WestRock Reports Fiscal 2021 First Quarter Results

ATLANTA–(BUSINESS WIRE)–WestRock Company (NYSE:WRK), a leading provider of differentiated paper and packaging solutions, today announced results for its fiscal first quarter ended December 31, 2020.

Notable items in the first quarter of fiscal 2021 include:

• Net sales of $4.4 billion were essentially flat compared to the pre-pandemic prior year quarter
• Total packaging shipments increased 5%; record North American per day box shipments that increased 8% compared to the prior year quarter
• Successfully started up the Company’s new 330” state-of-the-art paper machine in Florence, South Carolina; the machine’s 710k tons of annual capacity replaces three old machines
• Distributed COVID-19 relief payments to employees totaling $22 million; these payments are not included in the Company’s adjusted earnings per diluted share for the quarter
• Earned $0.57 per diluted share and $0.61 of adjusted earnings per diluted share compared to $0.53 of earnings per diluted share and $0.58 of adjusted earnings per diluted share, respectively, in the prior year quarter
• Generated net cash provided by operating activities of $719 million and Adjusted Free Cash Flow of $562 million compared to $431 million and $79 million, respectively, in the prior year quarter

“During the first fiscal quarter, the WestRock team delivered solid financial results and generated strong cash flow resulting in debt and leverage reduction, with record box shipments and growth in key end markets,” said Steve Voorhees, chief executive officer. “We continue to work around the clock to restore normal operations from the ransomware attack as quickly as possible, and to safely produce the paper and packaging needed by our customers and our communities. As we look to the future, we remain confident in our strategy and our ability to generate strong cash flow and partner with our customers to meet their growing needs for sustainable, fiber-based packaging solutions.”

Consolidated Financial Results

WestRock’s performance for the three months ended December 31, 2020 and December 31, 2019 (in millions):

Operating Highlights for the Three Months Ended December 31, 2020 compared to December 31, 2019:

Net sales decreased $22 million compared to the prior year quarter. This decrease was primarily due to the absence of Land and Development net sales due to the completion of the monetization program in fiscal 2020. Consumer Packaging segment net sales increased $58 million and Corrugated Packaging segment net sales declined $45 million. Segment income decreased $24 million compared to the prior year quarter. Consumer Packaging segment income increased $46 million driven by strong sales and operating performance, including productivity improvements, and Corrugated Packaging segment income decreased $68 million.

Additional information about the changes in segment net sales and income is included below.

Restructuring and Other Items

Restructuring and other items during the first quarter of fiscal 2021 included the following pre-tax costs:

• $7 million of restructuring costs, primarily related to severance for voluntary early retirements and other initiatives, as well as costs associated with previously announced plant consolidations
• $1 million of integration costs, primarily related to the fiscal 2019 acquisition of KapStone Paper and Packaging Corporation (“KapStone”)

Net Cash Provided By Operating Activities and Other Financing and Investing Activities

Net cash provided by operating activities was $719 million in the first quarter of fiscal 2021 compared to $431 million in the prior year quarter. The increase in net cash provided by operating activities was primarily due to favorable working capital compared to the prior year quarter, including the payment of certain fiscal 2020 annual bonuses and 401(k) match in the form of stock, rather than cash, and deferral of certain payroll taxes in connection with the Company’s pandemic action plan.

Total debt was $8.94 billion at December 31, 2020, or $8.74 billion excluding $205 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $8.48 billion after further excluding cash and cash equivalents of $254 million. The Company paid down $491 million of debt during the first quarter of fiscal 2021 and had approximately $3.4 billion of available liquidity under long-term committed credit facilities and cash and cash equivalents at December 31, 2020. During the first quarter of fiscal 2021, WestRock invested $171 million in capital expenditures and paid $53 million in dividends to stockholders.

