the ftse 250 listed packaging group has a good first half with profits up sharply, says questords smith lse smds.l news 303.8p15.4p questor says buyds smith&rsquos firsthalf profits beat market expectations, sending shares in the recycled packaging group up more than 5pc yesterday. investors were rewarded with a 16pc increase in the interim dividend, and questor thinks the shares are worth hanging on to for future gains.the ftse 250listed company is operating in some very tough european markets, but online shopping and discount retailers are driving sales higher.ds smith generates about 65pc of its earnings in europe, while more than 70pc of its revenue comes from outside of the uk.economic conditions across europe are subdued. however, miles roberts, chief executive, is confident on the company&rsquos outlook &ldquopackaging has never been more important for our customers.&rdquothe recycled packaging maker&rsquos customers include procter & gamble, nestlé and unilever nyse ul news , who demand boxes that hold products in a &ldquoshelfready&rdquo format. ds smith can charge more for these boxes as they reduce costs for retailers, who in turn need fewer staff to stack shelves.transporting food long distances and keeping it fresh on shelves for longer will see more plastic and boxes being used in stores.the boom in online retailing is also increasing the demand for cardboard packaging. the material remains the cheapest and easiest method to transport individually wrapped items through the post.the likeforlike volume of packaging that ds smith sold increased by 2.3pc during the six months ended october. pretax profits jumped 45pc to £123m, despite revenue falling 5pc on the euro&rsquos weakness.ds smith has been reducing costs since it paid &euro1.6bn £1.35bn for swedish rival sca in 2012. the deal increased ds smith&rsquos exposure across northern europe, with the company now generating threequarters of its sales from the continent as a whole.the profit performance was 15pc ahead of analysts&rsquo expectations, with a particularly strong performance in central europe, italy and the uk.the sharp increase in profits meant the profit margin for the group rose 120 basis points to 8.9pc, towards the top end of company&rsquos targeted range.ds smith can continue to increase shareholder returns against a tough european backdrop. it is now selling more cardboard boxes at a faster rate and at a higher profit margin, even after adjusting for additional sales from the sca acquisition.ds smith is generating plenty of cash, and net debt total debt less cash has fallen to £694m, down £133m from a year ago. those debt levels don&rsquot look that risky against a balance sheet net asset value of £1.13bn at the end of october.investors are enjoying a decent income stream from ds smith and the interim dividend was increased from 3.2p to 3.7p, exdividend april 5 and payable may 1.the shares provide a fullyear prospective dividend yield of 3.8pc, with payouts having increased about 12pc a year for the past four years.with its finances looking reasonably robust, ds smith is looking to expand into new markets. the company has recently purchased a spanish packaging company and has signed a letter of intent. the deal, if completed, would expand the company into turkey.shares frankfurt di6.f news in ds smith have risen 17pc since questor said they looked oversold on august 7 at 259.6 p . however, there could be more gains to come. the shares trade on 12.2 times forecast earnings, falling to 11.3 times next year, which is in line with packaging sector peers on about 12 times forecast earnings.ds smith is growing earnings and the dividend by double digits, while the cash on the balance sheet also provides options for growth or returns. buy. 
