WestRock Company (WRK) is a leading multinational provider of sustainable fiber-based paper and packaging solutions. The company has a rich history of partnering with customers to deliver differentiated, sustainable products that help them succeed in the marketplace. With a global footprint and a diverse portfolio of offerings, WestRock has established itself as a formidable player in the industry.

Financials

In the fiscal year ended September 30, 2023, WestRock reported annual net income of -$1,649 million on revenue of $20,310 million. The company's annual operating cash flow was $1,827.9 million, while its annual free cash flow reached $685.8 million. These financial results reflect the company's ability to navigate a challenging macroeconomic environment, marked by factors such as cost inflation, supply chain disruptions, and shifting customer demand.

Looking at the more recent performance, WestRock's second quarter of fiscal 2024 saw net sales of $4,726.7 million, a decrease of 10.4% compared to the same period in the prior year. This decline was primarily driven by lower selling prices, lower volumes, and the impact of prior year mill and interior partition divestitures, partially offset by favorable foreign exchange rates.

Net income attributable to common stockholders for the second quarter of fiscal 2024 was $15.5 million, a significant improvement from the net loss of $2,006.1 million reported in the same quarter of the previous fiscal year. The prior year quarter's results were heavily impacted by a $1.9 billion pre-tax non-cash goodwill impairment charge and $435.8 million of pre-tax restructuring and other costs.

Consolidated Adjusted EBITDA, a key metric used by management to evaluate the company's performance, decreased by 21.6% to $618.3 million in the second quarter of fiscal 2024 compared to $788.6 million in the same period of the prior year. This decline was primarily due to lower Adjusted EBITDA across each of WestRock's reportable segments.

Segmental Performance

Corrugated Packaging

This segment, which includes the operations acquired in the Mexico Acquisition, reported a 10.9% decrease in net sales before intersegment eliminations in the second quarter of fiscal 2024 compared to the prior year period. The decrease was primarily driven by lower selling prices and volumes, partially offset by favorable foreign exchange rates. Adjusted EBITDA for the segment decreased by 22.0% due to the margin impact of lower selling prices, increased net cost inflation, and lower volumes, partially offset by increased cost savings and lower economic downtime.

Consumer Packaging

Net sales before intersegment eliminations for this segment decreased by 12.0% in the second quarter of fiscal 2024 compared to the prior year period, primarily due to lower volumes and the divestiture of the interior partition operations, partially offset by higher selling prices and favorable foreign exchange rates. Adjusted EBITDA for the segment decreased by 8.4% due to increased net cost inflation, higher economic downtime, and lower volumes, partially offset by increased cost savings.

Global Paper

Net sales before intersegment eliminations for the Global Paper segment decreased by 13.0% in the second quarter of fiscal 2024 compared to the prior year period, primarily due to lower selling prices, lower sales associated with prior year mill divestitures, and lower volumes. Adjusted EBITDA for the segment decreased by 30.8% due to the margin impact of lower selling prices, higher economic downtime and prior year mill closures, and lower volumes, partially offset by increased cost savings and net cost deflation.

Distribution

Net sales before intersegment eliminations for the Distribution segment decreased by 11.5% in the second quarter of fiscal 2024 compared to the prior year period, primarily due to lower volumes and lower selling prices. Adjusted EBITDA for the segment decreased by 4.3% due to the impact of lower volumes and selling prices, partially offset by increased cost savings and net cost deflation.

Liquidity

As of March 31, 2024, WestRock had cash and cash equivalents of $494.7 million and total debt of $9.0 billion, with $1,317.5 million classified as short-term. The company's primary sources of liquidity include cash on hand, cash generated from operations, and availability under its long-term committed credit facilities, which totaled approximately $3.0 billion at the end of the second quarter of fiscal 2024.

During the six months ended March 31, 2024, WestRock generated $312.1 million in net cash from operating activities and invested $548.6 million in capital expenditures. The company also returned $155.6 million to stockholders through dividend payments.

Outlook

For the third quarter of fiscal 2024, WestRock expects sequential improvement in consolidated volumes and continued realization of published price changes. The company plans to continue balancing its supply with customer demand. WestRock also expects sequentially higher recycled fiber costs partially offset by lower energy costs, and relatively flat virgin fiber, chemical, and freight costs. These trends are expected to persist for the balance of the fiscal year.

The company expects scheduled maintenance downtime to increase from approximately 92,000 tons in the second quarter of fiscal 2024 to an estimated 182,000 tons in the third quarter and approximately 125,000 tons in the fourth quarter. WestRock also expects to make significant progress on its cost savings initiatives and exceed its previously announced fiscal 2024 target of $300 to $400 million.

In addition to its operational initiatives, WestRock is actively pursuing strategic actions to enhance its competitive position and drive long-term value creation. In December 2022, the company completed the acquisition of the remaining 67.7% interest in Grupo Gondi, a leading integrated producer of fiber-based sustainable packaging solutions in Mexico. This transaction provided WestRock with further geographic and end-market diversification, as well as a stronger foothold in the attractive Latin American market.

Furthermore, in September 2023, WestRock entered into a transaction agreement with Smurfit Kappa Group plc, a public limited company incorporated in Ireland. The proposed transaction, which is expected to close in early July 2024, subject to regulatory approvals and other closing conditions, will result in WestRock becoming a wholly owned subsidiary of a newly formed public company, Smurfit WestRock plc, listed on the New York Stock Exchange and the London Stock Exchange.

Risks and Challenges

WestRock operates in a highly competitive industry and faces various risks and challenges, including macroeconomic uncertainties, supply chain disruptions, cost inflation, and regulatory changes. The company's performance is also susceptible to fluctuations in commodity prices, energy costs, and foreign exchange rates. Additionally, the successful integration of acquired businesses and the execution of strategic initiatives are critical to the company's long-term success.

Conclusion

WestRock's diverse portfolio of sustainable fiber-based paper and packaging solutions, coupled with its global footprint and commitment to innovation, positions the company well to navigate the evolving industry landscape. Despite the challenges posed by the current macroeconomic environment, WestRock has demonstrated resilience and a focus on operational excellence, cost savings, and strategic initiatives to drive long-term growth and value creation for its stakeholders.