As the second-largest packaging manufacturer in the world, WestRock Company (NYSE:WRK) is making the most of the underlying strength in the global paper and packaging market. After kicking off fiscal 2018 on a strong note, WestRock just confirmed the high growth potential that lies ahead when it released its second-quarterly earnings report on April 27.

Yet the market wasn't impressed, and as of this writing WestRock shares have already dropped almost 8% since the earnings release. What didn't the market like about WestRock's strong set of numbers and outlook? Let's find out.

WestRock Q2 results: The raw numbers

The first quarter was an exceptional one for WestRock thanks to a huge tax benefit, but a strong normalized second quarter suggests the momentum is here to stay.

Metric Q2 2018 Q2 2017 Year-Over-Year Change
Net sales $4 billion $3.66 billion 9.3%
Net income $223.2 million $103.1 million 116.5%
Diluted earnings per share $0.86 $0.40 115%
Adjusted earnings per share $0.83 $0.54 53.7%

Data source: WestRock.

Note that adjusted EPS excludes the impact of one-time events such as restructuring, tax benefits, and impairments.

The solid growth in WestRock's top and bottom lines deserve attention, more so because both of the company's segments are adding value -- so much that management even upgraded its full-year outlook for 2018.

A globe amidst a pile of cardboard delivery cartons

Image source: Getty Images.

What happened with WestRock this quarter

WestRock operates two segments: corrugated packaging (containerboard and corrugated sheets used for packaging and delivery of goods) and consumer packaging (food and beverage cartons, express mail packages, and displays). Some key highlights from the quarter are as follows:

  • Corrugated packaging: Box shipments were up 6.8% year over year, backed by contribution from the recently acquired Plymouth Packaging, as well as higher prices and stronger demand from e-commerce, retail, and pizza. Sales climbed 8.6% to $2.24 billion.
  • Consumer packaging: Shipments of paperboard and converted products climbed 6%, thanks to the recently acquired Multi Packaging Solutions, and growth in healthcare, beauty, beverage, food service, and food packaging. The backlog is strong at four to six weeks, and sales climbed 15.4% to $1.8 billion.

So while acquisitions have been a significant growth driver for WestRock, higher shipments indicate that the company has been able to pass on higher prices to consumers without hurting volume, which is an indicator of strong industry fundamentals.

WestRock generated 24% higher cash from operations worth $371.6 million during the quarter.

What management had to say

During WestRock's earnings call, CEO Steve Voorhees emphasized how WestRock is "benefiting from favorable demand, price, and mix trends across our paper and packaging businesses," thanks largely to the company's acquisitions:

Paper and packaging markets remain attractive and, with the momentum that we have across our businesses, we expect to exceed our previously announced financial goals for fiscal 2018. As a result, we have raised our guidance for annual sales and EBITDA.

WestRock now expects to grow its revenue by 10% to $16.4 billion or more and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization, further adjusted for inventory value adjustments) by 25%-30%, to $2.9 billion or more in fiscal 2018.

Voorhees further confirmed that WestRock expects to increase dividends over time, and repurchase shares opportunistically within its target leverage ratio.

Looking forward

WestRock has been on an acquisition spree lately, and it isn't done yet: The company expects to close its impending acquisition of KapStone Paper and Packaging during the second half of the year. As the fifth-largest company in the industry, KapStone could hugely help WestRock solidify its global standing in the packaging market.

WestRock's second quarter was, unquestionably, a strong one, and it appears the market had lofty expectations that led to disappointment. Otherwise, WestRock remains an interesting stock to watch as the year unfolds, what with strong end markets as a tailwind and a major acquisition in the pipeline.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.