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What's in the Cards for WestRock (WRK) this Earnings Season?

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WestRock Company (WRK - Free Report) is set to report third-quarter fiscal 2018 results on Aug 2, before the opening bell. In the last reported quarter, the company delivered year-over-year improvement in both its top and bottom lines. Notably, revenues missed the Zacks Consensus Estimate, while earnings came in line in the last reported quarter. The company has an average positive earnings surprise history of 9.76%.
 
Let’s see how things are shaping up prior to this announcement.
 
Earnings Whispers
 
Our proven model does not conclusively show that WestRock is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.
 
Zacks ESP: WestRock has an Earnings ESP of -1.67% because the Most Accurate estimate is pegged at $1.03 and the Zacks Consensus Estimate is pegged higher at $1.05. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: WestRock carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s -1.67% ESP makes surprise prediction difficult.
 
We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
 
WestRock Company Price and EPS Surprise
 
Per the Zacks Consensus Estimate, WestRock is likely to witness sales growth in its major segments — Consumer Packaging and Corrugated Packaging. The Consumer Packaging’s revenues are projected to grow 21% to $1,839 million. The Corrugated Packaging segment’s revenues are anticipated to rise 7% year over year to $2,302 million. The Land & Development segment is expected to report revenues of $51 million, down 28% year over year.
 
The Zacks Consensus Estimate for total revenues is pegged at $4.1 billion, projecting year-over-year growth of 11.6%.
 
The Corrugated Packaging segment’s operating profit is anticipated to grow 39% to $312 million. The Consumer Packaging segment’s operating profit is expected to rise 49% year over year to $142 million. The Land & Development segment is projected to report operating profit of $7.3 million, a substantial rise from $0.2 million reported in the prior-year quarter.
 
WestRock is benefiting from favorable demand, price and mix trends across its paper and packaging businesses. The company anticipates adjusted earnings per share in third-quarter fiscal 2018 to deliver a significant improvement from second-quarter’s adjusted EPS of 83 cents. Input costs are expected to be sequentially lower by $15 million to $20 million. Lower recycled fiber prices along with sales price increases, seasonally higher volumes, favorable mix and continued productivity gains will lead to sequential rise of $98 million to $118 million in adjusted EBITDA for the quarter.
 
Meanwhile, transportation costs will continue to be a deterrent. Further, maintenance downtime is likely to increase 83,000 tons sequentially across the company’s mill system in the third quarter. This will have an estimated $20 million cost impact quarter over quarter. Moreover, certain chemical costs are expected to be higher in the to-be-reported quarter. Adjusted EPS in third-quarter fiscal 2018 will also be unfavorably impacted by 8-10 cents owing to higher expected tax rate, increased depreciation and amortization and higher interest expense.
 
The Zacks Consensus Estimate for earnings is pegged at $1.05 for the quarter, year-over-year growth of 41.9%.
 
Share Price Performance
 
 
Over the past year, shares of WestRock declined 0.9%, against the industry’s rise of 11.4%.
 
Stocks That Warrant a Look
 
Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.
 
Orion Engineered Carbons S.A (OEC - Free Report) has an Earnings ESP of +3.85% and a Zacks Rank #2. Its shares have gone up 54% in a year’s time.  You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Ryerson Holding Corporation (RYI - Free Report) has an Earnings ESP of +0.19% and a Zacks Rank #3 (Hold). Its shares have gained 41% over the past year.
 
Marrone Bio Innovations, Inc. has an Earnings ESP of +25.00% and a Zacks Rank #3. Its shares have appreciated 67% over the past year.
 
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