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WestRock (WRK) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

WestRock Company WRK is set to report third-quarter fiscal 2019 results on Aug 1, before the opening bell. WestRock has an impressive earnings surprise history having surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 9.64%.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for third-quarter revenues is pegged at $4.87 billion, indicating an improvement of 17.60% from the year-ago quarter. The same for earnings stands at $1.02, suggesting a decline of 6.42% from the prior-year reported figure.

WestRock Company Price and EPS Surprise


WestRock Company Price and EPS Surprise

WestRock Company price-eps-surprise | WestRock Company Quote

The company has been witnessing downward revisions of late. The Zacks Consensus Estimate for the company’s second-quarter 2019 earnings has moved down 3% to $1.02 per share in the past 30 days.

WestRock’s shares have slumped 36.0% over the past year compared with the industry’s decline of 36.9%. Will the upcoming earnings release provide a boost to WestRock’s stock? Let’s take a look.

Factors to Influence Q3 Results

WestRock is benefiting from favorable demand, price and mix trends across paper and packaging businesses. Notably, in the last reported quarter, WestRock’s box shipments advanced 20% year over year.

The company projects adjusted segment EBITDA in the third quarter of fiscal 2019 to be between $830 million and $870 million, compared with $757 million reported in second-quarter fiscal 2019. Higher seasonal volumes across Corrugated and Consumer Packaging segments and seasonal sales increase in Victory business will aid adjusted EBITDA by $20-$40 million. Lower recycled fiber, virgin fiber, seasonally lower energy cost and freight costs will bolster EBITDA by $50-$65 million. Sequential productivity improvement will be offset by Panama City mill business interruption insurance proceeds recognized in second-quarter 2019 and lead to sequential improvement of $3-$8 million in EBITDA in the third quarter of fiscal 2019. However, higher depreciation expense and interest expense and higher tax rate will impact third-quarter results.

Higher maintenance downtime will impact third-quarter results.  In the Consumer Packaging segment, maintenance downtime will be 43,000 tons in the third quarter fiscal 2019 compared with 42,000 tons in second-quarter 2019. The Zacks Consensus Estimate for revenues for the Consumer Packaging segment is pegged at $1,773 million for the fiscal third quarter, indicating a decline of 4% from the year-ago quarter. The Consumer Packagingsegment’s adjusted EBITDA is anticipated to improve 1% year over year to $131 million.

In the Corrugated Packaging segment, maintenance downtime will be 104,000 tons in the third quarter of 2019, higher than 99,000 tons in second-quarter 2019. Moreover, in the Corrugated Packaging segment, the company ended up with approximately 100,000 tons of excess containerboard inventory, following the KapStone acquisition. In the second quarter of 2019, the company reduced inventory by approximately 60,000 tons and will continue to reduce inventories to match production with demand. The mill maintenance downtime and actions taken to reduce inventory are likely to impact earnings in the third quarter ofl 2019.

Nevertheless, the Zacks Consensus Estimate for revenues for the Corrugated Packaging segment is currently pegged at $3,160 million, indicating an improvement of 38% from the year-ago reported quarter. Despite the setbacks mentioned above, the Corrugated Packaging segment’s adjusted EBITDA is likely to surge 25% to $608 million.

The Land & Development segment is expected to report revenues of $10.3 million in the quarter under review, down from $65.0 million in the prior-year quarter.

Earnings Whispers

Our proven model shows that WestRock is likely to beat estimates in the second quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for WestRock is +1.07%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: WestRock currently carries a Zacks Rank of 3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

It should be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks Worth a Look

Here are some other companies in the Basic Materials space, which you may want to consider as our model shows that these too have the right combination of elements to post earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +6.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold Corporation GOLD has an Earnings ESP of +0.70% and a Zacks Rank #2.

Carpenter Technology Corporation CRS has an Earnings ESP of +0.27% and a Zacks Rank #3.

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