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Will Higher Shipments Drive WestRock (WRK) Q4 Earnings?

WestRock Company WRK, a provider of paper and packaging solutions to consumer and corrugated markets, is scheduled to report fourth-quarter fiscal 2017 results on Nov 2.

Last quarter, the company posted a positive surprise of 15.63% driven by increase in daily box volumes of 5.7% despite a challenging cost environment and productivity improvements. In fact, it delivered earnings surprises in the trailing four quarters, with an average beat of 11.80%.

Let’s see how things are shaping up prior to this announcement.

Westrock Company Price and EPS Surprise
 


Westrock Company Price and EPS Surprise
| Westrock Company Quote

Earnings Whispers

Our proven model does not conclusively show that WestRock is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: WestRock’s Earnings ESP is +0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 81 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank:  Though WestRock’s Zacks Rank #2 increases the predictive power of ESP, the ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

For the fiscal fourth quarter, WestRock expects sequential adjusted earnings per share higher than the 74 cents per share achieved in the fiscal third quarter. The company guided EBITDA to lie in the range of $65-$75 million for the quarter, which is likely to benefit from seasonally higher volumes, sales price increases, favorable mix and productivity.

Per the Zacks Consensus Estimates, North American corrugated packaging shipments will rise to $2.165 million compared with $2.15 million in the prior-year quarter.

Per the Zacks Consensus Estimates, WestRock will witness sales growth in all its segments. The Consumer Packaging’s revenues are projected to grow 11% to $1,798 million. The Corrugated Packaging segment’s revenues are projected to rise 10.2% year over year to $2,208 million. The Land & Development segment will post revenues of $47 million, up 8% year over year.

The Zacks Consensus Estimate for total revenues is pegged at $3.93 billion, projecting a 6% year-over-year growth.

Inflationary pressure from recycled fiber will dent results in the fiscal fourth quarter. Depreciation and amortization will also increase from recent acquisitions. Price/mix pressure also continues to be a headwind for WestRock due to industry oversupply in both containerboard and boxboard. Further, merger related costs will continue to be a headwind for WestRock in the near term.

The Corrugated Packaging segment’s operating profit will grow 32% to $254 million. The Land & Development segment will report operating profit of $1.1 million, a substantial improvement over the operating loss of $1.6 million in the prior-year quarter. However, the Consumer Packaging segment’s operating profit will dip 5% year over year to $132 million.

The estimate for earnings is pegged at 81 cents for the quarter, a 13.6% year-over-year growth.

Share Price Performance



Year to date, shares of WestRock have outperformed the industry. The stock gained 19.9% ahead of the industry’s rise of 15.8%.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Cabot Corporation CBT, with an Earnings ESP of +1.62% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Carpenter Technology Corporation CRS, with an Earnings ESP of +1.46% and a Zacks Rank #1.

Westlake Chemical Corporation WLK with an Earnings ESP of +1.08% and a Zacks Rank #1.

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Cabot Corporation (CBT): Free Stock Analysis Report
 
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