WestRock Reports Second Quarter Fiscal 2024 Results

WestRock Company (NYSE:WRK), a leading provider of sustainable paper and packaging solutions, today announced results for its fiscal second quarter ended March 31, 2024.

Second Quarter Highlights and other notable items:

• Net sales of $4.73 billion
• Net income of $16 million, Adjusted Net Income of $101 million; net income included $81 million of restructuring and other costs, net
• Earnings of $0.06 per diluted share ("EPS") and Adjusted EPS of $0.39
• Consolidated Adjusted EBITDA of $618 million
• Consumer Packaging Adjusted EBITDA margin increased 70 bps to 18.0%
• Achieved over $160 million in cost savings; expect to significantly exceed previously announced fiscal 2024 target of $300 to $400 million

"I'm proud of our team's continued focus and execution, as we delivered strong results and made significant progress on our cost savings initiatives," said David B. Sewell, chief executive officer. "We have already exceeded the midpoint of our targeted cost savings for fiscal 2024, and we expect further savings through the remainder of the year and beyond. Our efforts are better positioning us to compete in the market and making us a more efficient company. Together with our scale and innovative, sustainable packaging solutions, WestRock is well positioned to capture share and drive long-term earnings growth."

Consolidated Financial Results

WestRock's performance for the three months ended March 31, 2024 and 2023 (in millions):

The decline in net sales compared to the second quarter of fiscal 2023 was driven primarily by a $229 million, or 8.7%, decrease in Corrugated Packaging segment sales, a $152 million, or 13.0%, decrease in Global Paper segment sales and a $152 million, or 12.0%, decrease in Consumer Packaging segment sales. The decrease in net sales was primarily due to lower selling price/mix largely driven by published price declines and softer volumes. Current year results were also impacted by the prior year mill and interior partition divestitures.

Net income in the second quarter of fiscal 2024 was not comparable to the prior year quarter primarily due to the $1.9 billion pre-tax, non-cash goodwill impairment and higher restructuring and other costs, net in the second quarter of fiscal 2023. Net income in the second quarter of fiscal 2024 was primarily impacted by lower selling price/mix and increased cost savings.

Consolidated Adjusted EBITDA decreased $170 million, or 21.6%, compared to the second quarter of fiscal 2023, primarily due to lower Adjusted EBITDA across each of our segments.

Additional information about the changes in segment sales and Adjusted EBITDA by segment is included below.

Restructuring and Other Costs, Net

Restructuring and other costs, net during the second quarter of fiscal 2024 were $81 million. The charges were primarily acquisition costs related to the Transaction (as hereinafter defined), ongoing costs related to previously closed operations and severance associated with converting plant closures.

Cash Flow Activities

Net cash provided by operating activities was $37 million in the second quarter of fiscal 2024 compared to $284 million in the prior year quarter. The decrease was primarily due to increased working capital usage in the second quarter of fiscal 2024.

Total debt was $9.0 billion at March 31, 2024, and Adjusted Net Debt was $8.4 billion. The Company had approximately $3.0 billion of available liquidity from long-term committed credit facilities and cash and cash equivalents at March 31, 2024.

During the second quarter of fiscal 2024, WestRock invested $301 million in capital expenditures and returned $78 million in capital to stockholders in dividend payments.

Segment Results

WestRock's segment performance for the three months ended March 31, 2024 and 2023 was as follows (in millions):

Corrugated Packaging Segment

Corrugated Packaging segment sales decreased primarily due to lower selling price/mix and lower volumes. These declines were partially offset by favorable foreign exchange rates.

Corrugated Packaging Adjusted EBITDA decreased primarily due to the margin impact of lower selling price/mix driven by published price declines, net cost inflation, lower volumes and the impact of winter weather, which were partially offset by increased cost savings, and the net impact of lower economic downtime and prior year mill closures. Corrugated Packaging Adjusted EBITDA margin was 13.3% and Adjusted EBITDA margin excluding trade sales was 13.7%.

Consumer Packaging Segment

Consumer Packaging segment sales decreased primarily due to lower volumes and the prior year divestiture of our interior partition operations.

Consumer Packaging Adjusted EBITDA decreased primarily due to net cost inflation, increased economic downtime, lower volumes and the prior year divestiture of our interior partition operations. These items were partially offset by increased cost savings. Consumer Packaging Adjusted EBITDA margin was 18.0%.

