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WestRock (WRK) Up 5.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for WestRock (WRK - Free Report) . Shares have added about 5.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is WestRock due for a pullback? 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 drivers.

WestRock Earnings Beat, Sales Miss Estimates in Q4

WestRock Company delivered fourth-quarter fiscal 2019 (ended Sep 30, 2019) adjusted earnings of $1.24 per share, surpassing the Zacks Consensus Estimate of $1.21. Earnings, however, declined 3.8% from the prior-year quarter figure of $1.29.

Including one-time items, the company reported earnings per share of $1.20 in the reported quarter, up 11.1% from the prior-year quarter’s $1.08.

Operational Update

WestRock’s total revenues jumped 9.8% year over year to $4,652 million. However, the revenue figure missed the Zacks Consensus Estimate of $5,004 million.

The year-over-year improvement in total sales can primarily be attributed to the KapStone acquisition, partially offset by lower corrugated volumes and prices. Nonetheless, the absence of recycling sales in the reported quarter had a deterring effect.

Cost of sales improved 8.1%, year over year, to $3,573 million in the fiscal fourth quarter. Gross profit advanced 15.8% year over year to $1,078.6 million. Gross margin came in at 23.2% compared with the prior-year period’s 21.9%. Adjusted segment EBITDA was $890.5 million compared with the $801.5 million reported in the prior-year quarter.

Total segment income came in at $584.5 million, up from the $512.8 million witnessed in the year-ago quarter. This upside was driven by insurance proceeds related to the receipt of Hurricane Michael, the contribution from the KapStone acquisition, productivity improvements and cost deflation. However, these were partially offset by lower volumes and selling prices.

Segment Performance

Corrugated Packaging: Sales in the segment improved 19% year over year to $3,019.4 million in the reported quarter, backed by the KapStone acquisition, partly offset by lower volumes and prices. Adjusted segment EBITDA jumped 14% year over year to $640 million. Segment income came in at $449.8 million in the quarter, reflecting year-over-year growth of 16.7%.

Consumer Packaging: Sales in this segment declined 2.4% year over year to $1,668.8 million. The downside resulted from lower volumes and unfavorable foreign-currency impact, partly mitigated by acquisitions. Adjusted segment EBITDA was down 4.5% year over year to $269 million. Segment income was $135 million in the September-end quarter compared with the prior-year quarter’s $130.2 million. Segment income increased due to productivity improvements, cost deflation and higher selling prices, partly muted by lower volumes.

Land and Development: The segment’s sales came in at around $0.1 million compared with the year-earlier quarter’s figure of $39.5 million.

Fiscal 2019 Performance

WestRock reported fiscal 2019 adjusted earnings of $3.98 per share, which outpaced the Zacks Consensus Estimate of $3.93. Earnings, however, declined 2.7% year over year. Including one-time items, the company reported earnings of $3.33 per share in the fiscal compared with the $7.34 per share recorded in the prior fiscal year.
 
WestRock’s total revenues rose 12.3% year over year to $18.3 billion, missing the Zacks Consensus Estimate of $18.6 billion.

Financial Position

As of fiscal 2019 end, cash and cash equivalents were $151.6 million, significantly down from $636.8 million as of Sep 30, 2018. As of the fiscal 2019 end, total debt was $10.06 billion, up from $6.4 billion as of the fiscal 2018 end. Cash flow from operations came in at $911 million in the fiscal fourth quarter compared with the prior-year quarter’s $796 million.

WestRock invested $392 million in capital expenditures and paid out $117 million in dividends in the reported quarter.

Recent Development

In September, the company announced its plan to reconfigure its North Charleston, SC paper mill, in a bid to enhance the mill’s operating efficiency and boost long-term competitiveness. This is likely to increase the company’s annual EBITDA by around $40 million. The move will reduce linerboard capacity by approximately 288,000 tons.

Acquisition

WestRock has so far achieved $90 million of its $200-million targeted synergies from the acquisition of KapStone. WestRock remains focused on organic growth, productivity improvement and cash-flow generations.
 

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -26.28% due to these changes.

VGM Scores

At this time, WestRock has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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

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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