Strong box demand helps WestRock in Q4

The packaging firm reports that net sales increased sequentially but are down slightly from where they were at during its fourth quarter in 2019.

November 6, 2020

WestRock Co., a provider of paper and packaging solutions based in Atlanta, wrapped up its 2020 fiscal year with net sales at $17.6 billion. According to the company’s latest earnings report and call for the fourth quarter of 2020 Nov. 5, $12.5 billion of the net sales were sales of packaging to a “diverse set of attractive and stable end markets,” while the remaining $5.1 billion of sales were of paperboard and pulp.

Within the fourth quarter, which ended Sept. 30, net sales increased sequentially by 5.6 percent to $4.5 billion. However, fourth-quarter net sales are down by about 3.9 percent compared with the same quarter in 2019. Net sales were down by about $180 million compared with the fourth quarter of 2019.

WestRock reports that its Corrugated Packaging segment and Consumer Packaging segment net sales declined $121 million and $42 million, respectively, primarily because of lower selling price and mix on sales and lower volumes, including the impact of COVID-19 and unfavorable foreign currency impacts. Additionally, Corrugated Packaging segment income decreased $168 million and Consumer Packaging segment income decreased $44 million when compared with the fourth quarter of 2019.

“The WestRock team rose to the challenges of the operating environment in fiscal 2020 and delivered solid financial results, strong cash flow and substantial debt reduction,” says Steve Voorhees, chief executive officer of WestRock regarding the company’s Q4 earnings report. “While the environment remains uncertain, we are seeing strong trends in key end markets and continue to successfully partner with our customers to meet their growing needs for sustainable, fiber-based packaging solutions. We have positive momentum for strong performance in fiscal year 2021.”

Box demand growth

During the company’s earnings call, Voorhees said WestRock’s Corrugated Packaging segment delivered adjusted earnings before interest, taxes, depreciation and amortization of $513 million in the fourth quarter, up by about $31 million from the third quarter of the year.

“This shows the momentum in the North American Corrugated Packaging business as box demand increased 5.1 percent sequentially on a per-day basis,” Voorhees said. “As the quarter progressed, box demand increased, and we shifted containerboard tons from lower margin export markets to serve higher value box and domestic customers. As a result, our export shipments fell by 109,000 tons sequentially. With our growth in box shipments, our integration rate rose to 81 percent in the quarter. We’re now selling every ton that we can produce, and we ended the quarter in tight inventories.”

He added that the company is getting new business as a result of corrugated box demand growth. On the call, he said box volumes in September grew and had exceeded the industry volumes reported by the Fibre Box Association. “Our corrugated box backlogs are at record levels, and this signals strong demand growth into the future,” he said. “Our daily box shipments in October were up between 8 percent and 9 percent from the prior year.”

The company also pointed to e-commerce growth as one of the factors spurring box demand growth. Jeff Chalovich, chief commercial officer and president of corrugated packaging at WestRock, said he expects e-commerce demand to continue to grow the next few years, which will be positive for box demand.

“It’s definitely added share in the corrugated space for us,” Chalovich said of e-commerce, adding that the company has noticed a trend of more people buying products online or participating in in-store pickup services.

“The pandemic has accelerated our customers’ demand for sustainable fiber-based packaging solutions, making now an opportune time to be at WestRock working with our customers,” Voorhees said.

He reported that the company also noticed “very strong demand” for containerboard and corrugated packaging in Brazil. “We’re well-positioned to capitalize on the growth in the region with the ramp-up of our Porto Feliz box plant and the completion of the Tres Barras project in the first half of 2021,” Voorhees said.

Earlier this year, WestRock along with other packaging producers had communicated a $50 per ton price increase on containerboard and boxes. However, the company reported on its earnings call that it doesn’t plan to continue to increase those prices into the next fiscal quarter.

Other highlights

The company’s Consumer Packaging reporting unit recorded a noncash goodwill impairment of $1.3 billion, or $5.06 per diluted share, driven by expected lower volumes and cash flows related to certain solid bleached sulphate (SBS) end markets, including commercial print, tobacco and plate and cup stock.

Voorhees added that the company’s specialty kraft paper business also grew in the fourth quarter “as the trend away from plastic bags and envelopes and toward natural fiber-based packaging accelerates.” He noted that WestRock’s shipments of kraft paper were 35,000 tons higher in the fourth quarter of this year compared with the fourth quarter of 2019.

In the fourth quarter, WestRock had $54 million of restructuring costs, primarily including $31 million related to a previously announced shutdown of a paper machine at its Evadale, Texas, mill ($24 million of which was noncash) and $10 million of severance for voluntary early retirements as well as other employee costs and plant consolidations. The company also had $3 million of integration costs in the fourth quarter of the year, primarily related to its fiscal 2019 acquisition of KapStone Paper and Packaging Corp.