Sign in

You're signed outSign in or to get full access.

WC

WestRock Co (WRK)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 FY2023 Adjusted EPS was $0.89, a significant beat versus public consensus around $0.50; GAAP diluted EPS was $0.79 .
  • Net sales were $5.121B, down 7.2% YoY and modestly below public revenue consensus near $5.16B; Consolidated Adjusted EBITDA was $802M .
  • Corrugated Packaging delivered strength: segment sales +7.7% YoY and Adjusted EBITDA +11.6% YoY; Global Paper volumes and price/mix drove declines and margin compression .
  • Management raised confidence in cost savings (on track to exit FY2023 with >$450M run-rate) and provided Q4 guidance for Adjusted EPS of $0.66–$0.83 and Consolidated Adjusted EBITDA of $675–$725M .

What Went Well and What Went Wrong

What Went Well

  • Corrugated Packaging segment performance: Adjusted EBITDA +11.6% YoY; margin expanded 60 bps to 16.7% (17.4% excluding trade sales) on price/mix, net cost deflation and Mexico acquisition contribution .
  • Transformation and cost actions: On track to exit FY2023 with >$450M cost savings run-rate; CEO: “We delivered impressive results under challenging market conditions… Our accelerated transformation strategy is exceeding expectations” .
  • Cash generation and deleveraging: Net cash from operations of $694M; Adjusted Free Cash Flow of $479M used to reduce debt .

What Went Wrong

  • Global Paper segment weakness: Segment sales −33.8% and Adjusted EBITDA −55.6% YoY; margin down 820 bps on lower volumes, economic downtime, lower price/mix, FX .
  • Economic downtime and pension headwinds: $89M negative EBITDA impact from downtime; non-cash pension costs +$39M YoY .
  • Consolidated profitability compression: Consolidated Adjusted EBITDA down 20.2% YoY; margin −250 bps YoY to 15.7%, reflecting weaker Global Paper and Distribution .

Financial Results

Consolidated results – quarterly trend and Q3 vs estimates

MetricQ1 FY2023Q2 FY2023Q3 FY2023Q3 FY2022Q3 FY2023 Consensus
Revenue ($USD Billions)$4.923 $5.278 $5.121 $5.520 $5.16
Consolidated Adjusted EBITDA ($USD Millions)$652 $789 $802 $1,006 —
Adjusted EBITDA Margin %13.2% 14.9% 15.7% 18.2% —
Diluted EPS (GAAP) ($)$0.18 $(7.85) $0.79 $1.47 —
Adjusted EPS ($)$0.55 $0.77 $0.89 $1.54 $0.50

Notes: Consensus values use public sources because SPGI consensus was unavailable via tool (“SPGI mapping missing”) .

Segment breakdown – Q3 FY2023 versus YoY

SegmentSales ($USD Millions) Q3 FY2022Sales Q3 FY2023Sales YoY %Adjusted EBITDA ($USD Millions) Q3 FY2022Adjusted EBITDA Q3 FY2023EBITDA Margin Q3 FY2022EBITDA Margin Q3 FY2023
Corrugated Packaging$2,382.5 $2,565.7 +7.7% $385.2 $429.7 16.2% 16.7%
Consumer Packaging$1,270.2 $1,250.6 −1.5% $234.9 $230.0 18.5% 18.4%
Global Paper$1,610.3 $1,065.7 −33.8% $399.0 $177.0 24.8% 16.6%
Distribution$357.7 $317.8 −11.2% $19.2 $6.0 5.4% 1.9%

KPIs and balance sheet/cash flow

KPIQ1 FY2023Q2 FY2023Q3 FY2023
Adjusted Free Cash Flow ($USD Millions)$30 $36 $479
Net Cash Provided by Operating Activities ($USD Millions)$266 $284 $694
Capital Expenditures ($USD Millions)$282 $282 $255
Total Debt ($USD Millions)$9,463 (Dec 31 balance sheet current + LT) $9,506 (Mar 31 balance sheet current + LT) $9,027 (June 30 current + LT)
Adjusted Net Debt ($USD Millions)——$8,551

