WestRock Reports Fiscal 2023 First Quarter Results
WestRock Company (“WestRock”), a leading provider of sustainable paper and packaging solutions, today announced results for its fiscal first quarter ended December 31, 2022.
First Quarter Highlights and other notable items:
- Net sales of $4.9 billion comparable year-over-year
- Net income of $45 million, Adjusted Net Income of $141 million
- Consolidated Adjusted EBITDA of $652 million, Corrugated Packaging and Consumer Packaging segments delivered strong performance and Adjusted EBITDA increased 7.0% and 8.3% year-over-year, respectively
- Results in the current year impacted by $119 million due to economic downtime and weather disruptions; additionally, non-cash pension costs increased $40 million year-over-year and the unfavorable impact of foreign currency was $17 million year-over-year
- Earned $0.18 per diluted share (“EPS”) and $0.55 of Adjusted EPS
- Acquired the remaining 67.7% interest in Gondi, S.A. de C.V. (“Grupo Gondi”) for $970 million, plus the assumption of debt
- Divested two uncoated recycled paperboard mills (“URB”) for $50 million, subject to a working capital adjustment, and recorded an $11 million pre-tax gain on sale
“I’m pleased to report that WestRock grew packaging revenue and margins in the first quarter, even in this challenging environment,” said David B. Sewell, chief executive officer. “We also finalized the acquisition of Grupo Gondi, which expands our global footprint and enables us to take a leading position in the packaging marketplace in Mexico.
“During the quarter, elevated inflation and softening macroeconomic conditions negatively impacted our Global Paper business. While we expect these market conditions to continue in the near-term, we remain committed to executing on our strategy and delivering on our productivity efforts. WestRock’s broad portfolio of products provides us with flexibility to manage through changing market conditions to maximize our performance.”
Consolidated Financial Results
Net sales decreased $29 million, or 0.6%, year-over-year. Consumer Packaging segment sales increased $76 million, or 6.7%, Corrugated Packaging segment sales increased $15 million, or 0.7%; Distribution segment sales decreased $3 million, or 1.0%; Global Paper segment sales decreased $229 million, or 16.9%; and intersegment sales decreased $10 million. Net sales in the current year quarter included $102 million related to the consolidation of Grupo Gondi.
Net income decreased $137 million year-over-year to $45 million. The decrease in net income was driven by increased net cost inflation, lower volumes, economic downtime, the Mahrt mill work stoppage, increased non-cash pension costs, increased restructuring and other costs, business systems transformation costs and a non-cash loss related to the Grupo Gondi acquisition which were partially offset by the margin impact from higher price/mix and a gain on sale of two URB mills. The Grupo Gondi loss primarily relates to the non-cash write-off of prior foreign currency translation adjustments recorded in accumulated other comprehensive loss, as well as the difference between the fair value of the consideration paid and the carrying value of our prior ownership interest.
Consolidated Adjusted EBITDA decreased $28 million, or 4.1%, year-over-year, primarily due to lower Global Paper segment Adjusted EBITDA that was partially offset by increased Adjusted EBITDA in our Corrugated Packaging and Consumer Packaging segments. Grupo Gondi contributed $17.3 million of Adjusted EBITDA for the month of December 2022.
Additional information about the changes in segment sales and Adjusted EBITDA by segment are included below.
Restructuring and Other Costs
Restructuring and other costs during the first quarter of fiscal 2023 were $33 million. The charges were primarily related to acquisition, integration and divestiture costs aggregating $17 million, with the balance due primarily to severance related to reduction in force initiatives and costs associated with previously announced closures.
Cash Flow Activities
Net cash provided by operating activities was $266 million in the first quarter of fiscal 2023 compared to $253 million in the prior year quarter.
Total debt was $9.5 billion at December 31, 2022, $9.3 billion excluding $171 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $8.9 billion after further excluding cash and cash equivalents of $415 million. Total debt increased $1.7 billion in the first quarter of fiscal 2023, primarily due to the acquisition of the remaining 67.7% interest in Grupo Gondi including the assumption of debt. The Company had approximately $3.3 billion of available liquidity from long-term committed credit facilities and cash and cash equivalents at December 31, 2022.
During the first quarter of fiscal 2023, WestRock invested $282 million in capital expenditures and returned $70 million in capital to stockholders in dividend payments.
Due to the timing of the Grupo Gondi acquisition, it was not practicable to allocate its results to our operating segments for the first quarter of fiscal 2023. As a result, we included the results for the month of December 2022 in “Other unallocated”.
WestRock’s segment performance for the three months ended December 31, 2022 and 2021 was as follows (in millions):
Corrugated Packaging Segment
Corrugated Packaging segment sales increased $15 million, or 0.7%, primarily due to higher selling price/mix that was largely offset by lower volumes. The first quarter of fiscal 2023 had one less shipping day than the prior year quarter.
Corrugated Packaging Adjusted EBITDA increased $20 million, or 7.0%, primarily due to the margin impact from higher selling price/mix, that was largely offset by increased net cost inflation, lower volumes and higher operating costs, including economic downtime. Corrugated Packaging Adjusted EBITDA margin was 13.8% and Adjusted EBITDA margin excluding trade sales was 14.2%.
Consumer Packaging Segment
Consumer Packaging segment sales increased $76 million, or 6.7%, primarily due to higher selling price/mix that was partially offset by the unfavorable impact of foreign currency.
Consumer Packaging Adjusted EBITDA increased $14 million, or 8.3%, primarily due to the margin impact from higher selling price/mix that was largely offset by increased net cost inflation, higher operating costs, the unfavorable impact of foreign currency and increased non-cash pension costs. Consumer Packaging Adjusted EBITDA margin was 15.1%.
Global Paper Segment
Global Paper segment sales decreased $229 million, or 16.9%, primarily due to lower volumes that were partially offset by higher selling price/mix.
Global Paper Adjusted EBITDA decreased $75 million, or 32.3%, primarily due to lower volumes, increased net cost inflation, higher operating costs, including economic downtime, increased non-cash pension costs and weather disruptions which were partially offset by the margin impact from higher selling price/mix. Global Paper Adjusted EBITDA margin was 14.0%.
Distribution segment sales decreased $3 million, or 1.0%, primarily due to lower volumes that were largely offset by higher selling price/mix.
Distribution Adjusted EBITDA increased $4 million, or 66.2%, primarily due to the margin impact of higher selling price/mix that was largely offset by increased cost inflation and lower volumes.
Other unallocated net sales before intersegment eliminations for the month of December were $102.2 million and Adjusted EBITDA was $17.3 million.
In light of uncertain macroeconomic conditions, we are removing our fiscal 2023 earnings guidance. We will continue to provide a quarterly earnings outlook.
For the full first quarter results, click here.
WestRock (NYSE:WRK) partners with our customers to provide differentiated, sustainable 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.
Robert Quartaro – Senior Vice President, Investor Relations – (470) 328-6979
Source: WestRock Company