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If we make an investment, not only the quality but also the price has to be right. High quality at a bargain price – that’s why we prefer it. However, this dream constellation is rarely found on the stock exchange at the moment. However, it can actually be found at the cardboard manufacturer Mayr-Melnhof (WKN: 890447).
Growth despite difficult framework conditions
The company has just presented its results for the 2022 financial year: a record year for Europe’s largest carton and folding carton producer. Sales increased by 53% from EUR 3.1 to 4.7 billion. Profits grew at a disproportionately high rate. The operating profit (EBIT) rose by 89%, the net result shows a plus of 81%. We are particularly pleased that the growth is not only due to acquisitions, but is also organic.
As Mayr-Melnhof explained bluntly in its current annual report, the demand for paperboard (Board & Paper segment) declined in the third quarter. A development that continued in the first quarter of 2023.
However, nothing has changed in the general trend in demand for cardboard packaging. In the medium to long term, we are assuming that demand will continue to rise. Booming online trade and the goal of many companies to switch to more environmentally friendly packaging will continue to boost sales in the years to come.
The current drop in demand is only of a short-term nature. A number of Mayr-Melnhof customers themselves experienced production and delivery delays, which means that they currently have accumulated reserves – including packaging materials. Once these have been reduced, demand will noticeably pick up again.
The current weakness in demand is an optimal time to carry out restructuring measures in various plants. Mayr-Melnhof will do the same at the sites in Neuss in Germany, Frohnleiten (Austria) and Kolicevo (Slovenia). The restructuring is expected to be completed in the third quarter of 2023. Then the company can ramp up to full production capacity again.
product know-how (e.g. for package inserts and labels), but above all the customer portfolio. According to Mayr-Melnhof, this portfolio includes top pharmaceutical companies worldwide.
price increases? No problem!
The increase in sales and margins that Mayr-Melnhof was able to achieve last year is not least due to the company’s strong pricing power. Even if the group of companies was only able to pass on the increased raw material and energy costs to its customers with a slight delay, by the end of the year the higher production costs had not only been fully offset, but even overcompensated.
Mayr-Melnhof’s customers had no choice but to accept the higher prices. As a result, the return on sales rose from 8.8 to 10.9%, and the net margin increased from 6.2 to 7.4%.
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Chart: The private investor
We also emphasize the exemplary ownership perspective and the management’s excellent instinct for crisis management and the right timing of acquisitions. Even during the Corona period, Mayr-Melnhof did not allow itself to be dissuaded from its expansion and investment plans. On the contrary, the company cleverly understood how to use this crisis as an opportunity.
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Yours, Kerstin Franzisi Editor-in-Chief The private investor
The contribution Mayr-Melnhof Karton AG: Quality at an attractive price
appeared first The private investor market letter.