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS ($)Q4 FY2023—$0.66–$0.83 New range
Consolidated Adjusted EBITDA ($USD Millions)Q4 FY2023—$675–$725 New range
Adjusted Effective Tax Rate (%)Q4 FY2023—8%–10% New
Depreciation & Amortization ($USD Millions)Q4 FY2023—~$384 New
Net Interest Expense ($USD Millions)Q4 FY2023—~$113 New
Diluted Shares Outstanding (Millions)Q4 FY2023—~257 Maintained
Mill Maintenance Downtime (K tons)FY2023Q3 guide: ~121K Q4 guide: ~32K; FY23 total 512K Updated schedule
Prior Quarter Guide (for Q3)Q3 FY2023EPS $0.30–$0.60; EBITDA $650–$750 Actual Q3: EPS $0.89; EBITDA $802 Beat prior guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY2023)Current Period (Q3 FY2023)Trend
Cost savings/transformationTargeting $250M FY2023; $1B by FY2025; SG&A and procurement run-rate targets On track to exit FY2023 with >$450M run-rate; continued portfolio optimization, converting consolidations, mill closures Improving execution
Plastics replacement revenueTarget ~$400M FY2023; $700M by FY2025; machinery installed base >5,100–5,200 EnduraGrip/Cluster-Clip launch; TAM ~$50B; Costco partnership highlighted Scaling commercial wins
Volume/backlogs/shipmentsN.A. corrugated shipments per day improved sequentially; backlogs steady Corrugated shipments sequentially stable; July mid-single-digit improvement per call summaries Early stabilization
Economic downtime & maintenanceQ2 downtime 265K tons; Q3 guide ~121K tons Q3 downtime 359K tons; $89M EBITDA impact Persistent headwind, moderating
Portfolio actions/closuresNorth Charleston closure; URB divestiture; RTS stake sale planned Tacoma mill closure; consolidation of 7 converting facilities in total Accelerating footprint optimization
Mexico (Grupo Gondi) integrationContributed to Corrugated strength; elimination of internal paper sales Mexico acquisition driving Corrugated sales/EBITDA; internal eliminations reduce Global Paper sales Integration benefits realized

Management Commentary

  • CEO David B. Sewell: “We delivered impressive results under challenging market conditions… Our accelerated transformation strategy is exceeding expectations. We expect to exit the year with a cost savings run-rate of over $450 million” .
  • Strategic focus: “Partnering with our customers, streamlining our portfolio, investing in our assets and further reducing costs” .
  • Q3 highlights slide: Emphasis on price/mix strength, cost savings traction, input cost deflation (OCC, energy), and disciplined capital allocation .

Q&A Highlights

  • Execution and guidance: Management stated they exceeded guidance due to strong execution, productivity gains, and moderating input costs, with CFO detail on tax, D&A and interest framing Q4 guide .
  • Demand signals: Corrugated shipments sequentially stable and improved mid-single digits in July, supporting stronger backlogs and cautious optimism on volume trends .
  • Footprint optimization: Announced additional closures (Tacoma) and consolidation of converting locations to improve integration and reduce volatility over time; reiterated savings timeline .
  • Plastics replacement growth: Management discussed EnduraGrip and Cluster-Clip solutions and progress toward FY2023 plastics replacement revenue target .

Estimates Context

  • S&P Global consensus was unavailable via tool due to missing CIQ mapping. Using public sources, EPS consensus was ~$0.50 and revenue consensus ~$5.16B; WRK delivered $0.89 Adjusted EPS and $5.121B revenue, reflecting a significant EPS beat and modest revenue miss .
  • Estimate revisions likely: Strength in Corrugated margins and improved cost deflation, offset by continued Global Paper weakness and downtime, suggest near-term EPS expectations could drift higher if Q4 cost curves and volumes continue to stabilize .

Key Takeaways for Investors

  • Narrative shift to self-help: Material cost savings (> $450M run-rate exiting FY2023) and portfolio actions are offsetting macro softness; this is a near-term support for earnings resilience .
  • Corrugated strength vs. Global Paper drag: Corrugated delivered margin expansion and EBITDA growth; investors should monitor mix/volume trends and Mexico integration benefits while expecting ongoing pressure in Global Paper .
  • Q4 setup: Guidance implies sequential EBITDA downtick (Q3 $802M vs. Q4 $675–$725M) and lower EPS, driven by pricing declines and still-higher energy/recycled fiber; near-term trading should watch commodity inputs and downtime .
  • Cash and deleveraging: Solid operating cash flow and large Q3 Adjusted FCF provide flexibility to fund capex and reduce debt, supporting equity optionality through cycle .
  • Plastics replacement optionality: Pipeline and machinery platform underpin targeted revenue growth in sustainable packaging; execution here is a medium-term thesis lever .
  • Risks: Economic downtime, pension expense, FX, and Global Paper pricing cycles remain live headwinds; guidance sensitivity to commodities (virgin/recycled fiber, energy) is meaningful .
  • Catalyst map: Continued transformation milestones, margin delivery in Corrugated, stabilization of volumes/backlogs, and in-line execution versus Q4 guide are likely to drive stock reaction near term .