Segment Results

WestRock’s segment performance for the three months ended December 31, 2020 and December 31, 2019 (in millions):

Corrugated Packaging Segment

Operating Highlights for the Three Months Ended December 31, 2020 compared to December 31, 2019:

Segment net sales decreased $45 million, primarily due to $27 million of unfavorable foreign currency impacts, $13 million of lower volumes, including the impact of COVID-19 and the Tres Barras planned maintenance outage to support the mill upgrade, and $6 million of lower selling price/mix on sales. The Corrugated Packaging segment delivered a Segment EBITDA margin of 15.6% and a North American Adjusted Segment EBITDA margin of 18.2%.

Segment income decreased $68 million compared to the prior year quarter, primarily due to an estimated $63 million of net cost inflation, $28 million of Hurricane Michael insurance recoveries net of direct costs in the prior year quarter, $21 million of decreased indirect tax claims in Brazil, COVID-19 relief payments and other safety, cleaning and other items related to COVID-19 aggregating $17 million, $6 million of margin impact from lower selling price/mix, $5 million of lower volumes, including the impact of COVID-19, and $3 million of unfavorable foreign currency impacts.

These factors were partially offset by $24 million of estimated productivity savings net of the Tres Barras planned maintenance outage, $12 million of lower depreciation and amortization, primarily due to accelerated depreciation incurred in the prior year period associated with the Florence, South Carolina paper machine project and North Charleston, South Carolina mill reconfiguration project and other favorable items aggregating $38 million compared to the prior year quarter. These other items included higher income compared to the prior year quarter related to the North Charleston, South Carolina mill reconfiguration project and the Florence, South Carolina paper machine project, the decreased negative impact of maintenance downtime and other items.

Consumer Packaging Segment

Operating Highlights for the Three Months Ended December 31, 2020 compared to December 31, 2019:

Segment net sales increased $58 million, primarily due to $27 million of higher volumes, including the impact of COVID-19, $21 million of higher selling price/mix on sales and $10 million of favorable foreign currency impacts. The Consumer Packaging segment delivered a Segment EBITDA margin of 14.0% and an Adjusted Segment EBITDA margin of 14.7%.

Segment income increased $46 million, primarily due to an estimated $44 million of productivity improvements, $18 million of margin impact from higher selling price/mix, $6 million of higher volumes, net of the impact of COVID-19, $4 million of lower depreciation and amortization and $3 million of lower outage costs, which includes the impact of the strategic capital projects performed in the prior year quarter. These items were partially offset by an estimated $14 million of net cost inflation and an estimated $11 million of economic downtime and other items. In addition, we incurred $4 million of other net costs, including $15 million of relief payments and other, safety, cleaning and other items related to COVID-19.

Ransomware Incident

On January 25, 2021, the Company announced a ransomware incident that occurred on January 23rd impacting certain of its operational and information technology systems.

WestRock’s security teams, supported by leading cyber defense firms, continue to work on remediation of and recovery from this incident. With some exceptions, the Company’s operations have continued to run and deliver for customers. In locations where technology issues have been identified, we are using alternative methods to process and ship orders.

The Company will discuss the ransomware incident on its fiscal first quarter conference call referenced below.

Conference Call

WestRock will host a conference call to discuss its results of operations for the fiscal first quarter ended December 31, 2020 and other topics that may be raised during the discussion at 8:30 a.m., Eastern Time, on Thursday, January 28, 2021. The conference call, which will be webcast live, an accompanying slide presentation, and this release can be accessed at ir.westrock.com.

Investors who wish to participate in the webcast via teleconference should dial 833-360-0873 (inside the U.S.) or 478-219-0243 (outside the U.S.) at least 15 minutes prior to the start of the call and enter the passcode 7865486. Replays of the call can be accessed at ir.westrock.com.

About WestRock

WestRock (NYSE:WRK) partners with our customers to provide differentiated paper and packaging solutions that help them win in the marketplace. WestRock’s team members support customers around the world from locations spanning North America, South America, Europe, Asia and Australia. Learn more at www.westrock.com.

