at the EMEA and APAC segment, where we delivered net sales of $2.8 billion, adjusted EBITDA of $419 million, and adjusted EBITDA margin of 14.8%. Despite the challenging market backdrop, our operations remained resilient with adjusted EBITDA moderately ahead of the prior year. This performance reflects the skill of our local teams in managing a highly volatile cost environment and underscores the effectiveness of our integrated operating model, where we have consistently delivered an operating rate in our containerboard mills in the mid-90s. Higher corrugated box prices year-on-year alongside lower recovered fiber costs and a net currency translation benefit were partly offset by headwinds on energy and labor and lower third-party paper prices, while corrugated box volumes remained flat on both an absolute and same-day basis. We believe we are the market leader in Europe with strong market positions and a proven operating model, supported by our best-in-class asset base, which allows our people to continue to deliver high-quality sustainable packaging solutions for all our customers. This position is supported by our approach to innovation, where we have a large data set and bespoke applications that place the customer at the center of that conversation. Our LatAm segment again remained very strong in the quarter with net sales of $0.5 billion, adjusted EBITDA of $116 million, and adjusted EBITDA margin of over 21%. Corrugated box volumes were flat year-on-year or 1% higher on a same-day basis, with the demand picture in the region showing a marked improvement with strong demand growth in Argentina, Colombia and Chile, among others. All while our value over volume strategy continues to deliver strong results in Brazil as we have now largely phased out unprofitable legacy contracts with volumes moving into a more neutral position. The region successfully implemented pricing initiatives to offset higher operating costs and delivered another consistently strong performance with a small step down in EBITDA margin year-on-year due to a now resolved issue in one of our operations during the quarter. As the only pan-regional player, we believe that Latin America continues to be a region of high-growth potential for Smurfit Westrock, both organic and inorganic, and one where we are well positioned to drive long-term success. Slide 10 outlines our proven capital allocation framework. I don't propose to go through each of these frameworks today, but I would note that in February, we plan to provide detail on how we see capital allocation underpinning the achievement of our long-term business goals. What is new is that our CapEx target for 2026 will be between $2.4 billion and $2.5 billion, broadly in line with the current year. We continue to invest ahead of depreciation, and so this level remains accretive to earnings as we invest behind identified growth, efficiency, sustainability, and cost-takeout opportunities. The core tenet of our capital allocation framework is that it must be flexible and agile. This was our approach at Smurfit Kappa and continues to be our approach at Smurfit Westrock. It is a proven track record of delivery, and we are already seeing the benefits of it since forming Smurfit Westrock a little over a year ago. Our approach to allocating capital is disciplined and rigorous and requires that all internal projects are benchmarked against all of the capital allocation alternatives and is, therefore, always returns-focused. On our synergy program, I'm pleased to confirm we are delivering as planned and on track to deliver $400 million of full run-rate savings exiting this year. Finally for me, as noted in the release, the year-to-date has been characterized by a challenging demand backdrop, and as a result, we expect to take additional economic downtime in the fourth quarter to optimize our system. If you recall, we set out our guidance for the year in April, and given the impact from the above, we are now marginally adjusting that guidance range to where we now expect to deliver full-year adjusted EBITDA of between $4.9 billion and $5.1 billion. And with that, I'll pass you back to Tony for some concluding remarks.

