WestRock Reports Fiscal 2022 Third Quarter Results

"I'm pleased to report that WestRock generated more than $1 billion in Consolidated Adjusted EBITDA in the quarter, a record for our Company, and continued to deliver on our transformation initiatives." – David Sewell, CEO of WestRock.

Aug. 4, 2022 - WestRock Company today announced results for its fiscal third quarter ended June 30, 2022.

"I'm pleased to report that WestRock generated more than $1 billion in Consolidated Adjusted EBITDA in the quarter, a record for our Company, and continued to deliver on our transformation initiatives," said David B. Sewell, chief executive officer. "I want to thank the WestRock team for their focus and efforts to serve our customers and deliver these results.

"We also announced our intent to acquire the remaining interest in Grupo Gondi, our joint venture in Mexico, which will position us to grow in the attractive Latin America market," continued Sewell. "While the economic outlook remains uncertain, WestRock's broad portfolio and geographic reach uniquely position us to manage through economic cycles and maximize shareholder value."

Consolidated Financial Results

WestRock's performance for the three months ended June 30, 2022 and 2021:

Net sales increased $703 million, or 14.6%, year-over-year. Global Paper segment sales increased $311 million, or 23.9%, Corrugated Packaging segment sales increased $228 million, or 10.6%, Consumer Packaging segment sales increased $138 million, or 12.2%, and Distribution segment sales increased $35 million, or 11.0% and intersegment sales increased $9 million.

Net income increased $128 million year-over-year to $378 million. The impact of higher selling price/mix was partially offset by increased cost inflation, higher operating costs and lower volumes. Net income in the quarter was also impacted by a $26 million pre-tax non-cash mineral rights impairment that was largely offset by $19 million of insurance recoveries related to the fiscal 2021 ransomware incident and winter weather event. The insurance recoveries were primarily for business interruption costs and were recorded as a reduction of Cost of goods sold.

Consolidated Adjusted EBITDA increased $195 million, or 24.0%, year-over-year due to strength across the segments, primarily in the Global Paper and Consumer Packaging segments.

Cash Flow Activities

Net cash provided by operating activities was $837 million in the third quarter of fiscal 2022 compared to $751 million in the prior year quarter primarily due to increased net income.

Total debt was $8.0 billion at June 30, 2022, $7.8 billion excluding $180 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $7.5 billion after further excluding cash and cash equivalents of $305 million. The Company had approximately $3.5 billion of available liquidity under long-term committed credit facilities and cash and cash equivalents at June 30, 2022.

During the third quarter of fiscal 2022, WestRock invested $215 million in capital expenditures and returned $354 million in capital to stockholders, specifically $290 million in stock repurchases and $64 million in dividend payments.

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 its 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 to 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;
• Global 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 $228 million, or 10.6%, primarily due to higher selling price/mix that was partially offset by lower volumes.

Corrugated Packaging Adjusted EBITDA increased $21 million, or 5.9%, primarily due to the margin impact from higher selling price/mix, which was largely offset by increased cost inflation, lower volumes and higher operating costs. Corrugated Packaging Adjusted EBITDA margin was 16.2% and Adjusted EBITDA margin excluding trade sales was 16.8%.

Consumer Packaging Segment

Consumer Packaging segment sales increased $138 million, or 12.2%, primarily due to higher selling price/mix and higher volumes that were partially offset by the unfavorable impact of foreign currency.

Consumer Packaging Adjusted EBITDA increased $52 million, or 28.2%, primarily due to the margin impact from higher selling price/mix and higher volumes that were partially offset by increased cost inflation and the unfavorable impact of foreign currency. The Consumer Packaging segment delivered an Adjusted EBITDA margin of 18.5%, an increase of 230 basis points year-over-year.

Global Paper Segment

Global Paper segment sales increased $311 million, or 23.9%, primarily due to higher selling price/mix and higher volumes.

Global Paper Adjusted EBITDA increased $134 million, or 50.5%, primarily due to the margin impact from higher selling price/mix, higher volumes, the favorable impact of foreign currency and a decrease in planned downtime including maintenance outages, which were partially offset by increased cost inflation and higher operating costs. The Global Paper segment delivered an Adjusted EBITDA margin of 24.8%, an increase of 440 basis points year-over-year.

Distribution Segment

Distribution segment sales increased $35 million, or 11.0%, primarily due to higher selling price/mix that was partially offset by lower volumes.

Distribution Adjusted EBITDA increased $1 million, or 6.7%, primarily due to the margin impact of higher selling price/mix and an increase in productivity which were partially offset by the increased cost inflation and lower volumes.

Announced Acquisition of Grupo Gondi

On July 27, 2022, the Company announced its entry into an agreement to acquire the remaining 67.7% interest in Gondi, S.A. de C.V. ("Grupo Gondi") for $970 million, plus the assumption of debt, representing an estimated implied enterprise value of $1.763 billion. Grupo Gondi is a leading integrated producer of corrugated and consumer packaging that operates four paper mills, nine corrugated packaging plants and six high graphic plants throughout Mexico, producing sustainable packaging for a wide range of end markets in the region. This tuck-in acquisition will provide the Company with further geographic and end market diversification as well as position WestRock to continue to grow in the attractive Latin American market.

The acquisition, which is subject to a number of customary closing conditions, including approval by regulatory authorities in Mexico, is expected to close by the end of this calendar year, after which the Company will consolidate Grupo Gondi into our financial statements.

WestRock (NYSE:WRK) partners with its 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