Cautionary Statements

This release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations, beliefs, plans or forecasts and are typically identified by words or phrases such as “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “potential” and “forecast,” and other words, terms and phrases of similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. The Company cautions readers that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Such forward-looking statements include, but are not limited to, that as we look to the future, we remain confident in our strategy and our ability to generate strong cash flow and partner with our customers to meet their growing needs for sustainable, fiber-based packaging solutions. With respect to these statements, the Company has made assumptions regarding, among other things, developments related to the COVID-19 pandemic, including the severity, magnitude and duration of the pandemic, negative global economic conditions arising from the pandemic, impacts of governments’ responses to the pandemic on the Company’s operations, impacts of the pandemic on commercial activity, the Company’s customers and consumer preferences and demand, supply chain disruptions, and disruptions in the credit or financial markets; the Company’s ability to effectively integrate the operations of KapStone; the Company’s ability to effectively respond to the recent ransomware incident; the results and impacts of acquisitions; economic, competitive and market conditions generally, including the impact of COVID-19; volumes and price levels of purchases by customers; competitive conditions in the Company’s businesses and possible adverse actions of our customers, competitors and suppliers; labor costs; the amount and timing of capital expenditures, including installation costs, project development and implementation costs, and costs related to resolving disputes with third parties with which we work to manage and implement our capital projects; severance and other shutdown costs; restructuring costs; utilization of real property that is subject to the restructurings due to realizable values from the sale of such property; credit availability; and raw material and energy costs. The Company’s businesses are subject to a number of risks that would affect any such forward-looking statements, including, among others, the level of demand for our products; our ability to respond effectively to the impact of COVID-19; our ability to successfully identify and make performance and productivity improvements; increases in energy, raw materials, shipping and capital equipment costs; reduced supply of raw materials; the Company’s ongoing assessment of the recent ransomware incident, adverse legal, reputational and financial effects on the Company resulting from the incident or additional cyber incidents and the effectiveness of the Company’s business continuity plans during the ransomware incident; fluctuations in selling prices and volumes; intense competition; the potential loss of certain customers; the scope, costs, timing and impact of any restructuring of our operations and corporate and tax structure; the occurrence of severe weather or a natural disaster or other unanticipated problems, such as labor difficulties, equipment failure or unscheduled maintenance and repair, which could result in operational disruptions, including those related to COVID-19; our desire or ability to continue to repurchase company stock; the scope, timing and outcome of any litigation, claims or other proceedings or dispute resolutions and the impact of any such litigation; our ability to realize anticipated synergies from the KapStone acquisition; and adverse changes in general market and industry conditions. Such risks and other factors that may impact management’s assumptions are more particularly described in our filings with the Securities and Exchange Commission, including in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. The information contained herein speaks as of the date hereof and the Company does not have or undertake any obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures and Reconciliations

WestRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, management believes certain non-GAAP financial measures provide investors and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions, and in evaluating WestRock’s performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, WestRock’s GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures presented by other companies. We discuss below details of the non-GAAP financial measures presented by us and provide reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.

Adjusted Segment EBITDA and Adjustments to Segment EBITDA

WestRock uses the non-GAAP financial measure “Adjusted Segment EBITDA”, along with other factors, to evaluate our segment performance. Management believes adjusting “Segment EBITDA” for certain items provides WestRock’s board of directors, investors, potential investors, securities analysts and others with useful information to evaluate WestRock’s performance across periods or relative to our peers, and that adjusting “Segment EBITDA” to “Adjusted Segment EBITDA” more closely aligns those results to the adjustments in Adjusted Net Income that relate to “Segment EBITDA”.

Contacts

Investors:

James Armstrong, 470-328-6327

Vice President, Investor Relations

james.armstrong@westrock.com

Tim Murphy, 678-291-7363

Senior Vice President – Treasurer

tim.murphy@westrock.com

Media:

Courtney James, 470-328-6397

Manager, Corporate Communications

mediainquiries@westrock.com

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