Thank you, Ken. I hope you get a sense from my earlier commentary and Ken's performance summary that we believe that Smurfit Westrock is very well positioned for continued performance as well and the economic growth as it revives. I would say the company has never been in a better position. Throughout the company, all of the people that are aligned with this approach, and we can already see the tangible benefits of this as many loss-making operations move into profit and thankfully, with much more to come. Reflecting the generally well-invested asset base, our capital spend for full-year '26 is expected to be in a $2.4 billion to $2.5 billion range. We believe this level enables us to accelerate cost takeout, increase operating efficiency, and capitalize in high-growth areas. In parallel, we recently announced restructuring initiatives, which also allow us to continue to optimize our asset base. As a more general point, our philosophy has generally been to buy and not build, as we have typically acquired at a fraction of the replacement cost is invariably cheaper with an enhanced returns profile. On acquisition, our objective is always to optimize through measured capital allocation decisions. We will discuss this further in February, and Ken has already touched on this. The delivery of our synergy program, together with our ongoing capacity rationalization remains a constant focus. With a significant headcount reduction of over 4,500 people and an unrelenting focus on the owner-operator model, we believe our performance to date is an indication of our potential. We remain confident that our footprint remains unrivaled with strong and leading market positions in the majority of the markets and grades of paper in which we operate. There is no question in our minds that since Smurfit Kappa and Westrock combined, we are building a stronger and better business with management aligned with shareholders and developing our performance-led culture. Over the last 16 months, we have taken significant steps to build this better business, and we are increasingly confident in the future prospects. While for sure, the current economic outlook is somewhat muted, our view is that the steps we are taking, investments we're making, the alignment we have with shareholders and the culture we're building within Smurfit Westrock positions us to go from strength to strength as economies improve. We end full-year '25 and enter '26 as a better and stronger Smurfit Westrock. To that end, in February '26, we will be setting out our longer-term targets, which are a bottom-up approach from all of our businesses, which will be designated to identify prospects for this company as we look forward into the future. So thank you for your attention, and I look forward to taking any questions that you may have. Thank you, operator. Over to you.

We will now go ahead with the first question. This is from Mike Roxland of Truist Securities.

Congrats on all of the progress. Tony, you mentioned obviously, weakness in the European market from both demand and price, is there anything you could do to expedite cost takeout? You mentioned, obviously, continuing to trim assets in Europe, rationalizing the 2 German plants. But given the weakness that persists there right now, can you expedite cost takeout to try to get things rightsized faster?

Yes, Mike, thank you for your question. We have done an excellent job over 15 years of optimizing our capacity in Europe. There are always minor adjustments to be made, but we are running our system nearly at full capacity in Europe, except for August and likely December when we will have some downtime due to the holidays when corrugated box plants typically close. Our system is well optimized, and we continue to monitor it. We are a low-cost producer in the European market, and our returns significantly exceed those of some competitors. There have already been numerous mill closures, and I expect more to come. The situation is quite difficult, with certain public companies experiencing negative EBITDA margins in the containerboard sector. The saying goes, 'the worse it gets, the better it will get,' and while it is challenging now, I believe the recovery will happen swiftly. We're not idle during this time; we are closing a few smaller facilities and actively pursuing a cost reduction program across our business to address wage inflation we've faced in recent years. Cost reduction initiatives are ongoing, and we are continually assessing our asset base and will make adjustments as needed.

Got it. And then just 2 quick follow-ups. Any color you can provide in terms of how demand trended in both North America and Europe in September and what you've seen thus far in October and any outlook for November? And then just quickly on consumer because it was interesting, you mentioned transferring $100 million of CRB business to SBS and CUK. Can you just help us frame the logic behind those moves? Is it just a matter of wanting to run SBS more efficiently at a higher rate? And is there any margin uplift associated with that shift?

Taking your second question first, as the SBS price has decreased, it has become competitive with CRB because SBS can be used with a stiffer sheet and a lower grammage. Additionally, SBS offers benefits over CRB in terms of brightness and transportation costs, as well as runnability on printing machines. I'm not suggesting that CRB is entirely negative; some customers prefer CRB, while others favor SBS or CUK. Given the current market positioning, it makes sense for our customers to consider SBS, and we've leveraged this opportunity, along with addressing some of the challenges related to CRB. This has opened up possibilities, especially in the freezer segment for frozen products, to transition to CUK, which we are actively promoting. In the last 4 to 5 months, we've already shifted about $100 million, with more expected to follow. Now, could you remind me of your first question?

Demand trends.

Demand trends. We were anticipating an increase in October, but it did not occur. It's important to note that the legacy WestRock took on business in the latter half and first half of last year, which was now being managed in the latter half of last year. Much of that business was not particularly profitable for us, and we've been addressing this during the first half of this year. Typically, we start to see some of those contracts being exited during this time. While some of that business will return because we are known for being a reliable, high-quality, and high-service supplier, we expect some of it to come back at sustainable prices, as evidenced by what we've already witnessed in Brazil. If some does not return, we are prepared to pursue other opportunities. However, losing substantial contracts often means we take longer to replace them with smaller ones, which is currently our experience. Nonetheless, we have a robust pipeline of potential business. While we may not secure all of it, our team is optimistic about our prospects, and as mentioned, we are already achieving significant wins with reputable customers at levels that will be beneficial for operations.

