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WestRock (WRK) Earnings Beat, Sales Miss Estimates in Q3

Zacks Equity Research

WestRock Company WRK delivered third-quarter fiscal 2019 (ended Jun 30, 2019) adjusted earnings of $1.11 per share, surpassing the Zacks Consensus Estimate of $1.02. Moreover, earnings improved 2% over the prior-year quarter figure of $1.09.
Including one-time items, the company reported earnings per share of 98 cents in the reported quarter, down 5% from the prior-year quarter’s $1.03.

Operational Update
WestRock’s total revenues jumped 13% year over year to $4,690 million. However, the top line missed the Zacks Consensus Estimate of $4,866 million.

WestRock Company Price, Consensus and EPS Surprise

WestRock Company Price, Consensus and EPS Surprise

WestRock Company price-consensus-eps-surprise-chart | WestRock Company Quote

The year-over-year improvement in total sales can primarily be attributed to increased sales in Corrugated Packaging segment, aided by the KapStone acquisition, and higher selling prices for domestic containerboard and corrugated containers, partially offset by declining export prices. However, the absence of recycling sales in the current-year quarter, lower containerboard volumes and unfavorable foreign currency impact had a deterring effect. Moreover, sales were lower in the Consumer Packaging and Land Development segments.

Cost of sales improved 13.2%, year over year, to $3,701 million in the fiscal third quarter. Gross profit advanced 14% year over year to $989 million. Gross margin came in at 21.1% compared with 21.0% in the prior-year period. Adjusted segment EBITDA was $857.5 million compared with $753.5 million reported in the prior-year quarter.

Total segment income came in at $485 million, up from $458 million witnessed in the year-ago quarter. This upside was driven by increase in Corrugated Packaging segment income, which was somewhat offset by decline in both Land and Development and Consumer Packaging segments’ income. Benefits from Contribution from acquired operations, higher selling price/mix across segments and productivity improvements were offset by lower volumes across segments, economic downtime, cost inflation, increased maintenance and scheduled strategic outage expense.

Segment Performance

Corrugated Packaging: Sales in the segment improved 26% year over year to $3,073 million in the reported quarter. Adjusted segment EBITDA jumped 28.4% year over year to $644 million. Segment income came in at $392.7 million in the quarter, reflecting year-over-year growth of 22%.

Consumer Packaging: Sales in this segment declined 1% year over year to $1,650 million from the year-ago quarter. Adjusted segment EBITDA was down 11% year over year to $233 million. Segment income was $91 million in the June-end quarter compared with the prior-year quarter’s $126.1 million.

Land and Development: The segment’s sales came in at around $9 million compared with year-earlier quarter’s figure of $64.8 million. Notably, WestRock has excluded the results of the segment from adjusted earnings per share.

Financial Position

As of Jun 30, 2019, cash and cash equivalents were $179 million, significantly down from $636.8 million as of Sep 30, 2018. As of quarter end, total debt was $10.5 billion, up from $6.4 billion as of fiscal 2018 end. Cash flow from operations came in at $735 million in the third quarter of fiscal 2019 compared with $662 million in the prior-year quarter.
WestRock invested $351 million in capital expenditures and paid out $117 million in dividends.

On Nov 2, 2018, WestRock completed the acquisition of rival KapStone Paper and Packaging Corporation. The company anticipates achieving approximately $200 million in synergies and performance improvements by the end of fiscal 2021 through the integration of the former KapStone operations into WestRock’s corrugated business. The company achieved $80 million of run-rate synergies of its $200 million target. WestRock is also focusing on productivity, operational excellence and debt reduction, while returning cash to shareholders.

Shares of WestRock have fallen 36.9% over the past year compared with the industry’s decline of 36.6%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the basic materials space are SSR Mining Inc. SSRM , Kinross Gold Corporation KGC 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.

SSR Mining has an expected earnings growth rate of a whopping 134.8% for 2019. The company’s shares have surged 48.5% over the past year.

Kinross has a projected earnings growth rate of 107.5% for the current year. The company’s shares have gained 12.6% in a year’s time.

Arconic has an estimated earnings growth rate of 38.2% for the ongoing year. Its shares have moved up 17% in the past year.

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