WestRock Company (WRK 0.86%) stock hasn't looked back ever since it bounced off lows in January 2016. Differentiated products and an acquisition spree continue to help the containerboard and packaging manufacturer rack up higher sales. Last quarter was no different: WestRock just reported strong growth in revenue and net income for its fiscal 2018 first quarter.
Yet, this wasn't just any other quarterly release. WestRock moved up its scheduled earnings date by a couple of days to coincide with another major announcement that's set to make the company an even bigger player in the industry.
Here's everything you need to know about WestRock's numbers, management's views, and its big move to acquire KapStone Paper and Packaging Corporation (KS).
WestRock results: The raw numbers
|Metric||Q1 2018||Q1 2017||Year-Over-Year Change|
|Net sales||$3.9 billion||$3.45 billion||12.9%|
|Net income||$1.14 billion||$80.9 million||1,303%|
That eye-popping jump in WestRock' s net income and EPS is a one-off and noncompany specific event. Much like rival International Paper (IP -0.07%), WestRock booked a tax benefit of $1.1 billion during the quarter, thanks to the enactment of the Tax Cuts and Jobs Act. Adjusting for the gain and other nonrecurring items such as restructuring costs, WestRock's EPS jumped a solid 85% year over year during the quarter.
What happened with WestRock this quarter
WestRock operates two broad segments: corrugated packaging (think containerboard and corrugated sheets used by e-commerce companies to package and deliver goods) and consumer packaging (think pizza boxes, beverage cartons, express mail packages, and displays). Here's a quick look at how the two segments fared during the first quarter.
|Metric||Corrugated Packaging||Consumer Packaging|
|Net sales (Q1 2018)||$2.18 billion||$1.76 billion|
|Net sales (Q1 2017)||$1.94 billion||$1.51 billion|
Here are some notable takeaways:
- Higher prices largely drove sales in corrugated packaging. WestRock announced a couple of price increases for its products last year, the benefits of which are flowing into its top line.
- Multi Packaging Solutions, which WestRock acquired in the middle of last year in a $2.28 billion deal, largely drove consumer packaging sales and helped offset the loss of sales from WestRock's divested home, health, and beauty business.
- Both segments reported higher sales volumes year over year.
- Corrugated packaging, a high-margin business, was the largest contributor to WestRock's bottom line.
WestRock also made some notable capital investments during the quarter, including:
- $2014 million on maintenance and improvement of mills.
- $108 million in its Mexico-based joint venture with Grupo Gondi, raising its stake to 32%.
WestRock also announced the acquisition of corrugated packaging company, Plymouth Packaging, during the quarter for $198 million, a deal it completed earlier this year.
What management had to say
CEO Steve Voorhees was happy with WestRock's quarterly performance and sounded optimistic about 2018.
Our team executed well against our strategy and delivered a strong quarter to start our fiscal year. We are creating value for our customers with WestRock's differentiated portfolio of paper and packaging solutions. The outlook for paper and packaging remains attractive and we are well positioned to achieve our financial goals for fiscal 2018 and beyond.
One of WestRock's financial goals is to achieve $1 billion in "synergy and performance improvement" by the end of the third quarter through a mix of productivity and procurement efficiencies and prudent capital allocation.
What Voorhees is most excited about, though, is WestRock's impending acquisition of KapStone Paper and Packaging in a $4.9 billion deal that is expected to be immediately accretive to its adjusted earnings and cash flow once through later this year. During the Q1 earnings call, Vorhees said he believes the acquisition "will improve our business, grow our business and generate significant value for customers, employees, and stockholders."
The two biggest highlights from WestRock's last quarter are its pricing power and aggressive growth.
Like most companies across the containerboard industry, WestRock is successfully passing on higher product prices to consumers without hurting volumes in a bid to exploit surging demand from sectors like e-commerce. I expect the trend to continue, what with International Paper reportedly announcing a $50-per-ton hike for containerboard effective March 1.
As for growth, WestRock is lapping up every opportunity it can, as evidenced by its unending thirst for acquisitions. KapStone -- the fifth-largest company in the industry -- could be a game changer as it strengthens WestRock's presence on the West Coast, diversifies its product portfolio, and further solidifies WestRock's position as the second-largest containerboard manufacturer in the country, next only to International Paper.