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WestRock Reports Fiscal 2020 Second Quarter Results

"In the second quarter, WestRock delivered solid results with improved demand in select key markets as the pandemic impacted consumer buying habits, especially in March." – Steve Voorhees, CEO, WestRock.

May 5, 2020 - WestRock Company today announced results for its fiscal second quarter ended March 31, 2020, and provided an update related to the impact of the COVID-19 pandemic on the Company.

Second quarter of fiscal 2020 financial highlights include:

• Net sales of $4.45 billion decreased by 3.7% compared to the prior year quarter
• $0.57 per diluted share and $0.67 of adjusted earnings per diluted share compared to $0.62 per diluted share and $0.80 of adjusted earnings per diluted share in the prior year quarter
• Strong segment margins in rapidly changing economic environment
• In excess of $2.5 billion of availability under long-term committed credit facilities and cash and cash equivalents at March 31, 2020

WestRock is executing its differentiated strategy with financial strength and substantial liquidity. Given the uncertainties associated with the severity and duration of COVID-19, the Company is focused on meeting the needs of WestRock’s customers, supporting the health, safety and well-being of its teammates, and further building on its foundation of financial strength by:

• Providing one-time recognition awards to the Company’s manufacturing and operations teammates in the third quarter of fiscal 2020
• Continuing to match the Company's supply with its customers’ demand
• Decreasing salaries and retainers up to 25% for the Company’s senior executive team and board of directors in addition to reducing discretionary expenses
• The Company expects to use company stock to pay its annual incentive and company funded 401(k) contributions in 2020
• Reducing fiscal 2020 capital investments by approximately $150 million, to a level of $950 million; reduce fiscal 2021 capital investments to a range of $600 to $800 million
• Resetting its quarterly dividend to $0.20 per share for an annual rate of $0.80 per share

“I am incredibly proud of the WestRock team that is focused every day on ensuring that the paper and packaging needed to keep critical supply chains operating during the pandemic are available for our customers and our communities,” said Steve Voorhees, chief executive officer. “With operations around the world, we have been working steadily to help our team stay safe by implementing enhanced protection and sanitization measures across our company. We are relentlessly focused on ensuring the health and safety of our teammates.

“In the second quarter, WestRock delivered solid results with improved demand in select key markets as the pandemic impacted consumer buying habits, especially in March. We are adapting quickly to the uncertain economic and market demand conditions and taking steps that we expect will provide an additional $1 billion in cash available for debt reduction through fiscal 2021. We are confident in our differentiated strategy and value proposition, and believe these steps will ensure that WestRock remains well positioned for long-term success.”

Health and Safety of our Teammates

WestRock’s first priority is the health and safety of its teammates, and the Company has taken, and continues to take, actions to protect the health and safety of its teammates during the COVID-19 pandemic, including:

• Cleaning and disinfecting workstations and common surfaces frequently and arranging for deep cleaning and sanitizing of WestRock’s sites, as needed
• Implemented temperature screenings in compliance with applicable law
• Encouraging the use of face coverings generally and complying with specific requirements where use is mandated
• Enforcing quarantine guidelines for team members affected or potentially exposed to COVID-19
• Supporting flexible and alternative work arrangements, including a work-from-home strategy for team members whose jobs can be performed remotely
• Launched an online Coronavirus Resource Center to keep teammates up to date on Company and health authority information, including information from the World Health Organization and the U.S. Centers for Disease Control and Prevention

Business Continuity

WestRock is an essential part of the global supply chain. The Company’s paper and packaging products enable its customers to package essential food, beverage, health products, cleaning products and other goods. The Company is continuing to operate and meet or exceed its customers’ needs in this rapidly evolving demand environment.

The Company has formed a business continuity team comprised of senior leaders throughout its organization that develops and implements business continuity plans to ensure that the Company’s operations are well positioned to continue producing and delivering products to customers without disruption. The business continuity team meets daily to identify and address issues as they arise and focuses on taking actions that address current circumstances associated with COVID-19 while positioning the Company for future growth.

Financial Flexibility and Liquidity

WestRock believes that it has substantial liquidity to navigate the current dynamic environment. The Company’s cash and cash equivalents and long-term committed available borrowings aggregated to more than $2.5 billion of liquidity at March 31, 2020. The Company has limited debt maturities until March 2022.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allows employers to postpone paying their share of employment taxes incurred through the end of calendar year 2020. The Company expects to postpone an estimated $120 million of such payments over the next three quarters and will be required to pay 50% of these amounts in December 2021 and the remaining 50% in December 2022.

As noted above, WestRock is reducing its planned fiscal 2020 and fiscal 2021 capital investments and resetting its dividend. WestRock is taking other actions to provide additional cash flow available for debt reduction while maintaining its system and making the capital investments necessary to improve productivity and supply its growing markets. The Company also expects to use company stock to pay its annual incentive and 401(k) contributions in 2020. WestRock remains focused on maintaining its investment grade rating and managing its working capital and taking appropriate actions to ensure its access to necessary liquidity.

Dividend Announcement

The Company today reported that its Board of Directors declared a quarterly dividend of $0.20 per share on its common stock, or $0.80 on an annualized basis. The quarterly dividend will be paid to stockholders of record as of the close of business on May 19, 2020 and will be paid on May 28, 2020.

Consolidated Financial Results

The Company is withdrawing its fiscal 2020 net sales, Adjusted Segment EBITDA, Adjusted Operating Cash Flow and Adjusted Free Cash Flow guidance due to the unknown duration and severity of reduced economic activity associated with COVID-19.

Operating Highlights for the Three Months Ended March 31, 2020 compared to March 31, 2019:

Net sales decreased $173 million compared to the prior year quarter. Corrugated Packaging segment net sales declined $108 million, primarily due to lower corrugated selling price/mix, partially offset by higher volumes. Consumer Packaging segment net sales declined $52 million, primarily due to lower selling price/mix, lower volumes and the unfavorable impact of foreign currency.

Segment income decreased $61 million compared to the prior year quarter. Corrugated Packaging segment income decreased $66 million and Consumer Packaging segment income increased $6 million.

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

Restructuring and Other Items

Restructuring and other items during the second quarter of fiscal 2020 included the following pre-tax costs:

• $8 million of restructuring costs, primarily associated with severance and other employee costs (including a voluntary retirement program) and plant consolidations
• $8 million of integration costs, primarily related to the acquisition of KapStone Paper and Packaging Corporation (“KapStone”)
• Net Cash Provided By Operating Activities and Other Financing and Investing Activities

Net cash provided by operating activities was $168 million in the second quarter of fiscal 2020 compared to $362 million in the prior year quarter. The decrease was primarily due to increased working capital usage in the current year quarter compared to the prior year quarter.

Total debt was $10.86 billion at March 31, 2020, or $10.64 billion excluding $218 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and less than $10.0 billion net of cash and cash equivalents of $640 million. During the second quarter of fiscal 2020, WestRock invested $241 million in capital expenditures and paid $121 million in dividends to stockholders.

WestRock's complete fiscal second quarter 2020 results can be found on the company's wesbite under Investor Relations: ir.westrock.com/ir-home/default.aspx

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. For further information, visit: www.westrock.com.

SOURCE: WestRock Company