Next question is from Phil Ng from Jefferies.

So Tony, you mentioned that you're going to experience some economic slowdown in the fourth quarter. Which markets are affected? Is it North America or Europe? How can we quantify the EBITDA impact? I understand you're shifting towards a value-over-volume strategy. As we consider how this will affect your volume relative to the overall market in the next 12 months, what should we keep in mind?

Yes. Regarding the downtime question, I'll let Ken address that. As for the market, we believe it's down by around 3% or 4%, and we estimate that about 5% of our volume loss is attributable to our own decisions. This estimate isn't going to be perfectly accurate; it could indeed be 3% or 4% down in the market. One of our larger competitors reported a 3% decline this quarter, which suggests they might be gaining some market share. Therefore, I would say the market is likely down a bit more than that 3%.

Yes, Philip, to address the second part of your question first, the simplest way to quantify the EBITDA impact is that we estimate the incremental effect of downtime in the fourth quarter will be between $60 million to $70 million compared to our previous guidance. Looking at our operations in Europe, we do not expect to see any significant additional downtime for the rest of the year. Most of the downtime will be concentrated in the North American region, as we do not anticipate any issues in Latin America.

Ken, do you expect your inventory to be in a pretty good spot as you exit this year in North America?

It's getting there, Philip. The supply chains in North America are different from those in Europe in that they tend to be very long. This means it takes a while to return to what we would consider optimal inventory levels. The working capital as a percentage of sales for the group is around 16%, which is higher than we would prefer. At Smurfit Kappa, we were around 8% to 9%. While we don't expect to reach that level over time, something in the middle seems reasonable. As a third-party seller, Westrock has diversified into various grades and widths of paper over the years. Part of our optimization involves streamlining to a more manageable set of grades, flute sizes, and widths that we think are best for both the paper and corrugated systems, as well as meeting our customers' needs. Ultimately, our focus is on helping our customers understand what their boxes require instead of merely supplying what we think they want. While I don't anticipate that we'll end this year in ideal shape, I believe that as we progress through 2026, we will see steady improvements as we gain a better understanding of the supply chains and rationalize external board grades.

Philip, if I can just add on to that, I'm really very excited about as we optimize our supply chain system and work through our board grade combinations that together with the corrugated businesses in our system, that this is going to present a big opportunity for us. But it needs careful thought and planning because as Ken has just rightly said, the distances in America are very big, and we've got to make sure that we get that right, but there's a lot of opportunity there for us to reduce stock.

Got it. And sorry, one last one for me. Tony, I thought your comment about pivoting some of your CRB and CUK business to SBS was fascinating. That sounds like a pretty attractive value prop for your customers. You gave us the CapEx guidance for '26 as well. Embedded in that, is there any mill conversions that you're possibly thinking in SBS? Or you feel pretty good about some of the opportunities you see in front of you on the SBS side, you're going to largely keep your footprint intact at this point?

If I could just ask you to wait until February for that because we'll provide a complete answer then. Clearly, we're working through various strategies related to that, and once we've organized everything, we'll share more details. Essentially, we have some very good assets that we will continue to consider, and there are some that we will keep evaluating and will provide more information on in February.

Next question is from Gabe Hajde from Wells Fargo Securities.

I wanted to ask about the guidance, the CapEx guidance for '26 and maybe a little bit differently. I'm just curious if the organization for the year, if there's anything strategically that you guys are focused more on cash flow for 2026 versus EBITDA. Sometimes that drives different operating behavior. I'll just stop there.

Gabe, not necessarily. The reality is that Smurfit Westrock should be a strong generator of free cash flow this quarter, regardless of the CapEx cycle. We have always been disciplined about when we invest capital and have adopted a portfolio approach to ensure that we do not have too many major programs or systems impacting any particular year. When we evaluated the capital needs for 2026, we found that we only require between $2.4 billion and $2.5 billion to keep the system running, improving, and growing. This means we won’t have a significant CapEx build going into 2027. It’s a normal phased approach. We never aim to achieve free cash flow at the cost of EBITDA. Instead, it creates a virtuous cycle where we invest capital, which should improve returns on capital employed and drive EBITDA, allowing that capital to reinvest back into the system. Looking back, as Smurfit Kappa invested additional capital, we increased ROCE, grew the dividend, delevered, and expanded. This model has been effective from an owner-operator and philosophical perspective. So, it’s not about making that choice; it's about providing the capital we believe is necessary for the business to drive growth.

