British packaging firm DS Smith PLC (LON:SMDS) expects a further US$5mln in annualised merger synergies from the integration of US-based Interstate Resources.
DS Smith took its first step into the US packaging market with the £722mln acquisition of an 80% stake in Interstate last year.
READ: DS Smith expands in America with US$920mln acquisition of 80% of Interstate Resources
In a brief trading update on Tuesday, DS Smith said the integration of Interstate was “progressing well” and now expects synergies to reach an annualised rate of US$35mln by the third full year of ownership – up US$5mln on its previous guidance.
The increase in synergy estimates reflects further anticipated global supply chain benefits, the FTSE-100 listed group said.
DS Smith is also “pleased” with the initial progress made in integrating Ecopack and Ecopaper, the Romanian packaging and paper business it bought for €208mln in March to expand its European network.
For the year to April 30, DS Smith continues to expect return on sales to be in line with the previous year, buoyed by a recovery of paper prices.
READ: DS Smith says overall trading in line, with box volume growth remaining strong
The company said trading has met its expectations with further gains in market share and strong volume growth, thanks to demand from e-commerce and multi-national customers. Volume growth in the US was "excellent", it added.
"We are very pleased with the performance in the year, in particular in the step-up in volumes that we have delivered, and in the successful integration, customer reaction and volume growth within Interstate,” said chief executive Miles Roberts.
Numis left its rating on the stock at 'hold' and target price at 530p, citing unchanged forecasts.
"Against an inflationary paper price environment, input cost recovery has progressed as management had expected, implying a 2018 adjusted EBIT margin of c. 9.3%, in line with 2017.
Shares rose 1.7% to 531.6p in late morning trading.
-- Adds share price reaction, analyst comment --