DS Smith’s Shares Soar 11% As Trading Beats Forecasts. Here’s Why You Should Buy It

Packaging manufacturer DS Smith’s share price soared on Monday after it upgraded its profits forecasts for the year.

At 210p per share the FTSE 100 stock was trading 11% higher from last week’s close.

DS Smith Remains Resilient

DS Smith — which manufactures plastic-free packaging — said that “trading continues to be very good and consistent with the trends described in our AGM trading statement.”

At last month’s AGM the company said that pricing momentum and good cost control had delivered results in line with expectations.

DS Smith said, too, that long-term supplier relationships and other cost management initiatives were helping to mitigate inflation. It also noted that energy price increases were significantly offset by efficiency steps and by a long-term hedging programme.

Profit Forecasts Lifted

Thanks to its ongoing resilience DS Smith said today that it expects to deliver adjusted operating profit “of at least £400 million” during the six months to October.

The company delivered adjusted operating profit of £276 million in the same 2021 period.

It described revenues as being “very strong” in the first half. This was despite “slightly lower like for like corrugated box volumes.”

In addition, the business said that it enjoyed “effective cost mitigation” during the period.

DS Smith said that “overall performance for the current full financial year is expected to be ahead of our previous expectations.”

Cash generation meanwhile remained “strong,” it added.

A Confident Outlook

Miles Roberts, chief executive at DS Smith, noted that “I am very pleased with the performance in the year to date and the momentum in our business. We remain focussed on delivering for our customers and managing our costs in an inflationary environment.”

He added that “while the macro-economic outlook remains uncertain, performance this year is ahead of our previous expectations and we look forward to the remainder of the year with confidence.”

A Top FTSE 100 Stock To Buy

DS Smith has two significant things in its advantage today.

The packaging business generates huge profits from supplying to fast-moving consumer goods (FMCG) companies and food retailers. This allows it to capitalise on two ultra-defensive sectors and continue growing profits even as broader consumer spending slumps.

DS Smith is also thriving as shopper habits change and e-commerce grabs share from physical retail. This area provides significant long-term upside too as the digital revolution clicks through the gears.

Soaring inflation poses a constant and serious threat to the company. But as an investor myself I’m encouraged by its ability to traverse these pressures. Thanks to cost-saving exercises and being able to successfully pass costs onto its customers profits continue to impress.

Following today’s share price gains DS Smith trades on a forward price-to-earnings (P/E) ratio of 7.7 times. Its corresponding dividend yield sits at 6.1%.

Royston Wild owns shares in DS Smith