Mondi's shares fell by about 10% on 15 October after a third-quarter update showed Earnings under pressure from energy and wood costs, despite management's description of a resilient performance.

Mondi (LSE:MNDI), the international packaging and paper group, suffered a sharp fall in its share price in mid-October after publishing third-quarter figures that highlighted rising costs. The shares dropped about 9.8% to 737p on 15 October, on a day when the wider market also weakened following higher-than-expected US Inflation data. That left the stock below its 52-week high of 981.4p, although above its low of 667.4p.

Underlying earnings before interest, tax, Depreciation and Amortisation for the three months to 30 September were €196m, with no contribution from forestry Fair Value gains. The comparable figure for the third quarter of 2025 was €223m, which included a €20m forestry gain, so the headline decline amounted to around 12%. Earnings in the second quarter were €167m, reduced by a €43m forestry fair value loss, while the first quarter generated €212m including an €8m gain.

Stripping out the forestry effect, earnings fell compared with the second quarter, which Mondi attributed mainly to planned maintenance shutdowns.

About the company

Mondi is an international packaging and paper group with operations across Europe, North America, Africa and other regions. It is vertically integrated, meaning it owns forests and pulp and paper mills as well as the plants that convert paper into finished products. Its main activities include corrugated packaging, flexible packaging such as films and specialised paper bags, engineered materials and uncoated fine paper, with customers in consumer goods, food, e-commerce, industrial and construction markets.

The group earns money by selling packaging and paper at prices that reflect raw material, energy and labour costs, and by converting its own fibre into higher-value products. Integration into wood Supply and pulp gives some protection against input volatility, while its forestry assets, particularly in South Africa, add fair value movements to reported results. Strategy centres on sustainable packaging, cost efficiency across the plant network and the disciplined use of capital.

In the third quarter, underlying earnings before interest, tax, depreciation and amortisation were €196m, compared with €223m a year earlier, a comparison affected by forestry fair value gains. Earlier in the year, quarterly earnings were €212m in the first quarter and €167m in the second. The latest update emphasised higher energy and wood costs, planned maintenance shutdowns and pricing that is still working through the system.

Cost pressure outpacing prices

Input costs proved higher than the company had expected. Energy-related expenses and an anticipated increase in wood costs in Central and Eastern Europe were the main factors. Higher average selling prices did offset inflation during the quarter, but margins came under pressure in Corrugated Solutions, where competition and a lag in passing on paper price increases weighed on profitability.

Trends differed across the portfolio. Corrugated packaging and flexible packaging, including kraft paper and paper bags, benefited from positive pricing momentum. Uncoated fine paper experienced seasonally weaker demand. Mondi (LSE:MNDI) is also transferring customer volumes from converting plants that are scheduled to close later this year, and it announced that it had sold one solid board converting plant at the end of September and agreed the sale of a second.

Chief executive Andrew King described the quarter as a resilient performance against a backdrop of rising input costs, and referred to good order books, progress on operational excellence and confidence in the structural growth drivers of sustainable packaging.

Why costs and prices move at different speeds

Packaging producers buy energy, fibre and chemicals at prices that can shift quickly, but they usually pass these changes on to customers with a delay, because contracts are reset periodically and competitive conditions vary by product. When input costs rise first, margins are squeezed until higher prices are accepted.

That lag is visible in the corrugated segment, where competition and timing meant increases were not fully reflected during the quarter. By contrast, product categories with firmer pricing momentum, such as kraft paper, were better placed to offset inflation.

What to watch next

The key question is how much of the announced paper price rises reach customers and how long they last. Evidence of that will appear in fourth-quarter trading and in full-year results, expected early in 2027.

Energy markets will remain important, as will the group's plant closures and sales, which are intended to improve efficiency. Forestry valuations are a further cause of variability, as they respond to price assumptions including diesel costs. Investors will also want to see how Demand develops across packaging end markets, given the uncertain wider economic backdrop.

Price increases and the fourth quarter

The company has announced further price increases for a number of paper grades, and expects these to feed through towards the end of 2026 and into 2027. Higher packaging paper prices are expected to support fourth-quarter performance, although input cost pressures continue. Management is also looking to mitigate fixed-cost inflation through cost optimisation and efficiencies in the plant network.

Forestry remains an unpredictable item. If current prices hold, particularly for diesel in South Africa, Mondi (LSE:MNDI) expects no forestry fair value gain in the fourth quarter, and it has warned that energy prices remain highly volatile. The sensitivity of forestry valuations to fuel costs explains part of the variability seen in reported earnings from one quarter to the next during 2026.

The pace at which price rises can be pushed through to customers is likely to be the central issue for the next several months. Whether announced increases hold in the face of competition, which already weighed on Corrugated Solutions in the third quarter, will be closely watched. Full-year results, expected early in 2027, should show how much of the planned recovery has been achieved.