Smurfit Kappa packaged to deliver

Impressive third-quarter results from Smurfit - a 14 per cent rise in pre-tax profit, EPS up by a tenth and adjusted cash profits 7 per cent higher - underlined the attractions of the growth story. The company has been making the most of the positive market backdrop through marketing campaigns, customer service programmes and acquisitions.

In Europe, which accounts for about three-quarters of group revenues, countries in the east performed best generating double-digit growth. Performance from the west of the continent, where consumer confidence is steadily improving as the European Central Bank prints more money, also made good progress. The economically resurgent Iberian region led the way, with France being the only large country not to report higher volumes in the quarter. Given that waning consumer spending was reported in the summer across all sectors there, that slowdown is not alarming.

Trading in the Americas was even better in the third quarter. Despite a turbulent economic backdrop in some of the Latin American countries, the group's status as the largest pan-regional manufacturer saw cash-profit margins widen to 17.5 per cent as corrugated volumes increased by 18 per cent in the quarter. That success was achieved in spite of weak local currencies and particularly tepid trading in Venezuela. Fortunately, the acquisition of North America-based Sound Packaging in October means 80 per cent of business in the region is now conducted in the strong US, Colombian and Mexican markets.

Smurfit's ability to minimise exposure to adverse markets and extract strong performances from difficult situations is an attraction that is arguably being overlooked by the market, which tends to view the business as more cyclical than past performance warrants. Indeed, despite serving regions ravished by recession and managing volatile raw material costs, broker Bank of America Merrill Lynch points out that the Irish packaging giant's cash-profit margins have only deviated by 30 basis points since 2009. That impressive statistic underlines the effectiveness of management's ongoing cost reductions, price management and determination to get the best out of each operation. And, importantly, there is more of this to come.

The company is half-way through a €150m (£107m) three-year investment programme aimed at driving up operational efficiency. Management already estimates that cash-profits should benefit to the tune of €18m from the end of this year due to the investment, and the benefits are expected to surge to €75m a year from 2017 onwards. Given the company's track record, backed by a return on capital employed of 15 per cent, this looks like good news for investors.

The track record also highlights the potential bumper earnings growth in store as trading conditions improve, helped in particular by the European economic recovery. Evidence of improving trading conditions includes management's pledge to push through corrugated price increases, which should prove an achievable goal considering soaring demand and tightening supply following a period of consolidation in the packaging sector.

What's more, Smurfit is regarded as one of the best cash generators in the sector, with management using accumulated funds to keep a tight rein on debt at the same time as funding acquisitions and efficiency improvements. And thanks to a steady programme of debt repayment, the average interest rate Smurfit now pays is 3.7 per cent, which is considerably less than the 6 per cent plus it was forking out as recently as 2012.