Mondi shares down as weak Q3 results and soft demand weigh on outlook

Investing.com -- Mondi Plc's (LON:MNDI) shares dropped following weaker-than-expected third-quarter results and cautious forward guidance. 

At 5:38 am (0938 GMT), Mondi was trading 7.2% lower at £1,289.89.

The packaging giant, facing softer demand and rising costs, reported EBITDA of €223 million for the third quarter of 2024, a sharp fall from €351 million in the previous quarter. 

The drop was primarily due to higher maintenance expenses and a negative revaluation of forest assets. 

Maintenance costs surged by €40 million quarter-over-quarter, hitting €60 million, while the revaluation of Mondi's forestry holdings resulted in a €49 million hit to the bottom line. 

Jefferies had anticipated just a €15 million impact from forest value adjustments, further emphasizing the scope of the miss.

Mondi’s results was also hampered by weaker seasonal demand and a broader decline in market conditions. 

“While we are seeing the benefits from the increase in prices earlier this year across our key paper grades, trading conditions remain muted against the backdrop of an uncertain macroeconomic environment,” said Mondi’s chief executive, Andrew King.

The company’s guidance points to a step-up in EBITDA for the fourth quarter, with consensus estimates predicting around €362 million. 

However, Jefferies cautions that this may be overly optimistic, given the ongoing demand challenges. 

The analysts suggest consensus EBITDA for 2024 could face cuts of 3-6%, as market conditions remain softer than expected.

“We expect a significant EBITDA contribution from organic capex of €1.2bn to follow through in FY25/26E as projects are ramped up, and continuing price growth to lead to mid-teens EBITDA growth in FY25E, but lower than c23% growth in consensus estimates,” said analysts at Barclays (LON:BARC) in a note. 

Mondi's focus on organic investments and capacity expansions is expected to contribute positively in 2025. 

Jefferies forecasts around €1.4 billion in EBITDA next year, boosted by an additional €100 million in contributions from new growth projects. 

However, reaching those targets will likely require an improvement in market demand, which remains elusive for now.

Despite these challenges, Jefferies maintains that Mondi is well-positioned in its niche packaging markets, particularly in flexible packaging, where it holds a leading position. 

“In the fourth quarter there will be fewer planned maintenance shuts, and we expect the normal seasonal pick-up in demand,” King said.