WestRock (WRK) Earnings Beat, Sales Miss Estimates in Q4

WestRock Company WRK delivered fourth-quarter fiscal 2019 (ended Sep 30, 2019) adjusted earnings of $1.24 per share, surpassing the Zacks Consensus Estimate of $1.21. Earnings, however, declined 3.8% from the prior-year quarter figure of $1.29.

Including one-time items, the company reported earnings per share of $1.20 in the reported quarter, up 11.1% from the prior-year quarter’s $1.08.

Operational Update

WestRock’s total revenues jumped 9.8% year over year to $4,652 million. However, the revenue figure missed the Zacks Consensus Estimate of $5,004 million.

The year-over-year improvement in total sales can primarily be attributed to the KapStone acquisition, partially offset by lower corrugated volumes and prices. Nonetheless, the absence of recycling sales in the reported quarter had a deterring effect.

Cost of sales improved 8.1%, year over year, to $3,573 million in the fiscal fourth quarter. Gross profit advanced 15.8% year over year to $1,078.6 million. Gross margin came in at 23.2% compared with the prior-year period’s 21.9%. Adjusted segment EBITDA was $890.5 million compared with the $801.5 million reported in the prior-year quarter.

Total segment income came in at $584.5 million, up from the $512.8 million witnessed in the year-ago quarter. This upside was driven by insurance proceeds related to the receipt of Hurricane Michael, the contribution from the KapStone acquisition, productivity improvements and cost deflation. However, these were partially offset by lower volumes and selling prices.

WestRock Company Price, Consensus and EPS Surprise

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

Segment Performance

Corrugated Packaging: Sales in the segment improved 19% year over year to $3,019.4 million in the reported quarter, backed by the KapStone acquisition, partly offset by lower volumes and prices. Adjusted segment EBITDA jumped 14% year over year to $640 million. Segment income came in at $449.8 million in the quarter, reflecting year-over-year growth of 16.7%.

Consumer Packaging: Sales in this segment declined 2.4% year over year to $1,668.8 million. The downside resulted from lower volumes and unfavorable foreign-currency impact, partly mitigated by acquisitions. Adjusted segment EBITDA was down 4.5% year over year to $269 million. Segment income was $135 million in the September-end quarter compared with the prior-year quarter’s $130.2 million. Segment income increased due to productivity improvements, cost deflation and higher selling prices, partly muted by lower volumes.

Land and Development: The segment’s sales came in at around $0.1 million compared with the year-earlier quarter’s figure of $39.5 million.

Fiscal 2019 Performance
 
WestRock reported fiscal 2019 adjusted earnings of $3.98 per share, which outpaced the Zacks Consensus Estimate of $3.93. Earnings, however, declined 2.7% year over year. Including one-time items, the company reported earnings of $3.33 per share in the fiscal compared with the $7.34 per share recorded in the prior fiscal year.
 
WestRock’s total revenues rose 12.3% year over year to $18.3 billion, missing the Zacks Consensus Estimate of $18.6 billion.

Financial Position

As of fiscal 2019 end, cash and cash equivalents were $151.6 million, significantly down from $636.8 million as of Sep 30, 2018. As of the fiscal 2019 end, total debt was $10.06 billion, up from $6.4 billion as of the fiscal 2018 end. Cash flow from operations came in at $911 million in the fiscal fourth quarter compared with the prior-year quarter’s $796 million.

WestRock invested $392 million in capital expenditures and paid out $117 million in dividends in the reported quarter.

Recent Development

In September, the company announced its plan to reconfigure its North Charleston, SC paper mill, in a bid to enhance the mill’s operating efficiency and boost long-term competitiveness. This is likely to increase the company’s annual EBITDA by around $40 million. The move will reduce linerboard capacity by approximately 288,000 tons.

Acquisition

WestRock has so far achieved $90 million of its $200-million targeted synergies from the acquisition of KapStone. WestRock remains focused on organic growth, productivity improvement and cash-flow generations.

Share Price Performance

Shares of WestRock have lost 15.3% over the past year compared with the industry’s decline of 49.4%.

Zacks Rank & Stocks to Consider

WestRock currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, Franco-Nevada Corporation FNV and Agnico Eagle Mines Limited AEM, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has an expected earnings growth rate of a whopping 210% for 2019. The company’s shares have surged 77.1% in the past year.

Franco-Nevada has a projected earnings growth rate of 39.3% for the ongoing year. The company’s shares have rallied 47.6% in a year’s time.

Agnico Eagle has an outstanding estimated earnings growth rate of 168.6% for the current year. Its shares have appreciated 65.7% over the past year.

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