What happened

Things are not looking great for retail today -- at least not for retailers who put their products in boxes and ship them to customers (which is basically everybody). Shares of cardboard box maker WestRock Company (WRK -1.41%), you see, tumbled 14% through 10:30 a.m. ET Wednesday after the company reported an earnings miss and withdrew its guidance for the rest of the year.

Instead of the $0.60-per-share adjusted profit and $5.1 billion in sales that Wall Street expected, this morning, WestRock admitted that its fiscal Q1 2023 earnings were only $0.55 per share and its sales $4.9 billion.

So what

It gets worse.

As I mentioned, even the $0.55 that WestRock did earn last quarter were of the adjusted (i.e., non-GAAP, pro forma) variety. When calculated according to generally accepted accounting principles (GAAP), however, WestRock's profit for the quarter was a lowly $0.18 per share. That was a 74% year-over-year decline in profits...on less than a 1% decline in sales.

Oof.

So what went wrong in the quarter? It wasn't input costs. Costs of goods sold -- like sales -- hardly budged year over year. On the other hand, selling, general, and administrative expenses (i.e., overhead) grew 6% year over year, interest expense rose 11% on higher interest rates (thanks a lot, Federal Reserve!), and restructuring, pension, and other costs continued to nibble away at the bottom line.

Now what

Long story short, while management insists it is "executing on our strategy," "delivering on our productivity efforts," and "manag[ing] through changing market conditions to maximize our performance," business conditions don't look great right now -- to the extent that WestRock isn't really sure how the rest of this year might work out and has withdrawn its guidance for the full fiscal year.

In the absence of such guidance, of course, we're left with what Wall Street has worked out for us. To wit, analysts polled by Yahoo! Finance have WestRock down for fairly flat sales year over year, at $21.2 billion, similar to what we saw in Q1. Earnings this year might be down 20% (says Wall Street) at $3.82 per share.

On a $34-ish share price, that works out to a P/E ratio of about 9 for WestRock. That might not sound so bad until you realize that WestRock is lugging around $8.5 billion in debt (and remember how interest costs spiked, as mentioned above) -- which is an amount nearly as big as the company's own market cap.

Debt adjusted, therefore, it's probably best to think of WestRock as an enterprise valued at closer to 18 times earnings -- with earnings declining and prospects uncertain.

Not good. I don't know about you, but I'm staying away from this one.