Global Paper Segment

Global Paper segment sales decreased primarily due to lower selling price/mix driven by published price declines and the impact of prior year divested mill operations.

Global Paper Adjusted EBITDA decreased primarily due to the margin impact of lower selling price/mix, the impact of increased economic downtime and prior year mill closures, the impact of prior year divested mill operations and the impact of winter weather. These items were partially offset by increased cost savings, net cost deflation and lower planned maintenance downtime. Global Paper Adjusted EBITDA margin was 12.7%.

Distribution Segment

Distribution segment sales decreased primarily due to lower volumes and lower selling price/mix.

Distribution Adjusted EBITDA decreased primarily due to lower volumes and the margin impact of lower selling price/mix. These items were largely offset by increased cost savings and by increased cost deflation.

Conference Call and Financial Guidance for Subsequent Periods

Due to the proposed business combination with Smurfit Kappa Group plc to create a global leader in sustainable packaging (the "Transaction"), WestRock will not host a conference call to discuss its financial results for the fiscal second quarter ended March 31, 2024. A slide presentation and other relevant financial and statistical information along with this release can be accessed at ir.westrock.com.

Preparations for the Transaction, including regulatory submissions, are currently underway, and WestRock continues to expect the Transaction to close in early July 2024. As previously communicated, to avoid a delay in this anticipated timeline caused by the inclusion of financial guidance after the second fiscal quarter in certain of those submissions, WestRock does not intend to provide such guidance for this and subsequent periods.

About WestRock

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.

Cautionary Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations, beliefs, plans or forecasts and use words or phrases such as "may," "will," "could," "should," "would," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "prospects," "potential," "commit," and "forecast," and other words, terms and phrases of similar meaning or refer to future time periods. Forward-looking statements involve estimates, expectations, projections, goals, targets, forecasts, assumptions, risks and uncertainties. A forward-looking statement is not a guarantee of future performance, and actual results could differ materially from those contained in the forward-looking statement.

Forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, such as developments related to pricing cycles and volumes; economic, competitive and market conditions generally, including macroeconomic uncertainty, customer inventory rebalancing, the impact of inflation and increases in energy, raw materials, shipping, labor and capital equipment costs; reduced supply of raw materials, energy and transportation, including from supply chain disruptions and labor shortages; intense competition; results and impacts of acquisitions, including operational and financial effects from the Mexico Acquisition, and divestitures; business disruptions, including from the occurrence of severe weather or a natural disaster or other unanticipated problems, such as labor difficulties, equipment failure or unscheduled maintenance and repair, or public health crises; failure to respond to changing customer preferences and to protect our intellectual property; the amount and timing of capital expenditures, including installation costs, project development and implementation costs, and costs related to resolving disputes with third parties with which we work to manage and implement capital projects; risks related to international sales and operations; the production of faulty or contaminated products; the loss of certain customers; adverse legal, reputational, operational and financial effects resulting from information security incidents and the effectiveness of business continuity plans during a ransomware or other cyber incident; work stoppages and other labor relations difficulties; inability to attract, motivate and retain qualified personnel, including as a result of the proposed Transaction; risks associated with sustainability and climate change, including our ability to achieve our sustainability targets and commitments and realize climate-related opportunities on announced timelines or at all; our inability to successfully identify and make performance improvements and deliver cost savings and risks associated with completing strategic projects on anticipated timelines and realizing anticipated financial or operational improvements on announced timelines or at all, including with respect to our business systems transformation; risks related to the proposed Transaction, including our ability to complete the Transaction on the anticipated timeline, or at all, restrictions imposed on our business under the Transaction, disruptions to our business while the proposed Transaction is pending, the impact of management's time and attention being focused on consummation of the proposed Transaction, costs associated with the proposed Transaction, and integration difficulties; risks related to our indebtedness, including increases in interest rates; the scope, costs, timing and impact of any restructuring of our operations and corporate and tax structure; the scope, timing and outcome of any litigation, claims or other proceedings or dispute resolutions and the impact of any such litigation (including with respect to the Brazil tax liability matter); and additional impairment charges. Such risks and other factors that may impact forward-looking statements are discussed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, including in Item 1A "Risk Factors", as well as in our subsequent filings with the Securities and Exchange Commission. The information contained herein speaks as of the date hereof, and the Company does not have or undertake any obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.