WestRock earnings decline in Q3 of 2020

WestRock Co., a provider of differentiated paper and packaging solutions based in Atlanta, achieved slimmer financial results for its fiscal third quarter, which ended June 30, when compared with the same time in 2019.

In the third quarter, the company achieved net sales of $4.2 billion, which is a 9.7 percent decrease compared with the third quarter of 2019. According to the company’s latest earnings report, it generated net cash provided by operating activities of $740 million in the third quarter. However, segment earnings before interest, taxes, depreciation and amortization (EBITDA) margins improved sequentially across the company’s business segments. 

Overall, WestRock’s net sales decreased $454 million compared with the prior-year third quarter. The Corrugated Packaging segment and Consumer Packaging segment net sales declined $344 million and $98 million, respectively, primarily due to lower selling price/mix on sales, lower volumes and unfavorable foreign currency impact.

Additionally, WestRock had $7 million of restructuring costs, primarily related to severance and other employee costs and plant consolidations, in the third quarter. The company also had $2 million of integration costs, primarily related to the fiscal 2019 acquisition of KapStone Paper and Packaging Corp.

WestRock reports that its Corrugated Packaging segment delivered a segment EBITDA margin of 16.9 percent and a North American adjusted segment EBITDA margin of 19.8 percent. Segment income decreased $165 million, primarily due to the $134 million margin impact of lower selling price/mix, $57 million of lower volumes (including the impact of COVID-19), an estimated $39 million of net cost inflation, $27 million in the aggregate for one-time recognition awards to the company’s manufacturing and operations teammates and increased costs for safety, cleaning and other items related to COVID-19. The company says these costs were partially offset by productivity improvements, the decreased impact of maintenance and economic downtime as well as lower depreciation and amortization.

During WestRock’s third-quarter earnings call Aug. 4, the company reported that the Corrugated Packaging segment was “stable” in the third quarter compared with its fiscal second quarter. While corrugated shipments declined in April, the company says shipments have been increasing since then. Corrugated packaging sales to e-commerce markets increased in the third quarter compared with the second quarter; however, corrugated packaging sales to other markets, such as industrial markets, have remained lower due to manufacturing closures related to the COVID-19 pandemic. The company reported that it expects demand from industrial markets to slowly improve as the U.S. economy recovers.

Export containerboard shipments also declined in the third quarter of the fiscal year compared with the second quarter of the year. On the earnings call, the company said it expects to see export containerboard shipments become a smaller portion of its overall corrugated packaging shipments in the future.

The company’s Consumer Packaging segment net sales decreased by $98 million in the third quarter, primarily due to $44 million of lower selling price/mix on sales, $38 million of lower volumes (including the impact of COVID-19) and $16 million of unfavorable foreign currency impacts. The segment delivered an EBITDA margin of 14.6 percent and an adjusted segment EBITDA margin of 15.6 percent. Segment income increased $4 million primarily due to productivity improvements, net cost deflation, lower depreciation and amortization as well as decreased outage costs. 

“Our results for the fiscal third quarter, including our strong cash flow and debt reduction, demonstrate why I am so proud of how the WestRock team is working closely with our customers to help them meet changing demand across a variety of end markets,” says Steve Voorhees, chief executive officer of WestRock. “We are taking the necessary steps to help our teammates work safely during the pandemic. WestRock remains well positioned with the capabilities, cash flow, liquidity and team to meet the challenges ahead and support our customers, teammates and communities.”