WestRock Company WRK delivered first-quarter fiscal 2019 (ended Dec 31, 2018) adjusted earnings of 83 cents per share, surpassing the Zacks Consensus Estimate of 80 cents. However, the reported figure declined 5% from the 87 cents reported in the prior-year quarter.
Including one-time items, the company reported earnings per share of 54 cents in the reported quarter compared with $4.38 in the prior-year quarter.
WestRock’s total revenues rose 11% year over year to $4,327 million. However, the top line fell short of the Zacks Consensus Estimate of $4,580 million. The year-over-year improvement in total sales was primarily due to the increased sales in Corrugated Packaging segment, aided by the KapStone Acquisition and higher selling price/mix. However, the absence of recycling sales in the current year quarter and an unfavorable foreign currency impact somewhat offset sales.
WestRock Company Price, Consensus and EPS Surprise
WestRock Company price-consensus-eps-surprise-chart | WestRock Company Quote
Cost of sales increased 14% year over year to $3,546 million in the fiscal first quarter 2019. Gross profit inched up 1% to $782 million. Gross margin contracted 180 basis points to 18.1% in the quarter. Adjusted segment EBITDA was $733 million compared with $668 million reported in the prior-year quarter. Total segment income was $324 million, down from $363 million in the prior year quarter owing to decline in both Corrugated Packaging segment income and Consumer Packaging segment income.
Corrugated Packaging: Sales at the segment improved 18% year over year to $2,734 million in the reported quarter. Adjusted segment EBITDA increased 19% year over year to $533 million. Segment income came in at $246.8 million in the reported quarter, a drop of 9% from the prior-year quarter. Notably, gains from higher selling price/mix was more than offset by cost inflation, direct costs and the impact of lost production and sales from hurricanes, and an acquisition inventory step-up charge related to the KapStone acquisition.
Consumer Packaging: Sales at the segment inched up 1% to $1,619 million from the year-ago quarter. Adjusted segment EBITDA dipped 8% year over year to $216 million. Segment income was $76.9 million in the reported quarter compared with $94.2 million in the last-year quarter. Gains for higher selling price/mix and productivity improvements were more than offset by cost inflation and other items, leading to a lower segment income for the quarter under review.
Land and Development: The segment’s sales came in at around $14 million compared with $11 million in the prior-year quarter. The segment income was $0.7 million in the fiscal first quarter 2019 against a loss of $0.7 million in the prior-year quarter.
As of Dec 31, 2018, cash and cash equivalents were $260.7 million, down from $636.8 million as of Sep 30, 2018. As of Dec 30, 2018, total debt was $10.8 billion, up from $6.4 billion as of Sep 30, 2018. Cash flow from operations came in at $303 million in the reported quarter compared with $245 million recorded in the prior-year quarter.
During the reported quarter, WestRock invested $322 million in capital expenditures, paid $116 million in dividends and repurchased shares worth $44 million. During the first quarter, WestRock deployed $4.9 billion for the KapStone Acquisition including debt assumed.
On Nov 2, WestRock completed the acquisition of rival KapStone Paper and Packaging Corporation. The company anticipates to achieve 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 buyout will help WestRock expand presence in the western United States. It will also broaden the company’s differentiated paper and packaging solutions portfolio with the addition of attractive paper grades and distribution capabilities.
Shares of WestRock have fallen 37.7% over the past year, compared with the industry’s decline of 35.2%.
Zacks Rank & Stocks to Consider
WestRock currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the basic materials space are Ingevity Corporation NGVT, Israel Chemicals Ltd. ICL and Quaker Chemical Corporation KWR.
Ingevity’s shares gained 28% in the past year. The company has a Zacks Rank #1 (Strong Buy) and expected earnings growth rate of 21.5% for 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
Israel Chemicals has expected earnings growth rate of 8.1% for 2019 and a Zacks Rank #2 (Buy). The stock has rallied 39% in a year.
Quaker Chemical Corporation has expected earnings growth rate of 21.1% for 2019 and a Zacks Rank #2. Its shares have gained 30% in a year.
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