PaperAge Magazine

WestRock Reports Strong Growth in Fiscal 2018 Third Quarter Results

Steve Voorhees - WestRock "With our productivity performance in the quarter, we achieved our goal of a run rate of more than $1 billion of synergy and performance improvements." – Steve Voorhees, CEO, WestRock.

Aug. 2, 2018 - WestRock Company (NYSE:WRK), a leading provider of differentiated paper and packaging solutions, today announced results for its fiscal third quarter ended June 30, 2018.

Third Quarter 2018 Highlights

  • Earned $1.03 per diluted share, a 20% decrease compared to $1.29 per diluted share in the prior year quarter. The prior year earnings per diluted share included a $191 million, or $0.75 per diluted share, gain on the sale of the company’s former Home Health & Beauty business (“HH&B”).
  • Earned $1.09 of adjusted earnings per diluted share, a 47% increase over the $0.74 earned in the prior year quarter. Adjusted earnings per diluted share excludes the aforementioned gain on sale of HH&B.
  • Increased net sales by $442 million, or 12%, and Segment EBITDA by $177 million, or 30%, compared to the prior year quarter.
  • Increased Corrugated Packaging Segment EBITDA by $111 million, or 30%, compared to the prior year quarter. The segment delivered a Segment EBITDA margin of 21.2% and a North American Adjusted Segment EBITDA margin of 23.0%, up 390 and 420 basis points, respectively, compared to the prior year quarter.
  • Increased Consumer Packaging segment net sales by $324 million, or 21%, and Segment EBITDA by $55 million, or 26%, compared to the prior year quarter.
  • Achieved the $1 billion synergy and performance improvements goal the company set at the inception of WestRock.
  • The effective tax rate for the quarter was 23.7% and the adjusted tax rate was 22.5%.
  • Continued integration planning for the acquisition of KapStone Paper and Packaging Corporation (“KapStone”), which is expected to close by the end of the calendar year, subject to obtaining antitrust clearance in the United States, KapStone stockholder approval and customary closing conditions.

"Our WestRock team delivered significant margin and cash flow improvement in the third fiscal quarter, evidence that our strategy, operational performance, and productivity efforts are delivering value for our stockholders," said Steve Voorhees, chief executive officer. "With our productivity performance in the quarter, we achieved our goal of a run rate of more than $1 billion of synergy and performance improvements. We are on track to achieve our financial goals for the year and are well positioned to build on our success in fiscal 2019."

Consolidated Financial Results

WestRock's performance for the three months ended June 30, 2018 and June 30, 2017:

The $442 million increase in net sales compared to the prior year quarter was primarily attributable to $129 million of increased Corrugated Packaging segment sales driven principally by higher selling price/mix and $324 million of increased Consumer Packaging segment sales, primarily due to the contribution from the Multi Packaging Solutions International Limited (“MPS”) acquisition.

The $135 million increase in segment income was primarily due to $90 million of increased Corrugated Packaging segment income and $36 million of increased Consumer Packaging segment income. Consumer Packaging’s segment income in the third quarter of fiscal 2017 was reduced by $13 million as a result of an acquisition inventory step-up charge related to the MPS acquisition. Adjusted Segment EBITDA increased 27% compared to the prior year quarter.

Restructuring and Other Items

Restructuring and other items during the third quarter of fiscal 2018 included the following pre-tax costs:

  • $7 million of restructuring costs, primarily associated with the consolidation of operations
  • $7 million of integration costs
  • $3 million of acquisition costs, principally related to the planned KapStone acquisition

Cash Provided By Operating, Financing and Investing Activities

Net cash provided by operating activities was $772 million in the third quarter of fiscal 2018 compared to $589 million in the prior year quarter, primarily due to higher cash earnings and a decreased use of working capital. Total debt was $6.5 billion at June 30, 2018. Consistent with WestRock’s disciplined capital allocation strategy, during the third quarter WestRock invested $239 million in capital expenditures, paid $110 million in dividends and returned $101 million to stockholders in stock repurchases.

SEGMENT RESULTS

Corrugated Packaging Segment

Operating Highlights for the Three Months Ended June 30, 2018 compared to June 30, 2017:

  • The Corrugated Packaging segment delivered a Segment EBITDA margin of 21.2% and a North American Adjusted Segment EBITDA margin of 23.0%, up 390 and 420 basis points, respectively.
  • Brazil Adjusted Segment EBITDA margin was 28.3%, up 320 basis points.
  • Segment sales increased $129 million, primarily due to an estimated $176 million of higher corrugated selling price/mix that was partially offset by $34 million of lower recycling sales that were driven by lower recovered fiber prices.
  • Segment income increased $90 million, or 40%, as higher corrugated selling price/mix and productivity improvements were partially offset by cost inflation and other items, including $21 million of higher depreciation and amortization and an estimated $11 million impact of start-up issues following a major maintenance outage.
  • North American box shipments increased 4.1% on a per day basis, including the impact of acquisitions.

Consumer Packaging Segment

Operating Highlights for the Three Months Ended June 30, 2018 compared to June 30, 2017:

  • Segment sales increased $324 million, primarily due to a $290 million increase from acquisitions (principally the MPS acquisition).
  • Segment income increased $36 million, or 37%, primarily due to income from acquisitions, productivity improvements, and higher volume and selling price/mix, which were partially offset by cost inflation. Consumer Packaging’s segment income in the third quarter of fiscal 2017 was reduced by $13 million as a result of an acquisition inventory step-up charge related to the MPS acquisition.
  • Shipments of paperboard and converted products increased 6.9%, including 3.5% from organic growth.

WestRock's full earnings report for its fiscal third quarter can be found on the company's website: www.westrock.com.

WestRock partners with its customers to provide differentiated paper and packaging solutions that help them win in the marketplace. WestRock's 45,000 team members support customers around the world from more than 300 operating and business locations spanning North America, South America, Europe, Asia and Australia. To learn more, please visit: www.westrock.com.

SOURCE: WestRock Company