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WestRock (WRK) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

WestRock Company WRK is set to report first-quarter fiscal 2019 results on Jan 31, before the opening bell.

 

In the last reported quarter, the company delivered year-over-year improvement in both its top and bottom line. Earnings and revenues also beat the respective Zacks Consensus Estimate.

 

Notably, WestRock’s earnings outpaced estimates in three of the trailing four quarters, while coming in line in one. The company has average positive surprise of 5.96%.

 

WestRock Company Price and EPS Surprise

 

 

WestRock Company Price and EPS Surprise

WestRock Company price-eps-surprise | WestRock Company Quote

Let’s see how things are shaping up prior to this announcement.

Factors at Play

 

WestRock will benefit from favorable demand, price and mix trends across its paper and packaging businesses in the first quarter of fiscal 2019. The Zacks Consensus Estimate for total revenues is pegged at $4.6 billion in the fiscal first quarter, projecting year-over-year growth of 18%.

 

WestRock is likely to witness sales growth in its major segments — Consumer Packaging and Corrugated Packaging. The Zacks Consensus Estimate for revenues for the Consumer Packaging segment is pegged at $1,779 million for the fiscal first quarter, indicating year-over-year increase of 1%. The Zacks Consensus Estimate for revenues for the Corrugated Packaging segment is currently pegged at $2,740 million, reflecting year-over-year rise of 26%. The Land & Development segment is expected to report revenues of $12 million in the quarter under review, up 9% year over year. Pricing will be higher in both segments as a result of previously announced price increases. However, volumes will be lower owing to seasonality in the consumer business.

 

The Consumer Packaging segment’s adjusted EBITDA is estimated to inch up 1% year over year to $237 million. The Corrugated Packaging segment’s adjusted EBITDA is likely to surge 23% to $528 million. The Land & Development segment is projected to post operating profit of $2 million, against a loss of $0.6 million reported in the prior-year quarter.

 

WestRock projects adjusted segment EBITDA in the first quarter fiscal of 2019 to be between $737 million and $767 million, lower than the $802 million reported in fourth-quarter fiscal 2018. The KapStone acquisition is likely to contribute approximately $90 million in adjusted segment EBITDA. A scheduled maintenance downtime across corrugated and consumer mills of 60,000 tons and two fewer shipping days in the box business will also impact EBITDA in the to-be-reported quarter. While input costs will remain stable sequentially, higher group insurance cost and decline in non-cash pension income will impact EBITDA by $20 million sequentially. Productivity and performance improvement programs along with cost-saving actions remain tailwinds.

 

However, lost production resulting from the Hurricane Michael is likely to have a negative impact of $45 million on EBITDA. Moreover, higher depreciation and amortization expenses, higher interest expense, an adjusted tax rate of 24.5% and a slightly higher share count is likely to have a negative impact of 29 cents on first-quarter fiscal 2019 earnings per share.

 

The Zacks Consensus Estimate for earnings is pegged at 81 cents, indicating a year-over-year decline of 7%.

 

Earnings Whispers

 

Our proven model does not show that WestRock is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. That is not the case here as you will see below.

 

Earnings ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

 

Zacks Rank: WestRock has a Zacks Rank #3. This combined with a negative ESP makes earnings surprise prediction difficult.

 

As it is we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

 

Share Price Performance

 

 

WestRock’s shares slumped 37% over the past year, compared with the industry’s decline of 38%.

 

Stocks Worth a Look

 

Here are some companies in the basic materials space you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

 

New Gold Inc. ( NGD) has an Earnings ESP of +166.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Franco-Nevada Corporation (FNV) has an Earnings ESP of +3.05% and carries a Zacks Rank #2.

 

Teck Resources Limited ( TECK) has an Earnings ESP of +6.03% and carries a Zacks Rank #3.

Here are some companies in the basic materials space you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

 

New Gold Inc. NGD has an Earnings ESP of +166.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Franco-Nevada Corporation FNV has an Earnings ESP of +3.05% and carries a Zacks Rank #2.

 

Teck Resources Limited TECK has an Earnings ESP of +6.03% and carries a Zacks Rank #3.

 

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