WestRock, a leading provider of differentiated paper and packaging solutions, has announced results for its fiscal first quarter ended 31 December 2018.
Earned $0.54 per diluted share and $0.83 of adjusted earnings per diluted share compared to $4.38 per diluted share and $0.87 of adjusted earnings per diluted share in the prior year quarter.
The effective tax rate was 31.0% and the adjusted tax rate was 23.3%.
The Company’s first quarter of fiscal 2018 results included an estimated income tax benefit of $1.1 billion, or $4.19 per diluted share, as a result of the enactment of the Tax Cuts and Jobs Act, compared to a tax expense of $4 million, or $0.02 per diluted share, in the first quarter of fiscal 2019.
Completed the acquisition of KapStone Paper and Packaging Corporation (“KapStone” and the “KapStone Acquisition”) on November 2, 2018, and has included the results of KapStone in the Company’s financial results subsequent to that date.
Increased Corrugated Packaging Segment EBITDA by $26 million compared to the prior year quarter. Increased Corrugated Packaging Adjusted Segment EBITDA by $86 million compared to the prior year quarter, which includes addbacks of $40 million of direct costs incurred as a result of Hurricane Michael (net of $20 million of insurance proceeds), $25 million of acquisition inventory step-up charge related to the KapStone Acquisition and $3 million related to other items.
“We completed the KapStone acquisition and have moved quickly to integrate these operations into our company. The WestRock team overcame the challenges of Hurricane Michael and high input costs to deliver solid financial and operating results for the first fiscal quarter,” said Steve Voorhees, WestRock’s chief executive officer.
“Our outlook for fiscal 2019 and beyond remains positive as we invest to improve our cost structure and advance our differentiated strategy. We remain focused on delivering exceptional value for our customers and our stockholders.”
The company aligned its financial results for all periods presented in this press release to move its merchandising displays operations from its Consumer Packaging segment to its Corrugated Packaging segment. Additionally, in fiscal 2019 the Company began conducting its recycling operations primarily as a procurement function. As a result, no recycling sales are recorded and the margin from its recycling operations reduces cost of goods sold.
The $433 million increase in net sales compared to the prior year quarter was primarily attributable to $414 million of increased Corrugated Packaging segment net sales, mainly due to the KapStone Acquisition and higher selling price/mix. These increased sales were partially offset by the absence of recycling sales in the current year quarter and an unfavorable foreign currency impact compared to the prior year quarter. Net sales adjusted for Recycling increased $549 million.
The $39 million decrease in segment income compared to the prior year quarter was primarily attributable to $23 million of decreased Corrugated Packaging segment income and $17 million of decreased Consumer Packaging segment income. The impact of higher selling price/mix in the Corrugated Packaging segment was more than offset by cost inflation, direct costs (net of insurance proceeds) and the impact of lost production and sales from hurricanes, and an acquisition inventory step-up charge related to the KapStone Acquisition. Consumer Packaging segment income declined as the impact of higher selling price/mix and productivity improvements were more than offset by cost inflation and other items.
Restructuring and other items during the first quarter of fiscal 2019 included the following pre-tax costs:
$24 million of acquisition costs, principally professional fees related to the KapStone Acquisition
$26 million of restructuring costs, primarily associated with severance and other employee costs related to the KapStone Acquisition and with the consolidation of other operations
$5 million of integration costs
Net cash provided by operating activities was $303 million in the first quarter of fiscal 2019 compared to $245 million in the prior year quarter. Total debt was $10.8 billion at December 31, 2018. During the first quarter, WestRock deployed $4.9 billion for the KapStone Acquisition including debt assumed, invested $322 million in capital expenditures, paid $116 million in dividends and returned $44 million to stockholders through stock repurchases.
Segment net sales increased $414 million and segment net sales adjusted for recycling increased $535 million. The increase in segment net sales adjusted for recycling was primarily due to $523 million from acquisitions and $126 million of higher selling price/mix, which were partially offset by $86 million of lower volume and $25 million of unfavorable foreign currency impact.
Segment income decreased $23 million as the impact of higher selling price/mix of $102 million, $16 million of contribution from the acquired KapStone operations net of a $25 million acquisition inventory step-up charge, and productivity of $16 million was more than offset by $53 million of cost inflation, $40 million of direct costs as a result of Hurricane Michael (net of $20 million of insurance proceeds), and an estimated $31 million impact of lost production and sales due to hurricanes, $18 million of lower volumes, and other items.
We expect to recover a significant amount of direct costs and lost production and sales due to hurricanes (excluding our $15 million deductible), in future periods through insurance reimbursements.
The adjustments in the Corrugated Packaging Segment table to get from Segment EBITDA to Adjusted Segment EBITDA primarily include the $40 million of direct costs net of proceeds and $25 million of acquisition inventory step-up discussed above.
The Corrugated Packaging segment delivered a Segment EBITDA margin of 17.0% and a North American Adjusted Segment EBITDA margin of 21.0%, down 190 basis points and up 10 basis points, respectively. Brazil Adjusted Segment EBITDA margin was 27.7%, up 270 basis points.
North American box shipments increased 3.1% on a per day basis, excluding the KapStone Acquisition.
Source: Company Press Release