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WestRock Reports Fiscal 2019 Second Quarter Results

"Our WestRock team delivered outstanding results in the second fiscal quarter. We're responding to changing market conditions by focusing on organic growth opportunities, maintaining a focus on productivity, operational excellence and debt reduction, while continuing to return cash to stockholders." – Steve Voorhees, CEO, WestRock.

April 30, 2019 - WestRock Company, a leading provider of differentiated paper and packaging solutions, today announced results for its fiscal second quarter ended March 31, 2019.

Second Quarter 2019 Highlights

Earned $0.62 per diluted share and $0.80 of adjusted earnings per diluted share compared to $0.86 of earnings per diluted share and $0.83 of adjusted earnings per diluted share in the prior year quarter.
The Corrugated Packaging segment delivered a Segment EBITDA margin of 18.5% and a North American Adjusted Segment EBITDA margin of 20.4%, an increase of 10 basis points and 40 basis points, respectively, compared to the prior year quarter.
Successfully completed the installation of a state-of-the-art curtain coater at the Mahrt mill, improving both the quality of the mill's products and its productivity.
Achieved $70 million of run-rate synergies towards the $200 million target for the KapStone acquisition.
Recorded $30 million of income for the receipt of business interruption insurance proceeds related to the impact of Hurricane Michael on the Panama City mill, or $0.09 per diluted share, that was not included in the company's guidance for the quarter.

“Our WestRock team delivered outstanding results in the second fiscal quarter,” said Steve Voorhees, chief executive officer. “We're responding to changing market conditions by focusing on organic growth opportunities, maintaining a focus on productivity, operational excellence and debt reduction, while continuing to return cash to stockholders. With the advantages of our diverse portfolio and the multiple levers in our control, I remain confident in our ability to create long-term value for our customers and for our stockholders.”

Operating Highlights for the Three Months Ended March 31, 2019 compared to March 31, 2018:

Net sales increased $603 million compared to the prior year quarter primarily attributable to $599 million of increased Corrugated Packaging segment net sales (mainly due to the acquisition of KapStone Paper and Packaging Corporation (“KapStone” and the “KapStone Acquisition”)), higher selling price/mix across the segment and strength in our North American container business. These increased sales were partially offset by the absence of recycling sales in the current year quarter as a result of conducting the operations primarily as a procurement function beginning in fiscal 2019, lower containerboard volumes and unfavorable foreign currency compared to the prior year quarter. Net sales, adjusted to exclude recycling net sales in the prior year quarter for comparability, increased $713 million.

Segment income increased $23 million compared to the prior year quarter primarily attributable to $48 million of increased Corrugated Packaging segment income, $16 million of decreased Land and Development segment income and $9 million of decreased Consumer Packaging segment income. The increase in segment income primarily included the contribution from acquired operations, higher selling price/mix across our segments and productivity. These items were largely offset by higher levels of cost inflation, lower containerboard volumes, economic downtime, the scheduled strategic outage at the Mahrt mill and lower Land and Development segment income due to the winding down of sales.

Results in the second quarter of fiscal 2018 were negatively impacted by an estimated $28 million due to the impact of winter weather that was partially offset by $10 million of income related to an acquisition reserve adjustment in our Consumer Packaging segment.

Additional information about the changes in segment net sales and income is included in the discussions below.

Restructuring and Other Items

Restructuring and other items during the second quarter of fiscal 2019 included the following pre-tax costs:

$24 million of restructuring costs, primarily associated with severance and other employee costs related to the KapStone Acquisition and the consolidation of operations
$7 million of integration costs, primarily related to the KapStone Acquisition
$3 million of acquisition costs, principally professional fees related to the KapStone Acquisition

Net Cash Provided By Operating Activities and Other Financing and Investing Activities

Net cash provided by operating activities was $362 million in the second quarter of fiscal 2019 compared to $228 million in the prior year quarter. Cash provided by operating activities for the three months ended March 31, 2018 decreased by $143 million with a corresponding increase to cash provided by investing activities as a result of retrospective adoption of certain accounting standards discussed below under the caption Other Presentation Items. During the second quarter of fiscal 2019, we received $60 million of insurance proceeds related to the Panama City mill, $51 million and $9 million of which were included in operating and investing activities, respectively.

Total debt was $10.80 billion at March 31, 2019, or $10.55 billion excluding $243 million of non-cash acquisition related step-up. During the second quarter of fiscal 2019, WestRock invested $303 million in capital expenditures, paid $118 million in dividends and returned $44 million to stockholders through stock repurchases.

SEGMENT RESULTS

In the first quarter of fiscal 2019, the Company aligned its financial results for all periods presented in this press release to move its merchandising displays operations from its Consumer Packaging segment to its Corrugated Packaging segment. Additionally, beginning in fiscal 2019, the Company began conducting its recycling operations primarily as a procurement function. As a result, no recycling net sales are recorded and the margin from its recycling operations reduces cost of goods sold.

Corrugated Packaging Segment

Operating Highlights for the Three Months Ended March 31, 2019 compared to March 31, 2018:

Segment net sales increased $599 million and segment net sales, adjusted to exclude recycling net sales in the prior year quarter for comparability, increased $716 million. The increase in segment net sales adjusted to exclude recycling was primarily due to $776 million from the acquired KapStone operations and $115 million of higher selling price/mix. These items were partially offset by $143 million of lower volumes and $25 million of unfavorable foreign currency.
The Corrugated Packaging segment delivered a Segment EBITDA margin of 18.5% and a North American Adjusted Segment EBITDA margin of 20.4%, an increase of 10 basis points and 40 basis points, respectively.
North American box shipments increased 20.2% on a per day basis, and approximately 2.0% on an organic basis.
Segment income increased $48 million due primarily to $75 million of contribution from the acquired KapStone operations, $67 million of higher selling price/mix and an estimated $27 million of productivity. These items were partially offset by an estimated $54 million of cost inflation (including items such as raw materials, labor, benefits, freight and energy), $48 million of lower volumes, an estimated $36 million related to 198,000 tons of economic downtime, and other items.
We recorded $30 million of income for the receipt of business interruption insurance proceeds, or $0.09 per diluted share, that was not included in our guidance for the quarter. Net of these proceeds, the Panama City mill's segment income was flat compared to the prior year quarter.
The second quarter of fiscal 2018 results were negatively affected by an estimated $13 million due to the impact of winter weather.

Consumer Packaging Segment

Operating Highlights for the Three Months Ended March 31, 2019 compared to March 31, 2018:

Segment net sales increased $31 million due to $39 million of higher selling price/mix, $17 million of higher volumes and $9 million from acquisitions. These increases were partially offset by $34 million of unfavorable foreign currency.
Segment income decreased $9 million as $38 million of higher selling price/mix and an estimated $41 million of productivity improvements were more than offset by an estimated $46 million of cost inflation (including items such as raw materials, labor, benefits and freight), an estimated $14 million due to the scheduled strategic outage at the Mahrt mill, $7 million of unfavorable foreign currency, and other items compared to the prior year quarter.
The second quarter of fiscal 2018 results were negatively impacted by an estimated $16 million from the impact of winter weather that was largely offset by $10 million of income related to an acquisition reserve adjustment.

Complete fiscal second quarter results with detailed tables are available on WestRock's website: www.westrock.com.

WestRock (NYSE:WRK) partners with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. To learn more, please visit: www.westrock.com.

SOURCE: WestRock Company