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WestRock (WRK) Q3 Earnings & Revenues Beat on Higher Volumes

WestRock Company WRK reported third-quarter fiscal 2017 (ended Jun 30, 2017) adjusted earnings of 74 cents per share beating the Zacks Consensus Estimate of 64 cents by a margin of 16%.

Including one-time items, the company reported earnings of $1.29 per share in the quarter compared with 59 cents in the prior-year quarter. Increase in daily box volumes of 5.7% despite a challenging cost environment and productivity improvements led to the improved performance.

Operational Update

WestRock’s total revenue rose 2.8% year over year to $3.696 million. Moreover, revenues beat the Zacks Consensus Estimate of $3.561 billion. The year-over-year improvement in sales was primarily driven by increased sales in Corrugated Packaging segment as well as Land and Development segment. This helped mitigate the decline in the Consumer Packaging segment’s sales.

Cost of sales went up 4.6% year over year to $3 billion in the quarter. Gross profit decreased 4% to $696 million. Gross margin contracted 140 basis points (bps) to 18.8% in the quarter. Adjusted operating income was $293 million compared with $332 million in the prior-year quarter. Adjusted operating margin was 7.9% in the quarter compared with 9.2% in the prior-year quarter.

Westrock Company Price, Consensus and EPS Surprise

Corrugated Packaging: Sales at the segment improved 10% year over year to $2.16 billion in the quarter. Adjusted segment EBITDA increased 11% year over year to $375 million.

Consumer Packaging: Sales at the segment dipped 7% to $1.521 billion from the year-ago quarter. Adjusted segment EBITDA declined 16% year over year to $230 million.

Land and Development: The segment’s sales were $71 million, a 69% improvement from $42 million in the prior-year quarter. Adjusted segment EBITDA for the segment was $0.4 million compared with $9.8 million in the prior-year quarter.

Financial Position

The company generated cash flow from operations of $589 million in the reported quarter compared with $532 million in the prior-year quarter. It had $225 million in cash and cash equivalents at the end fiscal third-quarter 2017 compared with $340.9 million at fiscal 2016 end. The company’s total debt was $6.52 billion at the quarter end compared with $5.79 billion at fiscal 2016 end.

During fiscal third-quarter 2017, in sync with its balanced capital allocation strategy, WestRock invested $172 million in capital expenditures and paid $101 million in dividends.

In the quarter, WestRock achieved $94 million in year-over-year productivity improvements, and annual run rate of $760 million of synergy and performance enhancements.

In line with constant strategic focus on core paper and packaging solutions businesses, WestRock completed the sale of Home, Health and Beauty business to Silgan Holdings Inc. SLGN and recorded a pre-tax gain of $191 million.

WestRock acquired Multi Packaging Solutions International Limited, a leading global provider of print-based specialty packaging solutions. The acquisition will strengthen the company’s differentiated portfolio of paper and packaging solutions along with expanding presence in attractive end markets. The acquisition creates opportunity for meaningful synergies and performance improvements of $85 million by fiscal 2019 end.

WestRock also acquired certain operations of U.S. Corrugated Holdings, Inc. The deal included five facilities that will add 105,000 annual tons of containerboard in to WestRock’s Corrugated Packaging segment and another 50,000 tons through a long-term supply agreement.

On Aug 1, WestRock announced that it is expanding consumer packaging portfolio with the acquisition of Hanna Group Pty Ltd, one of Australia’s leading providers of folding cartons to a variety of markets, including beverage, food, confectionary, and healthcare. The acquisition will expand WestRock’s consumer packaging portfolio along with augmenting established and growing packaging business in Australia.

In the past year, the company has made several investments that further strengthened and enhanced portfolio, while divesting businesses that were not core to its goal of being a premier provider of paper and packaging solutions. Consequently, WestRock has outperformed the industry in the past one year. The company has gained 7.7%, while the industry witnessed an increase of 4.7%.

Zacks Rank & Key Picks

WestRock currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the same sector include Daqo New Energy Corp. DQ and Kraton Corporation KRA. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy Corp has delivered an average positive earnings surprise of 22.1% in the past four quarters. Kraton Corporation has an average positive earnings surprise of 16.54% in the trailing four quarters.

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