WestRock Reports Fiscal 2021 First Quarter Results

Notable items in the first quarter of fiscal 2021 include:
- Net sales of $4.4 billion were essentially flat compared to the pre-pandemic prior year quarter
- Total packaging shipments increased 5%; record North American per day box shipments that increased 8% compared to the prior year quarter
- Successfully started up the Company’s new 330” state-of-the-art paper machine in Florence, South Carolina; the machine’s 710k tons of annual capacity replaces three old machines
- Distributed COVID-19 relief payments to employees totaling $22 million; these payments are not included in the Company's adjusted earnings per diluted share for the quarter
- Earned $0.57 per diluted share and $0.61 of adjusted earnings per diluted share compared to $0.53 of earnings per diluted share and $0.58 of adjusted earnings per diluted share, respectively, in the prior year quarter
- Generated net cash provided by operating activities of $719 million and Adjusted Free Cash Flow of $562 million compared to $431 million and $79 million, respectively, in the prior year quarter

“During the first fiscal quarter, the WestRock team delivered solid financial results and generated strong cash flow resulting in debt and leverage reduction, with record box shipments and growth in key end markets,” said Steve Voorhees (photo), chief executive officer. “We continue to work around the clock to restore normal operations from the ransomware attack as quickly as possible, and to safely produce the paper and packaging needed by our customers and our communities. As we look to the future, we remain confident in our strategy and our ability to generate strong cash flow and partner with our customers to meet their growing needs for sustainable, fiber-based packaging solutions.”

Consolidated Financial Results: Operating Highlights for the Three Months Ended December 31, 2020 compared to December 31, 2019:
Net sales decreased $22 million compared to the prior year quarter. This decrease was primarily due to the absence of Land and Development net sales due to the completion of the monetization program in fiscal 2020. Consumer Packaging segment net sales increased $58 million and Corrugated Packaging segment net sales declined $45 million. Segment income decreased $24 million compared to the prior year quarter. Consumer Packaging segment income increased $46 million driven by strong sales and operating performance, including productivity improvements, and Corrugated Packaging segment income decreased $68 million.

Restructuring and Other Items
Restructuring and other items during the first quarter of fiscal 2021 included the following pre-tax costs:
- $7 million of restructuring costs, primarily related to severance for voluntary early retirements and other initiatives, as well as costs associated with previously announced plant consolidations
- $1 million of integration costs, primarily related to the fiscal 2019 acquisition of KapStone Paper and Packaging Corporation (“KapStone”)

Net Cash Provided By Operating Activities and Other Financing and Investing Activities
Net cash provided by operating activities was $719 million in the first quarter of fiscal 2021 compared to $431 million in the prior year quarter. The increase in net cash provided by operating activities was primarily due to favorable working capital compared to the prior year quarter, including the payment of certain fiscal 2020 annual bonuses and 401(k) match in the form of stock, rather than cash, and deferral of certain payroll taxes in connection with the Company’s pandemic action plan.

Total debt was $8.94 billion at December 31, 2020, or $8.74 billion excluding $205 million of unamortized fair market value step-up of debt acquired in mergers and acquisitions, and $8.48 billion after further excluding cash and cash equivalents of $254 million. The Company paid down $491 million of debt during the first quarter of fiscal 2021 and had approximately $3.4 billion of available liquidity under long-term committed credit facilities and cash and cash equivalents at December 31, 2020. During the first quarter of fiscal 2021, WestRock invested $171 million in capital expenditures and paid $53 million in dividends to stockholders.

Segment Results
Corrugated Packaging Segment
Operating Highlights for the Three Months Ended December 31, 2020 compared to December 31, 2019:
Segment net sales decreased $45 million, primarily due to $27 million of unfavorable foreign currency impacts, $13 million of lower volumes, including the impact of COVID-19 and the Tres Barras planned maintenance outage to support the mill upgrade, and $6 million of lower selling price/mix on sales. The Corrugated Packaging segment delivered a Segment EBITDA margin of 15.6% and a North American Adjusted Segment EBITDA margin of 18.2%.

Segment income decreased $68 million compared to the prior year quarter, primarily due to an estimated $63 million of net cost inflation, $28 million of Hurricane Michael insurance recoveries net of direct costs in the prior year quarter, $21 million of decreased indirect tax claims in Brazil, COVID-19 relief payments and other safety, cleaning and other items related to COVID-19 aggregating $17 million, $6 million of margin impact from lower selling price/mix, $5 million of lower volumes, including the impact of COVID-19, and $3 million of unfavorable foreign currency impacts.

These factors were partially offset by $24 million of estimated productivity savings net of the Tres Barras planned maintenance outage, $12 million of lower depreciation and amortization, primarily due to accelerated depreciation incurred in the prior year period associated with the Florence, South Carolina paper machine project and North Charleston, South Carolina mill reconfiguration project and other favorable items aggregating $38 million compared to the prior year quarter. These other items included higher income compared to the prior year quarter related to the North Charleston, South Carolina mill reconfiguration project and the Florence, South Carolina paper machine project, the decreased negative impact of maintenance downtime and other items.

Consumer Packaging Segment
Operating Highlights for the Three Months Ended December 31, 2020 compared to December 31, 2019:
Segment net sales increased $58 million, primarily due to $27 million of higher volumes, including the impact of COVID-19, $21 million of higher selling price/mix on sales and $10 million of favorable foreign currency impacts. The Consumer Packaging segment delivered a Segment EBITDA margin of 14.0% and an Adjusted Segment EBITDA margin of 14.7%.

Segment income increased $46 million, primarily due to an estimated $44 million of productivity improvements, $18 million of margin impact from higher selling price/mix, $6 million of higher volumes, net of the impact of COVID-19, $4 million of lower depreciation and amortization and $3 million of lower outage costs, which includes the impact of the strategic capital projects performed in the prior year quarter. These items were partially offset by an estimated $14 million of net cost inflation and an estimated $11 million of economic downtime and other items. In addition, we incurred $4 million of other net costs, including $15 million of relief payments and other, safety, cleaning and other items related to COVID-19.

Ransomware Incident
On January 25, 2021, the Company announced a ransomware incident that occurred on January 23rd impacting certain of its operational and information technology systems.

WestRock’s security teams, supported by leading cyber defense firms, continue to work on remediation of and recovery from this incident. With some exceptions, the Company’s operations have continued to run and deliver for customers. In locations where technology issues have been identified, we are using alternative methods to process and ship orders.