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WestRock to Cut Production Capacity to Align With Demand

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Zacks Equity Research
·4 min read
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WestRock Company WRK intends to shut down one paper machine at its Evadale, TX mill in order to reduce its solid bleached sulphate (SBS) mill system production capacity by 200,000 tons. This move aligns with the company’s focus on balancing supply with customers’ demand. Following this, the company’s total SBS production capacity will be 1.9 million tons.

The ramp down of the Evadale mill’s paper machine is expected to occur by end of this year, which will result in the reduction of about 60 employees. However, the remaining two machines at the mill will continue to serve end markets, including liquid packaging, foodservice, food and premium coated pre-print liner for corrugated boxes, among other grades.

Given the current economic scenario and the estimated near-term supply requirement, WestRock expects that lowering the production capacity of the Evadale mill will enable it to serve customers efficiently while boosting competitiveness.

WestRock had earlier announced that it is reconfiguring its North Charleston, SC, paper mill to improve the long-term competitiveness of the mill. The move will likely increase the company’s annual EBITDA by approximately $40 million, primarily owing to the reduction in operating costs from the shutdown of the paper machine and its associated infrastructure. It will also reduce the linerboard capacity by approximately 288,000 tons and help match supply with demand.

The pandemic has disrupted demand patterns across few of WestRock’s businesses. The company’s consumer packaging segment, which contains Specialty SBS paperboard for tobacco, commercial print and liquid packaging accounts for about 10% of the segment sales. Bleak demand in the commercial print business is hurting the segment. Also, low global pulp prices continue to affect the pulp and other business, which accounts for 4% of the segment sales.
Meanwhile, WestRock is poised to gain from the surge in e-commerce activities amid the coronavirus crisis. The company's consumer packaging business is gaining from sustainable packaging options, as well as significant demand in food, food service, and beverage packaging categories amid the pandemic. The corrugated packaging business is poised to gain from improved box shipment as well as increased demand from distribution, industrial and agricultural customers as the economy gradually recovers.

Price Performance

The company’s shares have gained 7.6% over the past year, outperforming the industry’s growth of 5.2%.


Zacks Rank & Other Stocks to Consider

WestRock currently sports a Zacks Rank #1 (Strong Buy)

Some other top-ranked stocks in the basic materials space include Brenntag AG BNTGY, Pretium Resources, Inc. PVG and Yamana Gold Inc. AUY, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brenntag has an expected earnings growth rate of 2.9% for 2020. The company’s shares have rallied 37.3% over the past year.

Pretium Resources has an anticipated earnings growth rate of 20% for the ongoing year. Its shares have gained 8.5% in a year’s time.

Yamana has an estimated earnings growth rate of 84.6% for the current year. The stock has surged 75.1% in the past year.

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