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WestRock (WRK) Q4 Earnings Top on Improved Segment Results

WestRock Company WRK reported fourth-quarter fiscal 2017 (ended Sep 30, 2017) adjusted earnings of 87 cents per share beating the Zacks Consensus Estimate of 81 cents by a margin of 7%.

Including one-time items, the company posted earnings of 76 cents per share in the quarter against loss of 34 cents per share in the prior-year quarter.

Operational Update

WestRock’s total revenues rose 12.4% year over year to $4.061 million. Moreover, revenues beat the Zacks Consensus Estimate of $3.925 billion. The year-over-year improvement in sales was primarily driven by increased sales in Corrugated Packaging segment as well as Consumer Packaging segment sales. This helped mitigate the decline in the Land and Development segment’s sales.

Cost of sales went up 13.5% year over year to $3.3 billion in the quarter. Gross profit improved 8% to $778 million. Gross margin contracted 70 basis points to 19.2% in the quarter. Adjusted segment EBITDA was $654.4 million compared with $588.8 million in the prior-year quarter. Adjusted operating margin was 16.1% in the quarter compared with 16.3% in the prior-year quarter.

Westrock Company Price, Consensus and EPS Surprise

 

Westrock Company Price, Consensus and EPS Surprise | Westrock Company Quote

Segment Performance

Corrugated Packaging: Sales at the segment improved 11.7% year over year to $2.24 billion in the quarter. Adjusted segment EBITDA increased 14% year over year to $386 million.

Consumer Packaging: Sales at the segment went up 15% to $1.87 billion from the year-ago quarter. Adjusted segment EBITDA went up 4% year over year to $280 million.

Land and Development: The segment’s sales were $18.7 million, a 57% plunge from $43.7 million in the prior-year quarter. Adjusted segment EBITDA for the segment was a loss of $5.5 million compared with a loss of $1.4 million in the prior-year quarter.

Financial Position

The company generated cash flow from operations of $1.9 billion in fiscal 2017 compared with $1.69 billion in the prior fiscal. It had $298 million in cash and cash equivalents at the end fiscal 2017 compared with $340.9 million at fiscal 2016 end. The company’s total debt was $6.55 billion at the fiscal 2017 end compared with $5.79 billion at fiscal 2016 end.

During fiscal 2017, in sync with its balanced capital allocation strategy, WestRock invested $779 million in capital expenditures and paid $403 million in dividends. Recently, the company announced a hike of 7.5% in annual dividend.

In the quarter, WestRock achieved $80 million in year-over-year productivity improvements, and achieved run rate of $840 million of synergy and performance enhancements since the merger.

Fiscal 2017 Performance

WestRock delivered fiscal 2017 adjusted earnings of $2.62 per share beating the Zacks Consensus Estimate of $2.56. Including one-time items, the company reported earnings of $2.77 per share in the fiscal compared with 59 cents per share in the prior year. Revenues went up 5% year over year to $14.86 billion, beating the Zacks Consensus Estimate of $14.72 billion.

Other Updates

During fiscal 2017, WestRock remained active on the acquisition front. The company acquired Multi Packaging Solutions International Limited, a leading global provider of print-based specialty packaging solutions. The buyout will strengthen the company’s differentiated portfolio of paper and packaging solutions along with expanding presence in attractive end markets. 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.

The company also completed the sale of Home, Health and Beauty business to Silgan Holdings Inc. SLGN and recorded a pre-tax gain of $193 million, generating net after-tax proceeds of approximately $1 billion.

 

Investors appreciate WestRock’s efforts in the past year to make 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, the company has outperformed the industry in a year. The company has gained 20.8%, while the industry witnessed an increase of 16.4%.

Zacks Rank & Other Stocks to Consider

WestRock currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the industry are Stora Enso Oyj SEOAY and UPM-Kymmene Oyj UPMKY. Both the stocks sport a Zacks Rank #1 (Strong Buy).

Stora Enso has a long-term earnings growth expectation of 9.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

UPM-Kymmene Oyj has a long-term earnings growth expectation of 5.1%.

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Silgan Holdings Inc. (SLGN): Free Stock Analysis Report
 
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Westrock Company (WRK): Free Stock Analysis Report
 
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