Yes. And I'll just add to that, Gabe, that the whole philosophy of our company is to remain agile, as Ken as said, we adapt to the situation that's around us. And one of the key tenets of our business is never to overinvest and have too much investment going forward that we can't back out of, so to speak, so that we're in a position to be able to flex if we need to because that's what really hurts companies, if you can't pivot depending on the environment, either positively or negatively. And so that's been the hallmark of the success of Smurfit Group, Smurfit Kappa and now hopefully in the future, Smurfit Westrock.

I wanted to switch gears to Europe. You provided some insight into your performance, and while the overall numbers show underperformance in the market, a 0.2% increase in Europe is quite impressive. You mentioned that the mills are operating in the mid-90s. Can you elaborate on the markets, whether by geography or end-use, where you are seeing strong performance? Also, regarding margins, prices increased significantly in the spring and early summer but have since decreased, reversing much of that gain. How should we expect this to affect Q4, or is it more aligned with H1 2026?

Just on the markets, in general, I would say that there's no real change to what we've said previously that Germany continues to be a laggard, some of the other markets in the U.K. The Benelux tends to be basically flat with some positive movements in Eastern Europe and in the Iberian Peninsula, which is growing strongly. So in general, there's no real change into how the markets are operating. We sometimes flatter to deceive in Germany where things get really good for a couple of weeks and then go back to the norm. So I think we haven't seen any material positivity in the German market yet. But inevitably, that will happen. And as I mentioned in my script, we're about to close 2 facilities with improved facilities in the incoming plants that are receiving capital. So when Germany does turn around, we'll be even better positioned than we were before to take advantage of that. With regard to...

In the third quarter in Europe, we noticed an increase in prices by around 0.5%. We're not quite finished with pricing adjustments yet. Ultimately, predicting future pricing is challenging and largely hinges on demand trends. This demand will influence paper prices moving forward. However, it appears that pricing discussions for 2026 will focus mainly on the second and third quarters based on our current situation. It's worth noting that both regions have performed well regarding pricing, especially Europe, which has successfully maintained its price increases throughout the third quarter. Future pricing will largely depend on demand dynamics.

I think as well, Gabe, if you look at where the paper price is at the moment, it's uneconomic for at least 75% of the business, I would say. And I think that we're lucky that we're very integrated. We've got our own customers. Our paper mills have our own customer, which is ourselves. And we're able to run basically full, but most of the others, demand is relatively weak. And unless you're in the top quartile, you're not making any cash at this moment in time. And I would say you've seen that from the results of a number of players in the marketplace. And inevitably, that will change. The question is, is it first quarter? Is it second quarter? Is it third quarter? And how much hurt will be in the market before then?

Next question is from George Staphos from Bank of America Securities.

Congratulations on the progress. I have two questions for you, Tony and Ken. First, regarding the North American converting operations in corrugated, I remember you mentioned that 70% of the business is now at profitable levels. Could you elaborate on what that means, particularly considering that North America's margin is a key indicator? Can you explain how you arrived at the 70% figure and what further steps are needed to improve this, acknowledging the progress you've already made? Secondly, on the boxboard side, you made some interesting comments about how customers will choose the substrate that best suits their needs. Each option, whether it's CUK, SBS, or CRB, has unique features. I'm curious about why customers are shifting to SBS instead of sticking with CRB, given that they might have preferred it before. Is it purely price-related, or are there other performance factors of SBS you would like to highlight compared to the other grades?

