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Why Is WestRock (WRK) Down 0.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for WestRock (WRK - Free Report) . Shares have lost about 0.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is WestRock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

WestRock Q4 Earnings & Revenues Top Estimates, Up Y/Y
 
WestRock delivered fourth-quarter fiscal 2018 (ended Sep 30, 2018) adjusted earnings of $1.29 per share, surpassing the Zacks Consensus Estimate of $1.24. The reported figure also logged a year-over-year improvement of 48%. Including one-time items, the company reported earnings of $1.08 per share in the fourth quarter compared with 76 cents per share recorded in the prior-year quarter.
 
Operational Update
 
WestRock’s total revenues rose 4% year over year to $4,237 million, outpacing the Zacks Consensus Estimate of $4,260 million. The increased sales in the Corrugated Packaging on the back of higher selling price drove year-over-year improvement in sales.
 
Cost of sales inched up 0.4% year over year to $3,295 million in the fourth quarter. Gross profit advanced 21% to $942 million. Gross margin expanded 300 basis points to 22.2% in the quarter. Adjusted segment EBITDA was $807 million compared with $654 million reported in the prior-year quarter. Adjusted operating income was $564 million, up 37% from $412 million in the prior-year quarter.
 
Segment Performance
 
Corrugated Packaging: Sales at the segment improved 7% year over year to $2,390 million in the reported quarter. Adjusted segment EBITDA increased 42% year over year to $548 million.
 
Consumer Packaging: Sales at the segment inched up 1% to $1,879 million from the year-ago quarter. Adjusted segment EBITDA dipped 2% year over year to $275 million.
 
Land and Development: The segment’s sales came in at $39.5 million compared with $18.7 million in the prior-year quarter. Adjusted segment EBITDA for the segment was a loss of $2.7 million, an improvement from the loss of $5.5 million recorded in the prior-year quarter.
 
Fiscal 2018 Performance
 
WestRock reported fiscal 2018 adjusted earnings of $4.09 per share, which outpaced the Zacks Consensus Estimate of $4.04 and also improved 56% year over year. Including one-time items, the company reported earnings of $7.34 per share in the fiscal compared with $2.77 per share recorded in the prior year.
 
WestRock’s total revenues rose 10% year over year to $16.3 billion, in-line with the Zacks Consensus Estimate.
 
Financial Position
 
As of fiscal 2018-end, cash and cash equivalents were $637 million, up from $298 million as of fiscal 2017-end. As of Sep 30, 2018, total debt was $6.4 billion, up from $6.6 billion as of Sep 30, 2017. Cash flow from operations came in at $2.4 billion in fiscal 2018 compared with $1.9 billion recorded in the prior year.
 
During fiscal 2018, WestRock invested $1 billion in capital expenditures, paid $441 million in dividends and repurchased shares worth $195 million. The company also spent $348 million in strategic acquisitions and investments. The company also hiked annual dividend by 5.8% to an annualized rate of $1.82 per share.  WestRock stated that the company has achieved its aforementioned target of $1 billion of synergy and performance improvements since its inception in 2015. It has also attained $246 million of productivity improvement year over year.
 
On Nov 2, WestRock completed the acquisition of rival KapStone Paper and Packaging Corp. The company expects to achieve approximately $200 million in synergies and performance improvements by the end of fiscal 2021 through the integration of the former KapStone operations into WestRock’s corrugated business. The buyout will help WestRock expand presence in the western United States. It will also broaden the company’s differentiated paper and packaging solutions portfolio with the addition of attractive paper grades and distribution capabilities.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -21.68% due to these changes.

VGM Scores

At this time, WestRock has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, WestRock has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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