By the numbers
Net income: $45M
Down 75.2% from the same period in 2021
Average estimated outlook for OCC: $35 per ton
Cost to acquire Grupo Gondi: $970 million
CEO David Sewell said acquiring the remaining 67.7% stake in the paper and packaging company helps expand WestRock’s influence in the Mexican paper market.
- Economic outlook: During WestRock’s Q1 earnings call on Wednesday, which covered the October-December start of the company’s fiscal year, Sewell said net income took a significant hit due to a combination of inflation, lower volumes and downtime. Sewell also reported production impacts from a months-long labor dispute and lockout at its Mahrt mill in Alabama, which was resolved on Tuesday, and severe weather that hurt production at several mills in December. Restructuring costs also ate into net income, as well as costs related to acquiring Grupo Gondi.
- Packaging revenue: Despite what he called a “challenging environment,” Sewell said he was pleased that packaging revenue increased in the quarter, with corrugated sales increasing 0.7%, to $2.2 billion, for the quarter year over year, and consumer packaging increasing 6.7%, to $76 million in that period, mainly due to a higher selling price and offset by lower volumes.
- Paper headwinds: WestRock’s global paper business will likely experience headwinds going into Q2 as some customers saw higher inventory levels in the first quarter and “a much softer demand environment than they even expected,” particularly in the export market for grades like containerboard, Sewell said during the earnings call. Inventory, restocking and customer demand challenges are expected to continue, but they could even out in the second half of the year, he said.
- Withdrawing guidance: Uncertainty in the global markets prompted WestRock to withdraw its 2023 guidance, instead focusing on quarterly guidance. “We are in a cyclical market, so we'll continue to evaluate” when to bring back full-year guidance, Sewell said. WestRock forecasts Q2 consolidated adjusted earnings before interest, taxes, depreciation, and amortization between $625 million and $725 million. This assumes stable costs in virgin fiber and stable OCC pricing around $35 a ton.
- Divestitures: WestRock continues to “refine” its mill portfolio to reduce volatility and improve return on investment. In November, it sold two uncoated recycled paperboard (URB) mills to Ox Industries for $50 million, saying URB is “not a priority product for WestRock.” The deal was part of the broader sale of its ownership stake in RTS Packaging to joint venture partner Sonoco Products Co. for $330 million.
- Closures: WestRock announced in October it would end corrugated medium manufacturing at its location in St. Paul, Minn. and cut 130 jobs related to that operation, but it noted it would continue producing recycled board at that location. It also closed a containerboard mill in Florida in June.
- Plastic replacement projects: WestRock continues to invest in more projects meant to help companies meet sustainability goals. Of the 225 packaging innovation projects in the works, 30 are “plastics replacement” projects, Sewell said. One example is a partnership with Molson Coors to replace plastic beer rings with a cardboard alternative meant to help the beverage company reduce more than 1.7 million pounds of plastic a year by 2025, he said. WestRock estimates run-rate revenue for plastics replacement projects to be about $365 million and expects it to grow to over $700 million by the 2025 fiscal year.
