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Paper and packaging producer WestRock Co., headquartered in Atlanta, has reported its earnings for its fiscal first quarter ended Dec. 31, 2018, posting “solid financial and operating results,” company CEO Steve Vorhees says.
The company saw earnings of 54 cents per diluted share and adjusted earnings per diluted share of 83 cents compared with $4.38 per diluted share and adjusted earnings of 87 cents per diluted share in the prior quarter.
WestRock says its effective tax rate was 31 percent and its adjusted tax rate was 23.3 percent.
For the first quarter of fiscal 2018, the company’s results included an estimated income tax benefit of $1.1 billion, or $4.19 per diluted share, as a result of the Tax Cuts and Jobs Act being enacted. For the first quarter of fiscal 2019, however, WestRock saw a tax expense of $4 million, or 2 cents per diluted share.
During the first quarter of fiscal 2019, the company completed its purchase of KapStone Paper and Packaging Corp. and has included KapStone’s results in its financial results subsequent to Nov. 2, 2018.
WestRock saw its Corrugated Packaging Segment earnings before interest, taxes, depreciation and amortization (EBITDA) increase by $26 million compared with the prior year’s first quarter and its adjusted EBITDA for the segment grew by $86 million compared with the prior year’s first quarter. The adjusted EBITDA includes addbacks of $40 million of direct costs incurred as a result of Hurricane Michael (net of $20 million of insurance proceeds), $25 million of acquisition inventory step-up charges related to the KapStone Acquisition and $3 million related to other items, according to the company.
The company says it expects to recover a significant amount of its direct costs and lost production and sales as a result of the hurricanes (excluding its $15 million deductible) in future periods through insurance reimbursements.
“We completed the KapStone acquisition and have moved quickly to integrate these operations into our company,” Voorhees says. “The WestRock team overcame the challenges of Hurricane Michael and high input costs to deliver solid financial and operating results for the first fiscal quarter. Our outlook for fiscal 2019 and beyond remains positive as we invest to improve our cost structure and advance our differentiated strategy. We remain focused on delivering exceptional value for our customers and our stockholders.”
WestRock says it aligned its financial results to move its merchandising displays operations from its Consumer Packaging segment to its Corrugated Packaging segment. Additionally, in fiscal 2019 the company began conducting its recycling operations primarily as a procurement function. As a result, no recycling sales are recorded, and the margin from its recycling operations reduces the cost of goods sold.
The company’s net sales increase to $4,327.4 million in the first quarter of fiscal 2019 compared with $3,894 million in the first quarter of fiscal 2018. The $433 million increase in net sales was primarily attributable to $414 million in increased Corrugated Packaging segment net sales, which mainly was because of the KapStone acquisition and higher selling price/mix, WestRock says. These increased sales were partially offset by the absence of recycling sales in the current year’s first quarter and an unfavorable foreign currency impact compared with the prior year’s first quarter. Net sales adjusted for Recycling increased $549 million, the company says.
WestRock says its $39 million decrease in segment income compared with the prior year’s first quarter was primarily attributable to $23 million in decreased Corrugated Packaging segment income and $17 million in decreased Consumer Packaging segment income. The impact of the higher selling price/mix in the Corrugated Packaging segment was more than offset by cost inflation, direct costs (net of insurance proceeds) and the impact of lost production and sales from hurricanes and an acquisition inventory step-up charge related to the KapStone acquisition, according to the company. Consumer Packaging segment income declined as the impact of higher selling price/mix and productivity improvements were more than offset by cost inflation and other items.
The company’s Corrugated Packaging segment delivered a segment EBITDA margin of 17 percent and a North American adjusted segment EBITDA margin of 21 percent, down 190 basis points and up 10 basis points, respectively. Brazil adjusted segment EBITDA margin was 27.7 percent, up 270 basis points.
WestRock’s North American box shipments increased 3.1 percent on a per day basis, excluding the KapStone Acquisition.
Restructuring and other items during the first quarter of fiscal 2019 included pretax costs of $24 million largely in professional fees related to the KapStone purchase; $26 million in restructuring costs, primarily associated with severance and other employee costs related to the KapStone purchase and with the consolidation of other operations; and $5 million in integration costs.
Net cash provided by operating activities was $303 million in the first quarter of fiscal 2019 compared with$245 million in the prior year’s first quarter. Total debt was $10.8 billion as of Dec. 31, 2018.