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WestRock (WRK) Gains From Packaging Demand Amid Higher Costs
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WestRock Company (WRK - Free Report) is poised to gain from continued strength in packaging demand, strong growth in e-commerce activities and implementation of price-increase actions. The consumer packaging business is benefiting from sustainable fiber-based packaging solutions, and significant demand in food, food service and beverage packaging categories amid the pandemic. Its corrugated packaging business will gain from improved box shipment, as well as higher demand from distribution, industrial and agricultural customers as the economy gradually recovers. However, material cost inflation is a concern for the company.
Recently, the company reported third-quarter fiscal 2021 adjusted earnings of $1.00 per share, reflecting year-over-year growth of 32%. The bottom-line figure beat the Zacks Consensus Estimate of 97 cents. Revenues of $4,816 million increased 14% year over year and surpassed the consensus mark of $4,618 million.
Packaging to Gain From Robust Demand
WestRock’s corrugated packaging business is poised to gain from improved box shipment, and increased demand from distribution, industrial and agricultural customers as the economy gradually recovers. E-commerce demand remains strong across all channels and momentum will continue, particularly on account of the coronavirus pandemic. Consumer packaging business is gaining from sustainable fiber-based paper and packaging solutions, as well as significant demand in food, food service, and beverage packaging categories due to the pandemic. The company’s overall packaging business will gain from solid demand and benefits from the previously-published price increases. It is implementing price-rise actions across majority of its paper grades in response to cost inflation.
Investments in Capital Projects to Drive Growth
WestRock continues to invest in business, which includes strategic capital projects that have attractive returns, and targeted mergers and acquisitions. The company expects capital expenditures for fiscal 2022 between $900 million and $1 billion. It has been witnessing healthy demand for containerboard and corrugated packaging in the Brazilian market, and is well poised to capitalize on this growth with the ramp-up of Tres Barras mill in the region. The company will reap the benefits of strategic capital projects in its mill and converting systems to improve overall cost structure. These investments will enhance WestRock’s packaging capabilities on its served markets, while reducing exposures to export containerboard and low-margin Specialty solid bleached sulfate (SBS) businesses.
WestRock successfully started the new state-of-the-art 710,000 ton paper machine at Florence, SC mill, which replaces three old and obsolete machines. This mill is expected to achieve full-production levels at the end of the fiscal fourth quarter. The company had also announced that it is reconfiguring its North Charleston, SC, paper mill to improve the long-term competitiveness of the mill. The move is likely to increase the company’s annual EBITDA, primarily owing to the reduction in operating costs.
Acquisitions to Aid Growth
During fiscal 2018 and 2019, the company completed acquisitions of Schlüter, Plymouth Packaging, and rival KapStone Paper and Packaging Corp that expanded its product offerings and geographic presence. The integration of KapStone Paper, the most notable buyout among these, is on track. The company anticipates cost synergies and performance improvements of $200 million by the end of fiscal 2021.
Meanwhile, sequentially higher inflation across recycled fiber, virgin fiber and energy costs might unfavorably impact the company’s margins in fourth-quarter fiscal 2021.
Price Performance
Shares of WestRock have appreciated 75.8%, over the past year, compared with the industry’s growth of 58.7%.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
WestRock currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the basic materials space include Avient Corporation (AVNT - Free Report) , Veritiv Corporation and Commercial Metals Company (CMC - Free Report) . While Avient and Veritiv flaunt a Zacks Rank #1 (Strong Buy), Commercial Metals carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Avient has a projected earnings growth rate of 75% for 2021. The company’s shares have soared 92% in the past year.
Veritiv has an estimated earnings growth rate of 215% for the current year. Over the past year, the company’s shares have soared 340%.
Commercial Metals has an expected earnings growth rate of 32.8% for the current fiscal year. The company’s shares have gained 54% in a year’s time.
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WestRock (WRK) Gains From Packaging Demand Amid Higher Costs
WestRock Company (WRK - Free Report) is poised to gain from continued strength in packaging demand, strong growth in e-commerce activities and implementation of price-increase actions. The consumer packaging business is benefiting from sustainable fiber-based packaging solutions, and significant demand in food, food service and beverage packaging categories amid the pandemic. Its corrugated packaging business will gain from improved box shipment, as well as higher demand from distribution, industrial and agricultural customers as the economy gradually recovers. However, material cost inflation is a concern for the company.
Recently, the company reported third-quarter fiscal 2021 adjusted earnings of $1.00 per share, reflecting year-over-year growth of 32%. The bottom-line figure beat the Zacks Consensus Estimate of 97 cents. Revenues of $4,816 million increased 14% year over year and surpassed the consensus mark of $4,618 million.
Packaging to Gain From Robust Demand
WestRock’s corrugated packaging business is poised to gain from improved box shipment, and increased demand from distribution, industrial and agricultural customers as the economy gradually recovers. E-commerce demand remains strong across all channels and momentum will continue, particularly on account of the coronavirus pandemic. Consumer packaging business is gaining from sustainable fiber-based paper and packaging solutions, as well as significant demand in food, food service, and beverage packaging categories due to the pandemic. The company’s overall packaging business will gain from solid demand and benefits from the previously-published price increases. It is implementing price-rise actions across majority of its paper grades in response to cost inflation.
Investments in Capital Projects to Drive Growth
WestRock continues to invest in business, which includes strategic capital projects that have attractive returns, and targeted mergers and acquisitions. The company expects capital expenditures for fiscal 2022 between $900 million and $1 billion. It has been witnessing healthy demand for containerboard and corrugated packaging in the Brazilian market, and is well poised to capitalize on this growth with the ramp-up of Tres Barras mill in the region. The company will reap the benefits of strategic capital projects in its mill and converting systems to improve overall cost structure. These investments will enhance WestRock’s packaging capabilities on its served markets, while reducing exposures to export containerboard and low-margin Specialty solid bleached sulfate (SBS) businesses.
WestRock successfully started the new state-of-the-art 710,000 ton paper machine at Florence, SC mill, which replaces three old and obsolete machines. This mill is expected to achieve full-production levels at the end of the fiscal fourth quarter. The company had also announced that it is reconfiguring its North Charleston, SC, paper mill to improve the long-term competitiveness of the mill. The move is likely to increase the company’s annual EBITDA, primarily owing to the reduction in operating costs.
Acquisitions to Aid Growth
During fiscal 2018 and 2019, the company completed acquisitions of Schlüter, Plymouth Packaging, and rival KapStone Paper and Packaging Corp that expanded its product offerings and geographic presence. The integration of KapStone Paper, the most notable buyout among these, is on track. The company anticipates cost synergies and performance improvements of $200 million by the end of fiscal 2021.
Meanwhile, sequentially higher inflation across recycled fiber, virgin fiber and energy costs might unfavorably impact the company’s margins in fourth-quarter fiscal 2021.
Price Performance
Shares of WestRock have appreciated 75.8%, over the past year, compared with the industry’s growth of 58.7%.
Image Source: Zacks Investment Research
Zacks Rank & Stocks to Consider
WestRock currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the basic materials space include Avient Corporation (AVNT - Free Report) , Veritiv Corporation and Commercial Metals Company (CMC - Free Report) . While Avient and Veritiv flaunt a Zacks Rank #1 (Strong Buy), Commercial Metals carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Avient has a projected earnings growth rate of 75% for 2021. The company’s shares have soared 92% in the past year.
Veritiv has an estimated earnings growth rate of 215% for the current year. Over the past year, the company’s shares have soared 340%.
Commercial Metals has an expected earnings growth rate of 32.8% for the current fiscal year. The company’s shares have gained 54% in a year’s time.