WestRock Reports Fiscal 2022 Second Quarter Results

"We delivered an outstanding second quarter, reporting record revenue and impressive adjusted earnings growth despite facing continued challenges from inflation, higher supply chain costs and labor shortages." – David Sewell, CEO of WestRock.

May 5, 2022 - WestRock Company today announced results for its fiscal second quarter ended March 31, 2022.

• Record quarterly net sales of $5.4 billion increased 21.3% year-over-year
• Net income of $40 million declined $73 million year-over-year, or 64.5%. Adjusted Net Income of $309 million increased $164 million year-over-year, growing 112.9%
• Net income in the second quarter of fiscal 2022 was impacted by $363 million of pre-tax restructuring and other costs ($321 million of which was non-cash), or $1.04 per diluted share, primarily associated with the previously announced closure of the Panama City, Florida paper mill
• Record second quarter Consolidated Adjusted EBITDA of $854 million increased 33.3% year-over-year
• Earned $0.15 per diluted share ("EPS") and Adjusted EPS of $1.17, compared year-over-year to $0.42 and $0.54, respectively
• WestRock's board of directors authorized an additional 25 million share repurchase program

"We delivered an outstanding second quarter, reporting record revenue and impressive adjusted earnings growth despite facing continued challenges from inflation, higher supply chain costs and labor shortages," said David B. Sewell, chief executive officer. "This strong performance speaks to the resiliency of our broad portfolio, and the resolve of our 50,000 talented employees. We remain focused on execution, and today have increased the midpoint of our full year guidance."

"Next week we look forward to hosting our 2022 Investor Day to provide further details about our strategy and long-term ambitions. While we are in the early innings of our transformation, we have made significant progress and have substantially more to come. Our future is bright and I'm confident we will capitalize on the tremendous opportunities ahead."

Consolidated Financial Results

Net sales increased $944 million, or 21.3%, year-over-year as the prior year period lost an estimated $189 million of net sales associated with the ransomware incident and winter weather ("the Events"). Excluding the prior year impact of the Events, net sales grew 17.0% year-over-year. Paper segment sales increased $408 million, or 36.0%, Corrugated Packaging segment sales increased $297 million, or 14.7%, Consumer Packaging segment sales increased $170 million, or 15.7%, and Distribution segment sales increased $82 million, or 29.3%.

Net income decreased $73 million year-over-year to $40 million. Results for the second quarter of fiscal 2022 included $363 million of pre-tax restructuring and other costs, $321 million of which was non-cash, primarily associated with the previously announced closure of the Panama City, Florida paper mill. The impact of higher selling price/mix and higher volumes were partially offset by increased cost inflation, lower productivity and other operational items. The prior year period was negatively impacted by $80 million pre-tax for lost sales and operational disruption from the Events as well as $20 million pre-tax of ransomware recovery costs, primarily professional fees.

Consolidated Adjusted EBITDA increased $213 million, or 33.3%, year-over-year due to strength across the segments, primarily in the Paper and Consumer Packaging segments.

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

Net cash provided by operating activities was $390 million in the second quarter of fiscal 2022 compared to $132 million in the prior year quarter primarily due to increased cash earnings and less working capital usage. The prior year period was impacted by lower income as a result of the Events as well as in increase in accounts receivable associated with delayed billing due to the ransomware incident.

Total debt was $8.4 billion at March 31, 2022, $8.2 billion excluding $184 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $7.8 billion after further excluding cash and cash equivalents of $360 million. During the second quarter of fiscal 2022, we redeemed $350 million aggregate principal amount of our 4.00% senior notes due March 2023 using existing liquidity and recorded an $8.2 million loss on extinguishment of debt. The Company had approximately $3.2 billion of available liquidity under long-term committed credit facilities and cash and cash equivalents at March 31, 2022.

During the second quarter of fiscal 2022, WestRock invested $181 million in capital expenditures and returned $276 million in capital to stockholders, specifically $210 million in stock repurchases and $66 million in dividend payments.

WestRock's board of directors authorized a new repurchase program of up to 25 million shares of WestRock common stock, in addition to any unutilized shares left from the existing authorization. The 25 million shares represents an additional authorization of approximately 10% of our outstanding common stock.

Segment Reporting Structure

In the first quarter of fiscal 2022, the Company reorganized its reportable segments due to changes in its organizational structure and how the Company makes key operating decisions, allocates resources and assesses the performance of our business. The Company believes the change provides greater visibility into the vertical integration between our mills and converting operations as well as the value of a diversified portfolio of assets, and helps it highlight the performance of its portfolio.

Our reportable segments are:

• Corrugated Packaging, which consists of our integrated corrugated converting operations;
• Consumer Packaging, which consists of our integrated consumer converting operations;
• Paper, which consists of all third-party paper sales; and
• Distribution, which consists of our distribution and display assembly operations.

As a result of the reorganization, the Company reports the benefit of vertical integration with its mills in each reportable segment that ultimately sells the associated paper and packaging products to our external customers. Prior to the reorganization, the Company had two reportable segments, Corrugated Packaging and Consumer Packaging.

SEGMENT RESULTS

Corrugated Packaging Segment

Corrugated Packaging segment sales increased $297 million, or 14.7%, primarily due to higher selling price/mix and higher volumes, including $39 million of negative impact on volumes in the prior year period from the Events.

Corrugated Packaging Adjusted EBITDA increased $8 million, or 2.4%, primarily due to the margin impact from higher selling price/mix and higher volumes, including the negative impact from the Events in the prior year, that were partially offset by increased cost inflation and a reduction in productivity and other operational items. Productivity was negatively impacted by heavy planned mill maintenance and COVID-related absenteeism in the current year period. Corrugated Packaging Adjusted EBITDA margin was 14.2% and Adjusted EBITDA margin excluding trade sales was 14.7%.

Consumer Packaging Segment

Consumer Packaging segment sales increased $170 million, or 15.7%, primarily due to higher selling price/mix and higher volumes including the negative impact on volumes in the prior year period from the Events.

Consumer Packaging Adjusted EBITDA increased $42 million, or 25.4%, primarily due to the margin impact from higher selling price/mix and higher volumes that were partially offset by increased cost inflation, the unfavorable impact of foreign currency and a reduction in productivity and other operational items. The Consumer Packaging segment delivered an Adjusted EBITDA margin of 16.5%.

Paper Segment

Paper segment sales increased $408 million, or 36.0%, primarily due to higher selling price/mix and higher volumes, including the $135 million of negative impact on volumes in the prior year period from the Events.

Paper Adjusted EBITDA increased $149 million, or 93.4%, primarily due to the margin impact from higher selling price/mix and higher volumes, including the negative impact from the Events in the prior year, that were partially offset by increased cost inflation, a reduction in productivity and other operational items, and the unfavorable impact of foreign currency. The Paper segment delivered an Adjusted EBITDA margin of 20.1%.

Distribution Segment

Distribution segment sales increased $82 million, or 29.3%, primarily due to higher selling price/mix and higher volumes primarily related to fulfillment of a large healthcare order.

Distribution Adjusted EBITDA increased $17 million, or 154.5%, primarily due to the margin impact of higher selling price/mix and higher volumes that were partially offset by the increased cost inflation and a reduction in productivity and other operational items.

WestRock's complete fiscal second quarter 2022 report is available on the company's website: www.westrock.com.

WestRock (NYSE:WRK) partners with our customers to provide sustainable paper and packaging solutions that help them win in the marketplace. WestRock's team members support customers around the world from locations spanning North America, South America, Europe, Asia and Australia. www.westrock.com.

SOURCE: WestRock Company