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WestRock (WRK) Beats on Q1 Earnings, Bolsters Portfolio

WestRock CompanyWRK reported first-quarter fiscal 2017 (ended Dec 31, 2016) adjusted earnings of 47 cents per share beating the Zacks Consensus Estimate of 45 cents, by posting a positive earnings surprise of 4%.

Including one-time items, the company reported earnings of 32 cents per share in the quarter. This includes the impact of restructuring charges of 24 cents per share and one-time state tax benefit of 9 cents per share.

Operational Update

WestRock's total revenue edged down 0.7 % year over year to $3,447 million. Moreover, revenues missed the Zacks Consensus Estimate of $3,479 million.

Cost of sales went up 1% year over year to $2,856 million in the quarter. Gross profit dropped 10% to $591 million. Gross margin expanded 170 basis points (bps) to 17.2% in the quarter. Adjusted operating income was $202 million compared with $266 million in the prior-year quarter. Adjusted operating margin was 5.9% in the quarter, down 180 bps year over year.

Segmental Performance

Corrugated Packaging : Sales at the segment improved 56% year over year to $1,944 million in the quarter. Adjusted segment EBITDA declined 12% year over year to $287 million.

Consumer Packaging : Sales at the segment dipped 2% to $1,511 million from the year-ago quarter. Adjusted segment EBITDA edged down 2% year over year to $215 million.

Land and Development : The segment's sales were $54 million compared with $15 million in the prior-year quarter. Adjusted segment EBITDA for the segment was $1.9 million compared with $1.4 million in the prior-year quarter.

Westrock Company Price, Consensus and EPS Surprise

Westrock Company Price, Consensus and EPS Surprise | Westrock Company Quote

Financial Position

The company generated cash flow from operations of $517 million in the reported quarter compared with $523 million in the prior-year quarter. The company had $493 million in cash and cash equivalents at the end fiscal first-quarter 2017 compared with $340.9 million at fiscal 2016 end. The company's total debt was $5.77 billion at the quarter end compared with $5.79 billion at fiscal 2016 end.

During fiscal first-quarter 2017, in sync with its balanced capital allocation strategy, WestRock invested $176 million in capital expenditures and paid $100 million in dividends and repurchased 1.35 million shares for $68 million.

In the quarter, WestRock achieved $85 million in year-over-year productivity improvements, and annual run rate of $580 million of synergy and performance improvements.

In line with its constant strategic focus on its core paper and packaging solutions businesses, WestRock has agreed to sell its Home, Health and Beauty business to Silgan Holdings Inc. SLGN for $1.025 billion in cash plus the assumption of approximately $25 million in foreign pension liability. WestRock anticipates receiving net after-tax proceeds of approximately $1 billion.

Further, WestRock announced that it will acquire Multi Packaging Solutions International Limited MPSX for $18.00 per share in cash and the assumption of an estimated $873 million in net debt, for a total enterprise value of $2.28 billion. The offer price of $18 per share represents a 25% premium to Multi Packaging Solutions' closing price of $14.39 on Jan 23. Multi Packaging Solutions is a leading global provider of print-based specialty packaging solutions. The acquisition will be immediately accretive to WestRock's results, both on an earnings per share basis and cash flow basis. The acquisition will strengthen the company's differentiated portfolio of paper and packaging solutions.

The company over the past year has made several investments that further strengthened and enhanced its portfolio, while divesting businesses that were not core to its goal of being a premier provider of paper and packaging solutions. Thus, WestRock has outperformed the Zacks categorized Paper and Related Products sub industry in the past one year. The company has gained 65.5%, while the industry witnessed an increase of 45.9% in the same time frame.

Zacks Rank & Key Pick

WestRock currently carries a Zacks Rank #3 (Hold). A better stock worth considering in the sector includes Fibria Celulose S.A. FBR . Fibria Celulose has an earnings ESP of 20.48% in the last four trailing quarters and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

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Silgan Holdings Inc. (SLGN): Free Stock Analysis Report

Fibria Celulose S.A. (FBR): Free Stock Analysis Report

Multi Packaging Solutions International Limited (MPSX): Free Stock Analysis Report

Westrock Company (WRK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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