WestRock Reports Fiscal 2020 Fourth Quarter Results

WestRock Company (“WestRock” or the “Company”), a leading provider of differentiated paper and packaging solutions, announced results for its fiscal fourth quarter and year ended September 30, 2020.

Notable items in the fourth quarter of fiscal 2020 include:

– Net sales of $4.5 billion increased sequentially by 5.6% and decreased by 3.9% compared to the prior year quarter

– Packaging volumes increased sequentially 6.9% and 2.4% compared to the prior year quarter

– Consumer Packaging reporting unit recorded a non-cash goodwill impairment of $1.3 billion, or $5.06 per diluted share, driven by expected lower volumes and cash flows related to certain external SBS end markets including commercial print, tobacco and plate and cup stock

– Loss of $4.45 per diluted share and adjusted earnings per diluted share of $0.73 compared sequentially to $0.69 of earnings per diluted share and $0.76 of adjusted earnings per diluted share

– Generated net cash provided by operating activities of $732 million and Adjusted Free Cash Flow of $631 million

– Approximately $3.6 billion of available liquidity under long-term committed credit facilities and cash and cash equivalents at September 30, 2020

Full Year 2020 and Other Highlights:

– Generated net cash provided by operating activities of $2.07 billion and Adjusted Free Cash Flow of $1.15 billion, our fifth consecutive year generating more than $1 billion of net cash provided by operating activities and Adjusted Free Cash Flow

– Invested $978 million in capital expenditures, including $361 million in strategic capital projects

– Returned $345 million to stockholders through dividends

– Reduced total debt by $633 million and Adjusted Net Debt by $813 million

“The WestRock team rose to the challenges of the operating environment in fiscal 2020 and delivered solid financial results, strong cash flow, and substantial debt reduction,” said Steve Voorhees, chief executive officer. “While the environment remains uncertain, we are seeing strong trends in key end markets and continue to successfully partner with our customers to meet their growing needs for sustainable, fiber-based packaging solutions. We have positive momentum for strong performance in fiscal year 2021.”

Consolidated Financial Results

Operating Highlights for the Three Months Ended September 30, 2020 compared to September 30, 2019:

Net sales decreased $180 million compared to the prior year quarter. Corrugated Packaging segment and Consumer Packaging segment net sales declined $121 million and $42 million, respectively, primarily due to lower selling price/mix on sales and lower volumes, including the impact of COVID-19, and unfavorable foreign currency impacts.

Segment income decreased $211 million compared to the prior year quarter. Corrugated Packaging segment income decreased $168 million and Consumer Packaging segment income decreased $44 million.

Additional information about the changes in segment net sales and income is included below.

Consumer Packaging Goodwill Impairment

During the fourth quarter of fiscal 2020, we completed our annual goodwill impairment testing. We considered factors such as, but not limited to, our expectations for the short-term and long-term impacts of COVID-19, macroeconomic conditions, industry and market considerations, and financial performance, including planned revenue, earnings and capital investments of each reporting unit. As a result, we recorded a pre-tax non-cash impairment of our Consumer Packaging reporting unit of $1,333.2 million or $1,314.3 million after-tax. This charge is not included in Consumer Packaging segment income.

The impairment was driven by expected lower volumes and cash flows related to certain external SBS end markets including commercial print, tobacco and plate and cup stock. Our long-lived assets, including intangible assets remain recoverable.

Restructuring and Other Items

Restructuring and other items during the fourth quarter of fiscal 2020 included the following pre-tax costs:

– $54 million of restructuring costs, primarily including $31 million related to the previously announced shutdown of a paper machine at WestRock’s Evadale, TX mill ($24 million of which was non-cash) and $10 million of severance for voluntary early retirements, as well as other employee costs and plant consolidations

– $3 million of integration costs, primarily related to the fiscal 2019 acquisition of KapStone Paper and Packaging Corporation (“KapStone”)

Net Cash Provided By Operating Activities and Other Financing and Investing Activities

Net cash provided by operating activities was $732 million in the fourth quarter of fiscal 2020 compared to $911 million in the prior year quarter.

Total debt was $9.43 billion at September 30, 2020, or $9.22 billion excluding $209 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $8.97 billion further excluding cash and cash equivalents of $251 million. During the fourth quarter of fiscal 2020, WestRock invested $118 million in capital expenditures and paid $52 million in dividends to stockholders.

Segment Results

Corrugated Packaging Segment

Operating Highlights for the Three Months Ended September 30, 2020 compared to September 30, 2019:

Segment net sales decreased $121 million, primarily due to $47 million of lower volumes, including the impact of COVID-19, $35 million of lower selling price/mix on sales and $39 million of unfavorable foreign currency impacts. The Corrugated Packaging segment delivered a Segment EBITDA margin of 17.8% and a North American Adjusted Segment EBITDA margin of 19.6%.

Segment income decreased $168 million, primarily due to $45 million of lower volumes, including the impact of COVID-19, an estimated $43 million of net cost inflation, $34 million of margin impact from lower selling price/mix, $10 million of unfavorable foreign currency impacts and an estimated $7 million of maintenance downtime. The prior year quarter included a net $63 million favorable impact of Hurricane Michael due to the receipt of $70 million of insurance proceeds. In addition to these items, lower depreciation and amortization, decreased negative impact of economic downtime, productivity improvements and favorable weather compared to the prior year period, partially offset by safety, cleaning and other items related to COVID-19, and other items that totaled $34 million in the aggregate.

Consumer Packaging Segment

Operating Highlights for the Three Months Ended September 30, 2020 compared to September 30, 2019:

Segment net sales decreased $42 million, primarily due to $24 million of lower selling price/mix on sales and $24 million of lower volumes, including the impact of COVID-19. These impacts were partially offset by $7 million of favorable foreign currency impacts. The Consumer Packaging segment delivered a Segment EBITDA margin of 13.6% and an Adjusted Segment EBITDA margin of 13.7%.

Segment income decreased $44 million, primarily due to an estimated $32 million of economic downtime, $15 million of margin impact from lower selling price/mix and $15 million of lower volumes, including the impact of COVID-19. These items were partially offset by $12 million of productivity improvements, $10 million of net cost deflation and $4 million of lower depreciation and amortization. In addition, we incurred $4 million of increased costs for maintenance outages and $5 million of safety, cleaning and other items related to COVID-19.

For the full third quarter results, click here.

About WestRock

WestRock (NYSE:WRK) partners with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. WestRock’s team members support customers around the world from locations spanning North America, South America, Europe, Asia and Australia. Learn more at www.westrock.com.

Contact:

John Stakel – Senior Vice President & Treasurer – john.stakel@westrock.com – (678) 291-7901

Source: WestRock Company