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Why Is WestRock (WRK) Down 16.9% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for WestRock (WRK). Shares have lost about 16.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is WestRock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

WestRock Earnings and Revenues Surpass Estimates in Q1

WestRock Company has delivered first-quarter fiscal 2020 (ended Dec 31, 2019) adjusted earnings of 58 cents per share, surpassing the Zacks Consensus Estimate of 57 cents. However, earnings declined 30% from the prior-year quarter figure of 83 cents per share.

Including one-time items, the company reported earnings per share of 53 cents in the reported quarter, down 1.9% from the prior-year quarter’s 54 cents.

Operational Update

WestRock’s total revenues jumped 2.2% year over year to $4,423.7 million. Moreover, the metric surpassed the Zacks Consensus Estimate of $4,328.5 million.

The year-over-year improvement in total sales can primarily be attributed to an additional month of KapStone ownership in fiscal 2020, partially offset by lower corrugated and pulp prices, and lower consumer paperboard volumes.

Cost of sales improved 1.9% year over year to $3,614.7 million in the first quarter of fiscal 2020. Gross profit advanced 1.5% year over year to $1,081 million. Gross margin came in at 24.4% compared with 24.6% reported in the prior-year period. Adjusted segment EBITDA was $675.3 million compared with the $733.2 million reported in the prior-year quarter.

Total segment income was $331 million, up from $324 million witnessed in the year-ago quarter.

Segmental Performance

Corrugated Packaging: Sales in the segment improved 6.4% year over year to $2,909.5 million in the reported quarter, backed by the KapStone acquisition, partly offset by lower volumes and prices. Adjusted segment EBITDA declined 4.8% year over year to $507.6 million.

Consumer Packaging: Sales in the segment declined 5.1% year over year to $1,536.9 million. The downside resulted from lower volumes and selling prices, and unfavorable foreign currency impact. Adjusted segment EBITDA was down 14.7% year over year to $184.3 million.

Land and Development: The segment’s sales were $18.9 million compared with the year-earlier quarter’s figure of $13.9 million.

Financial Position

As of Dec 31, 2019, cash and cash equivalents were $156.4 million, significantly down from $260.7 million as of Dec 31, 2018. As of Dec 31, 2019, total debt was $10.2 billion, up from $10.1 billion as of Sep 30, 2019. Cash flow from operations was $431 million in the reported quarter compared with $303 million reported in the prior-year quarter.

WestRock invested $375 million in capital expenditure and paid out $120 million in dividends in the reported quarter.

WestRock has so far achieved more than $110 million of its $200-million targeted synergies from the acquisition of KapStone. WestRock remains focused on organic growth, productivity improvement, cash-flow generations and debt reduction.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -5.85% due to these changes.

VGM Scores

Currently, WestRock has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, WestRock has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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