Let me address the second question first, and then I'll get to the North American corrugated business. Regarding the SBS, it's primarily about its brightness. We have a brighter sheet, and you can achieve the same performance with a slightly lower caliper. Additionally, consider printability, stroke, and machine efficiency on the customers' lines, which are the three reasons we've been able to sell SBS over CRB. Some customers will prefer CRB because it is fully recycled, and that's perfectly fine if they choose that. However, we're successfully selling SBS, and it is competitively priced with CRB now. We're confident in selling it to customers at these current prices since the caliper is lower. Our two SBS mills in the United States, located in Demopolis and Covington, are performing excellently. The CUK also has unique properties that enhance freezer strength and help make it competitive against CRB. Nonetheless, some customers will opt for CRB, and we can provide that option as well. Thanks to our high-quality SBS and CUK mills, we are in a good position to offer these products. With the closure of the CRB mill, we now have the capacity to focus on selling SBS instead, which has been a significant advantage for us moving forward, and I expect this trend to continue. Regarding our North American corrugated business, this is where the owner-operator model shines. We've empowered our team to take local action, engage with local markets, and prioritize profitability. A lot of business was previously conducted under legacy Westrock based on a combined profitability model, which is not how we operate. We believe that approach can lead to adverse outcomes in our business, as it involves two sets of capital needs for one profitability. In legacy Smurfit and Smurfit Kappa, we've learned that capital is essential, and investments must be justified. When you have two operations generating one profit, it skews your capital decisions. In our initial six months together, we've focused on ensuring that the P&Ls were accurately maintained and that each plant's balance sheet was properly organized. We've made it clear to our managers that they are responsible for their profitability. When they see accounts with negative margins due to fair paper price transfers, we expect them to take action. If they don't, they won’t remain with us. We are actively working at both the national and local levels to ensure that accounts with poor margins are not using our valuable machines in our converting plants. This ongoing process is partly why we've had to reassess a lot of business that was taken on before we joined, as it wasn’t economically viable. In some cases, those accounts have returned to their previous providers, which is quite interesting.

No, please go ahead, sorry.

We've quickly transitioned from understanding our profitability to making significant changes in our plants. We've reduced our loss-making operations by 50%. As we continue to tackle this issue, some plants will succeed, but I believe that the majority will achieve profitability in the next couple of years.

Tony, I have a quick question, and feel free to defer it to February if needed. Regarding boxboard, I know it's not the main part of your business. If there are any tariff rollbacks, how could that affect your overall perspective on the desirability of SBS? In other words, has your ability to handle more SBS been impacted by the increase in costs of some of the folding boxboard entering the market? How should we view this situation?

Thank you. Tariffs aren't a significant factor for us at the moment. What we are considering is that the price of SBS has decreased slightly, which makes it more competitive compared to other materials. The challenges posed by tariffs on FBB against SBS are present, but we believe FBB will still be sold in the United States regardless, as there’s a lot of FBB production capacity in Europe, and they are likely to enter the U.S. market with the additional costs involved. It’s important for us to focus on selling SBS. SBS consists of a wide variety of grades, including cup stock, plate stock, lottery cards, cereal boxes, and freezer boxes. There are many different grades of SBS offered at various price points and sold in different amounts to various customers. Our goal is to keep developing new grades of SBS that will enable us to achieve a substantial return in the future. There’s no indication that this should change. We have been gaining new customers for lottery cards, for instance. Although it's a modest amount of 15,000 to 20,000 tons, every little bit is beneficial. These grades represent a highly profitable business opportunity for us moving forward.

Next question is from Charlie Muir-Sands from BNP Paribas Exane.

Just a couple, please. Firstly, on the revised guidance, it obviously implies a fairly wide range of potential outcomes on Q4. Just wondered if you could elaborate on the main outstanding uncertainties for the range. And then previously, you've been sort of talking about beyond the operational synergies, the $400 million, you talked about at least another $400 million of opportunities. I just wondered if you had any kind of updates on that. And then finally, you mentioned that one-off operational issue in Latin America. I just wondered if you could quantify that given it was relevant enough to call out again.

Charlie, I'll address those points. Starting with the last issue, we faced a continuous digester problem in Colombia that cost around $10 million this quarter, though that figure is now down to $6 million. That’s the main impact there. Regarding the guidance range, it tends to be influenced by December, which is why we adjusted the midpoint slightly to account for the downtime. The outcome primarily hinges on how we perform in December. As Tony mentioned earlier, as we approach the end of the quarter, we aren't seeing a significantly improved demand situation. However, we remain hopeful that conditions may improve before year-end, so I don't view the outlook too negatively. Essentially, the focus is on how December plays out. In the middle of this, I think George touched on part of this in his question—considering margin performance in North America amidst various challenges like volume shifts and downtime. The margins suggest that we're already seeing some operational and commercial improvements reflected in our numbers. The extent of these improvements depends on how many initiatives we can implement. This ties back to Tony's point about the owner-operator model, empowering each GM or mill manager to enhance business performance, reduce costs, and manage CapEx effectively. We remain confident—and perhaps even more so—that we're exceeding our synergy targets. While we can't quantify it precisely yet, we're starting to notice benefits in margin performance specifically in North America, especially within the corrugated division.

