"The WestRock team delivered a solid second quarter, demonstrating the strength of our integrated and diversified packaging business." – David Sewell, CEO of WestRock.
May 4, 2023 - WestRock Company today announced results for its fiscal second quarter ended March 31, 2023.
"The WestRock team delivered a solid second quarter, demonstrating the strength of our integrated and diversified packaging business," said David B. Sewell, chief executive officer. "Our broad portfolio, product innovations and self-help initiatives are enabling us to successfully navigate the current market challenges.
"Closing our North Charleston mill is another step in our ongoing portfolio optimization strategy. We are accelerating our efforts to streamline our operations and drive growth in the most attractive markets. Looking ahead, we remain committed to operating world class assets and investing our capital to drive the greatest returns."
Net sales decreased $105 million, or 1.9%, year-over-year driven by a $370 million, or 24%, decrease in Global Paper segment sales that were partially offset by a $308 million, or 13.3%, increase in Corrugated Packaging segment sales. Net sales in the current year quarter included $328 million related to the consolidation of Gondi, S.A. de C.V. ("Grupo Gondi" and "Grupo Gondi Acquisition").
The net loss in the second quarter of fiscal 2023 was primarily due to the $1.9 billion pre-tax, non-cash goodwill impairment and higher restructuring and other costs. The net loss was also impacted by lower volumes excluding the Grupo Gondi Acquisition, increased net cost inflation, economic downtime, increased non-cash pension costs, costs associated with the Mahrt mill work stoppage, and business systems transformation costs. These costs were partially offset by higher selling price/mix, cost savings and contribution from the Grupo Gondi Acquisition.
Consolidated Adjusted EBITDA decreased $65 million, or 7.6%, year-over-year, primarily due to lower Global Paper and Distribution segment Adjusted EBITDA that was partially offset by higher Adjusted EBITDA in our Corrugated Packaging and Consumer Packaging segments. The Adjusted EBITDA impact of the Grupo Gondi operations contributed an incremental $50 million compared to the prior year quarter.
Additional information about the changes in segment sales and Adjusted EBITDA by segment are included below.
During the second quarter of fiscal 2023 we recorded a $1.9 billion pre-tax, non-cash goodwill impairment (or $1.8 billion after-tax); $1.4 million in Global Paper and $514 million in our Corrugated Packaging reportable segment. The goodwill impairment was linked to prior acquisitions and driven by the sustained decrease in the Company's market capitalization and further deterioration of macroeconomic conditions, including the impact of soft demand, pricing pressure and elevated inflation, which negatively affected our long-term forecasts in certain segments, as well as certain higher discount rates.
Restructuring and Other Costs
Restructuring and other costs during the second quarter of fiscal 2023 were $445 million ($347 million of which was non-cash), and were primarily related to the decision to close our North Charleston paper mill. Restructuring and other costs during the second quarter of fiscal 2022 were $363 million ($321 million of which was non-cash), primarily related to the closure of the Panama City, Florida paper mill.
Net cash provided by operating activities was $284 million in the second quarter of fiscal 2023 compared to $390 million in the prior year quarter primarily due to lower earnings.
Total debt was $9.5 billion at March 31, 2023, $9.3 billion excluding $166 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $9.0 billion after further excluding cash and cash equivalents of $363 million. Total debt was largely unchanged compared to last quarter. The Company had approximately $3.2 billion of available liquidity from long-term committed credit facilities and cash and cash equivalents at March 31, 2023.
During the second quarter of fiscal 2023, WestRock invested $282 million in capital expenditures and returned $70 million in capital to stockholders in dividend payments.
We have included the financial results of the Grupo Gondi operations in our Corrugated Packaging segment.
WestRock's segment performance for the three months ended March 31, 2023 and 2022 was as follows:
Corrugated Packaging segment sales increased $308 million, or 13.3%, primarily due to $328 million of sales from the acquired Grupo Gondi operations and higher selling price/mix that were partially offset by lower volumes excluding the Grupo Gondi Acquisition.
Corrugated Packaging Adjusted EBITDA increased $79 million, or 24.0%, primarily due to the incremental $50 million contribution from the Grupo Gondi operations, the margin impact from higher selling price/mix and cost savings, which were partially offset by increased net cost inflation, lower volumes excluding the Grupo Gondi Acquisition and economic downtime. Corrugated Packaging Adjusted EBITDA margin was 15.5% and Adjusted EBITDA margin excluding trade sales was 16.0%.
Consumer Packaging segment sales increased $15 million, or 1.2%, primarily due to higher selling price/mix that was partially offset by lower volumes and the unfavorable impact of foreign currency.
Consumer Packaging Adjusted EBITDA increased $13 million, or 6.2%, primarily due to the margin impact from higher selling price/mix and cost savings that were largely offset by increased net cost inflation, lower volumes, increased non-cash pension costs and the unfavorable impact of foreign currency. Consumer Packaging Adjusted EBITDA margin was 17.3%.
Global Paper segment sales decreased $370 million, or 24.0%, primarily due to lower volumes that were partially offset by higher selling price/mix. Additionally, segment sales are lower than the prior year period as sales to Grupo Gondi are now eliminated.
Global Paper Adjusted EBITDA decreased $122 million, or 39.4%, primarily due to lower volumes, increased net cost inflation, economic downtime and increased non-cash pension costs, which were partially offset by the margin impact from higher selling price/mix. Global Paper Adjusted EBITDA margin was 16.0%.
Distribution segment sales decreased $55 million, or 15.2%, primarily due to lower volumes that were partially offset by higher selling price/mix. The volume in the prior year quarter included a large healthcare order.
Distribution Adjusted EBITDA decreased $19 million, or 66.8%, primarily due lower volumes and increased cost inflation that were partially offset by cost savings and the margin impact of higher selling price/mix.
WestRock (NYSE:WRK) partners with its customers to provide differentiated, 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.
SOURCE: WestRock Company
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