WestRock (WRK) Tops Q3 Earnings, Synergy Targets In Line

WestRock Company (NYSE:WRK) reported third-quarter fiscal 2016 (ended Jun 30, 2016) adjusted earnings of 71 cents per share that beat the Zacks Consensus Estimate of 66 cents, posting a positive earnings surprise of 8%.

Including restructuring charges coupled with merger and acquisition inventory step-up expense and gain on investment in Grupo Gondi; earnings came in at 59 cents per share, a decline from $1.10 recorded in the year-ago quarter.

Operational Update

WestRock’s total revenue slipped 3% year over year to $3.6 billion, falling short of the Zacks Consensus Estimate of $3.7 billion. Of the total fall of $103 million in sales, $44 million was due to net sales between Rock-Tenn and MeadWestvaco in the year-ago quarter, prior to the merger that had not been eliminated in the combined net sales data, while similar net sales are now eliminated as intercompany sales. The balance of the decline was mainly due to the impact of $42 million of volume, price and mix in the Corrugated and Consumer Packaging segments; a $26 million unfavorable foreign currency effect and $11 million of lower Consumer Packaging segment net sales due to MeadWestvaco’s sale of its European tobacco-converting business in Apr 2015. These declines were partially offset by $20 million of higher Land and Development segment sales.

Cost of sales jumped 42.6% year over year to $2.87 billion in the quarter. Gross profit surged 38% to $727 million. Gross margin contracted 50 basis points to 20.2% in the quarter. Segment income was $338 million compared with $408 million in the prior-year quarter.

Segmental Performance

Corrugated Packaging: Sales at the segment improved 4% year over year to $1.97 billion in the quarter. Segment income decreased 11% year over year to $192 million.

Consumer Packaging: Sales at the segment soared 137% to $1.64 billion from $0.7 billion in the year-ago quarter. Segment income went up around 95% year over year to $152 million.

Land and Development: The segment’s sales were $42 million and operating profit was $9.5 million.

WESTROCK CO Price, Consensus and EPS Surprise

WESTROCK CO Price, Consensus and EPS Surprise | WESTROCK CO Quote

Financial Position

The company generated cash flow from operations of $532 million in the reported quarter compared with $266 million in the prior-year quarter. The company’s total debt was $5.86 billion at second-quarter end.

During the third quarter, the company invested $196 million in capital expenditures in sync with WestRock’s balanced capital allocation strategy, while paying $95 million in dividends and returning $46 million to its stockholders through share repurchases.

WestRock has achieved $105 million in year-over-year productivity improvements and annual run rate of $425 million of synergy and performance improvements. The company has successfully completed the Specialty Chemicals (Ingevity) separation.

WestRock currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the sector include Fibria Celulose S.A. (NYSE:FBR) , UPM-Kymmene Oyj (OTC:UPMKY) and Domtar Corporation (TO:UFS) . While Fibria Celulose sports a Zacks Rank #1 (Strong Buy), UPM-Kymmene Oyj and Domtar Corporation hold a Zacks Rank #2 (Buy).