Great. And you've obviously given us the 2026 CapEx and elaborated on the rationale for it qualitatively. But just in terms of the returns that you're targeting beyond maintenance or one-time depreciation, what kind of thresholds are you typically setting for the investments you want to make in the business?

As a blend, Charlie, it shouldn't be any different from what we've experienced before. It goes back to our portfolio strategy of aiming for incremental returns and enhancing our return on capital. Generally, we expect the entire portfolio to be in the 20% IRR range, delivering mid-teens in terms of return on capital employed as a result. This, of course, hinges on project outcomes, especially concerning cost savings. Higher returns are anticipated from sustainability and energy backend projects. While those projects may yield lower returns initially, history demonstrates that as they mature, they tend to deliver much stronger returns. Therefore, we are not strictly tying individual projects to a specific return target. However, as a portfolio, it must progress in improving return on capital employed because, ultimately, this relates back to the concept of capital investment versus cash flow generation. Thus, the profile aligns with our past approach to capital deployment and allocation within the Smurfit context.

The next question is from Lewis Roxburgh from Goodbody.

Just my first question is on cost. You mentioned in the last quarter, you expected some relief on OCC pricing. So I just wondered to see if that was playing out as expected and if you're getting any other relief from the other buckets like energy or that might just spill into next year? And then just in terms of CapEx, I just wondered some more details on how much of that spend might be related to the legacy Westrock assets versus other projects as well and whether this is sort of the new normal or further increases might be needed to tie into those realization synergies?

I'll address the second part of your question, Lewis, and then Ken can tackle the first part. The CapEx figure is somewhat influenced by the legacy Westrock assets because we have made significant investments in Europe and Latin America. We are allocating additional capital to enhance some of the box plants, which will improve the quality and service of our corrugators. The initiatives we've implemented at Smurfit Kappa over the past decade are now being rolled out over the coming years, not just next year but into the future, to further enhance the legacy Westrock business. While there is a slight focus on legacy Westrock, it’s not significantly substantial because, as I mentioned, we are in a solid position. In Europe, we've invested for growth and have strong assets in our European operations. We continually see growth opportunities in places like Spain and Eastern Europe, specific to each plant. Overall, our European business is well-capitalized, and in the next three to five years, we will keep developing our legacy Westrock asset base.

Lewis, I'll address some of the larger cost categories alongside fiber to provide clarity for you and your colleagues. Regarding fiber, we initially projected it to be a tailwind of about 100 at the halfway mark of the year. However, as of now, we estimate that tailwind to be between 130 to 140. For energy, we previously mentioned a headwind of about 250; we now believe it's closer to 180. As for labor, we had anticipated around 200, but we are now looking at a figure around 180 as well. On downtime, we initially thought it would be around 150, but we currently estimate it to be between 180 and 200 for the fourth quarter. These figures represent the significant cost categories and the incremental changes we are observing from Q2 compared to our current outlook for the year.

Next question is from Anthony Pettinari from Citi.

On the full-year EBITDA bridge, maybe Ken, just filling in on the pricing side. Can you give us an update on where you maybe thought pricing would shake out midyear versus where you are and where you might end up with the full-year guide?

Yes. I think it's pricing broadly, we would have thought to plug that in there. I think we probably see pricing coming out somewhere between, call it, 830 to 840 versus where it would have been about 900 at the half year. So a small call-off probably because of the fourth quarter and where demand is going, maybe a little bit of price weakness there, but not materially down versus what we would have thought.

And would North America be 700 or 750? Or between North America and Europe, how would that breakdown?

I'll defer that, to read the segmental bridge to you guys when you get into the trenches with them later on. I think if that's okay, I just have to take them with me here.

Yes, no problem, no problem. And I guess maybe just one follow-up. You mentioned energy projects, and I mean from other industrial companies and paper companies, we've heard a lot about cost inflation and particularly electricity with demand from AI and data centers. Can you just give us kind of a quick recap of where you are with kind of current energy projects, especially in North America and not to steal any thunder from February, but just how you think about the opportunity in energy at your mills going forward?

