By the numbers
Net sales for corrugated packaging segment: $2.57B
Up 7.7% year over year
Net sales for consumer packaging segment: $1.25B
Down 1.5% year over year
Net income: $202M
Down 46.5% year over year
- Turnaround in the works: WestRock CEO David Sewell said on Thursday’s fiscal Q3 earnings call that “this has been an unprecedented year as far as the down cycle,” especially compared with record results in the same quarter the year prior. Customers’ ongoing destocking affected consumer packaging volumes. Executives noted lagging corrugated demand, which was offset by higher box prices and cost-cutting measures. On the positive side, they said the produce and beverage sectors proved strong and pointed to improvement in per-day shipments in July, which are anticipated to continue in the coming quarters. Executives also highlighted to a corrugated sector boost, primarily from WestRock’s Grupo Gondi acquisition in Mexico, which Sewell said is “shortening supply chains” by bringing the company closer to many of its international clients.
- Closures and optimization process: Much of the earnings call discussion centered on WestRock’s announcement earlier this week that it plans to close its Tacoma, Washington, paper mill by Sept. 30, affecting 400 employees. Most of the estimated $345 million of restructuring costs are expected to occur in the fiscal fourth quarter. Sewell reiterated that, as with the other closings the company announced this year, the Tacoma mill would have needed significant investments to remain competitive and executives didn’t see a way to achieve returns. Closing the mill allows the company to shift investments to projects with greater returns while lowering costs and improving margins. “Our mill portfolio is substantially different than it was 15 months ago,” Sewell said. The Tacoma closure is part of a larger footprint optimization plan, detailed during the Q2 earnings call in May, that will shutter underperforming and inefficient plants and shift capacity elsewhere. Sewell said the plan will reduce the average WestRock North American mill’s cost by $12 per ton.
- Substrate switch: Executives described how customers’ desire to switch to more sustainable substrates is driving both growth and innovation at WestRock. “Our plastics replacement innovations continue to gain traction, and we're on pace to deliver over $400 million in revenue this year. We are targeting more than $700 million by fiscal 2025,” Sewell said. He highlighted a partnership with Costco to replace plastic handles for multipack beverages and jars with fiber options, resulting in WestRock developing EnduraGrip and Cluster-Clip.
- Outlook: Executives expect further improvement in the first half of WestRock’s fiscal year 2024, which begins Oct. 1. “We really feel like we have come out of the bottom ... and we are now on the upswing. That’s how we look at our Q4 and 2024,” Sewell said. “How we see supply and demand as we go into 2024 is balanced.” Additional growth is expected once a new Longview, Washington, corrugated box plant begins operations, which is expected in November. The Longview opening will "allow some some other footprint actions that we're planning, and it allows us to operate much more efficiently. We're planning on the order of five more of those types of investments ... to really optimize our converting network," said CFO Alex Pease. He declined to elaborate on locations or other details of those opportunities but said information should come in 2024.
