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WestRock Reports Fiscal 2019 Third Quarter Results

"The WestRock team executed well in the third fiscal quarter. We remain focused on generating organic growth, maximizing the full potential of our broad, comprehensive product portfolio and delivering on our productivity and cash flow generation goals." – Steve Voorhees, CEO, WestRock.

Aug. 1, 2019 - WestRock Company (NYSE:WRK), a leading provider of differentiated paper and packaging solutions, today announced results for its fiscal third quarter ended June 30, 2019.

Third Quarter 2019 Highlights

Earned $0.98 per diluted share and $1.11 of adjusted earnings per diluted share compared to $1.03 per diluted share and $1.09 of adjusted earnings per diluted share in the prior year quarter.
The Corrugated Packaging segment delivered a Segment EBITDA margin of 20.6% and a North American Adjusted Segment EBITDA margin of 23.1%, an increase of 20 basis points and 110 basis points, respectively, compared to the prior year quarter.
Achieved $80 million of run-rate synergies and performance improvements towards our target of achieving $200 million for the KapStone acquisition by the end of fiscal 2021.
Recorded $15 million of pre-tax income, or $0.04 per diluted share, for the receipt of business interruption insurance proceeds related to the impact of Hurricane Michael on the Panama City, Florida mill that was not included in the Company's guidance for the quarter.
Total debt declined $257 million and Net Debt declined $282 million compared to the second quarter of fiscal 2019.

“The WestRock team executed well in the third fiscal quarter,” said Steve Voorhees, chief executive officer. “We remain focused on generating organic growth, maximizing the full potential of our broad, comprehensive product portfolio and delivering on our productivity and cash flow generation goals. 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 stockholders.”

CONSOLIDATED FINANCIAL RESULTS

Operating Highlights for the Three Months Ended June 30, 2019 compared to June 30, 2018:

Net sales increased $553 million compared to the prior year quarter, primarily due to $628 million of increased Corrugated Packaging segment net sales mainly due to the acquisition of KapStone Paper and Packaging Corporation (“KapStone”) and higher selling prices for domestic containerboard and corrugated containers, partially offset by declining export prices. These increases in net sales were partially offset by the absence of $106 million of recycling sales compared to the prior 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 impacts. Additionally, Land and Development segment net sales and Consumer Packaging segment net sales were lower by $56 million and $20 million, respectively.

Segment income increased $27 million compared to the prior year quarter, primarily due to $71 million of increased Corrugated Packaging segment income that was partially offset by $35 million of decreased Consumer Packaging segment income and $8 million of decreased Land and Development segment income. The increase in segment income was primarily due to the contribution from acquired operations, higher selling price/mix across our segments and productivity improvements. These items were largely offset by lower volumes across our segments, economic downtime, cost inflation, increased maintenance and scheduled strategic outage expense including the project at our Covington, Virginia mill, and lower Land and Development segment income due to sales winding down.

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 third quarter of fiscal 2019 included the following pre-tax costs:

$11 million of integration costs, primarily related to the KapStone acquisition
$6 million of restructuring costs, primarily associated with severance and other employee costs related to the KapStone acquisition and the consolidation of operations
$1 million of acquisition costs, principally professional fees related to various initiatives
Net Cash Provided By Operating Activities and Other Financing and Investing Activities

Net cash provided by operating activities was $735 million in the third quarter of fiscal 2019 compared to $662 million in the prior year quarter. As a result of the retrospective adoption of certain accounting standards discussed below under “Other Presentation Items”, net cash provided by operating activities for the three months ended June 30, 2018 decreased by $110 million with a corresponding $104 million increase to cash provided by investing activities and a $6 million increase in cash, cash equivalents, and restricted cash. During the third quarter of fiscal 2019, the Company received $30 million of insurance proceeds related to the impact of Hurricane Michael on the Panama City, Florida mill, of which $15 million was for business interruption and $15 million was for direct costs and property damage. Of the $30 million, $22 million was included in operating activities and $8 million was included in investing activities.

Total debt was $10.5 billion at June 30, 2019, or $10.3 billion excluding $234 million of non-cash acquisition related step-up. Total debt declined $257 million and Net Debt declined $282 million in the third quarter of fiscal 2019. During the third quarter of fiscal 2019, WestRock invested $351 million in capital expenditures, paid $117 million in dividends to stockholders and paid $29 million for the purchase of and investment in businesses.

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 the first quarter of fiscal 2019, the Company began conducting its recycling operations primarily as a procurement function. As a result, no recycling net sales have been recorded and the margin from the Company's recycling operations reduces cost of goods sold.

Corrugated Packaging Segment

Operating Highlights for the Three Months Ended June 30, 2019 compared to June 30, 2018:

Segment net sales increased $628 million and segment net sales, adjusted to exclude recycling net sales in the prior year quarter for comparability, increased $740 million. The increase in segment net sales was primarily due to $797 million from the acquired KapStone operations and $33 million of higher selling price/mix. These items were partially offset by the absence of $111 million of recycled net sales, $81 million of lower volumes and $14 million of unfavorable foreign currency impacts.
The Corrugated Packaging segment delivered a Segment EBITDA margin of 20.6% and a North American Adjusted Segment EBITDA margin of 23.1%, an increase of 20 basis points and 110 basis points, respectively.
North American box shipments increased 20.0% on a per day basis, and approximately 2.7% on an organic basis.
Segment income increased $71 million due primarily to $88 million of contribution from the acquired KapStone operations before economic downtime, an estimated $39 million of productivity improvements and $19 million of higher selling price/mix. These items were partially offset by an estimated $23 million related to 165,000 tons of economic downtime, $21 million of lower volumes and an estimated $17 million of cost inflation, as well as other costs.
The Company recorded $15 million of pre-tax income, or $0.04 per diluted share, for the receipt of business interruption insurance proceeds, that was not included in its guidance for the quarter.
Results in the third quarter of fiscal 2018 were negatively affected by an estimated $11 million of start-up issues following a major maintenance outage at the Company's Panama City, Florida mill.

Consumer Packaging Segment

Operating Highlights for the Three Months Ended June 30, 2019 compared to June 30, 2018:

Segment net sales decreased $20 million due to $31 million of lower volumes and $26 million of unfavorable foreign currency impacts. These items were partially offset by $29 million of higher selling price/mix and $9 million from acquisitions.
Consumer Packaging converting shipments increased 1.3%. North America converting shipments were up 2.7% and were partially offset by declines in Europe and Asia.
Segment income decreased $35 million as $33 million of higher selling price/mix and an estimated $9 million of productivity improvements were more than offset by an estimated $27 million of cost inflation and $16 million of lower volume, an estimated $22 million due to increased maintenance and scheduled strategic outage expense including the project at the Covington, Virginia mill, as well as other costs.

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

WestRock 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