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WestRock Provides Financial Update Following Hurricane Dorian

Zacks Equity Research

WestRock Company WRK had idled three of its containerboard mills in the southeastern United States that lay in the areas of mandatory evacuation as a result of Hurricane Dorian. Consequently, the company anticipates a pre-tax impact of approximately $9 million on fourth-quarter fiscal 2019 results, which includes costs to idle and restore the mills to operation, and supply chain impacts. The company stated that these mills have begun operations as evacuation orders have been lifted.

Last year, WestRock’s operations at mills located in Florence, SC and Panama City, FL were disrupted by hurricanes, resulting in lost mill production and incurrence of damages, supply chain disruptions and increased input costs.

During the third-quarter conference call, WestRock had projected adjusted segment EBITDA for the fourth quarter of fiscal 2019 to be between $880 million and $925 million. The company reported adjusted segment EBITDA of $802 million in the last year's fourth fiscal quarter. In the current quarter, benefits from higher sequential seasonal volumes across both segments will be more than offset by the flow through of previously published containerboard and kraft paper price declines, and lower containerboard export prices. However, lower recycled fiber, virgin fiber, energy and freight costs, and productivity improvement will bolster EBITDA.

Higher maintenance downtime will impact fourth-quarter results on a year-over-year basis. For the Corrugated Packaging segment, the company anticipates maintenance downtime at 35,000 tons in fourth-quarter fiscal 2019. In the Consumer Packaging segment, maintenance downtime is expected at around 5,000 tons. There was no maintenance downtime in fourth quarter fiscal 2018. Overall for the Corrugated Packaging segment, maintenance downtime will be 278,000 tons in fiscal 2019, much higher than 233,000 tons in fiscal 2018. For the Consumer Packaging segment, maintenance downtime is estimated at 118,000 tons compared with 47,000 tons in fiscal 2018.

The company’s earlier guidance for fiscal 2019 adjusted EBITDA was at around $3.25 billion. The Zacks Consensus Estimate for the fourth quarter fiscal’s earnings is at $1.23, reflecting a year-over-year decline of 4.65%. The same for fiscal 2019 is at $3.95, indicating a decline of 3.42% year over year.

Execution of its capital allocation strategy and investment in growth projects will drive the company forward. The KapStone acquisition will enhance corrugated packaging business and add complementary products.

Price Performance

 

Shares of WestRock have slumped 36.8% in the past year, compared with the industry’s decline of 43.4%.

WestRock currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, Alamos Gold Inc. AGI and Arconic Inc ARNC, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has an outstanding expected earnings growth rate of 155.7% for 2019. The company’s shares have surged 68% in the past year.

Alamos Gold has projected earnings growth rate of 324% for the current year. The company’s shares have rallied 38% in a year’s time.

Arconic has an estimated earnings growth rate of 50% for the current year. Its shares have moved up 20% in the past year.

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