Well, where do we start?

We have recently approved a significant energy project at our Covington mill, which will transition from coal to natural gas. The internal rate of return on this project is estimated to be at least 20% and could potentially reach up to 80%, though realistically, we expect around a 50% return for the mill. Moving forward, we will evaluate each energy project based on the returns they can offer. The only project we have approved since our leadership transition is this one. We primarily use natural gas in most of our facilities, utilizing coal only when necessary, and we aim to eliminate coal usage wherever possible. We also have a large biomass project in Colombia set to start next year, which will provide significant energy savings for us. We are actively looking into energy projects, and regarding the impact of AI data centers on our costs, I have not encountered any significant cost increases related to our mill systems.

I think kraft systems by their nature tend to be fairly well served from a power plant, back-end perspective anyway in that sense. And so not necessarily totally insulated, but generally CO2 positive. But great source of their own energy from a kind of a turbine perspective. In addition to what Tony said, we have a kind of progressive program. We electrified some boilers in Europe over the years. We continue to invest towards the reduction in CO2. I mean, the added benefit from the project Tony talked about there in Covington is it reduces our group CO2 by 1.2%. So very important, if you like, as you look forward to where our customers need to be on scope through emissions and things like that. So there's always benefits above and beyond the pure EBITDA benefit we find to energy projects, and it sort of goes back to what we're trying to get to in terms of low-cost producer and where those mills sit, which allows us to be at the forefront of where we do that. So generally, it's always going to be a progression towards either less reliance on some fossils and something else and more sustainable renewable fuels. But the system in and of itself is fairly well set as we start off.

And the last question today is from Mark Weintraub from Seaport Research Partners.

A few quick follow-ups. First off, so with other box shipments in North America, do you have a sense as to when you think you might be inflecting more positively versus the industry? How long is the process of sort of the shedding underappreciated business likely going to persist?

We may have an overvalued business. We've provided them with resources for free, Mark. Therefore, I hope that starting in the third quarter of next year, we will begin to see some positive changes. We still have some underperforming contracts that will expire in the first and second quarters of next year. After that, we will need to find replacements or keep them, depending on how our customers respond to our conversations at that time. However, considering the significant backlog and pipeline we have for new business, I am confident that we will start securing a considerable amount of it. In fact, we've already secured a significant portion, but it takes some time to qualify and begin production. So, I believe that by the third quarter of next year, you will start to see improvements compared to this year with higher quality business across all our facilities.

And then what's your strategy? What have you been doing vis-a-vis outside sales of containerboard in North America into either export or domestic channels?

The export market is currently weak, and many recent capacity closures in the industry have focused on the export market, particularly in South America. I've learned that inventory levels in those countries are quite high. We need some time for these inventories to decrease before we can expect any positive changes in export prices, which are currently too low to be sustainable. While we are making some sales in the export market, we are cautious about selling too much at these low prices. I believe there will be a moment when everything shifts and export prices will increase sharply, as they are unsustainably low right now. However, the recent capacity reductions have not yet impacted the market because customer stock levels remain very high.

And in the domestic channel, I mean, historically, the legacy Westrock business had sold a fair bit to independents, et cetera. Has that continued? Or has there been some change in that regard?

We do have outside customers, and they're important outside customers, and they're generally long-term outside customers, people that we served for a long period of time, and we continue to do that. And there's been no real change on that as I can see it.

Great. And one last quick one, just to squeeze in. So with the SBS from CRB, et cetera, I assume the customers are running that on the same machinery. And so is it pretty easy to switch back and forth between the grades depending on the variables at play?

Yes, you might need a technician to run a lower caliper product on the board to slightly adjust the machine, but there are no major issues. Our customers have mentioned that the SBS performs better than the CRB. However, I’m sure someone who operates a CRB might say differently. That's the feedback we receive from our customers, but it's likely you could find someone to say the opposite. I still believe the SBS is more effective because it provides a cleaner sheet.

Thank you. I will now hand the conference back to Tony for closing comments.

Thank you very much, operator. I want to thank you all for joining us today. We remain very excited about the future of the Smurfit Westrock business. We're enthused about a lot of the changes that have happened and that are already happening. And we look forward to the future with great enthusiasm. So thank you all for joining us, and I look forward to seeing many of you in the months ahead. Thank you all.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.