Core Viewpoint - The stock price of Smurfit WestRock (NYSE: SW) has decreased by nearly 17% since the last release of Q3 results, indicating a significant decline in market performance [1]. Company Analysis - Smurfit WestRock operates within the paper segment and has been closely monitored by analysts prior to its merger, suggesting a strong understanding of the industry dynamics [1]. - The company is involved in fundamental, income-oriented, long-term analysis across various sectors in developed markets, highlighting its strategic focus on sustainable investment practices [1]. Market Context - The decline in stock price may reflect broader market trends or specific challenges faced by the company, warranting further investigation into the factors influencing investor sentiment [1].

Core Insights - Smurfit WestRock's shares were among the top performers in the S&P 500 following the release of its first quarterly results post-merger with WestRock [2] - The third-quarter results showed a net loss of $150 million on net sales of approximately $7.7 billion, which fell short of analysts' expectations [3] - Despite the loss, net sales more than doubled from roughly $2.9 billion in the same quarter last year, driven by the WestRock acquisition and strong demand in corrugated packaging [4] Financial Performance - The company reported a third-quarter net loss attributed to approximately $500 million in expenses and accounting adjustments related to the merger [4] - The North America segment saw significant sales growth due to the WestRock acquisition, while the Latin America segment experienced a 48% increase in sales year-over-year [5] - Sales in the Europe, Middle East, Africa, and Asia-Pacific segment remained flat compared to the previous year [5] Management Commentary - CEO Tony Smurfit emphasized the merger's impact on performance, stating that the results provide a "strong foundation to build upon" [5]

Merger and Financial Overview - The combined entity Smurfit WestRock (NYSE:SW, OTCPK:SMFKY) (OTCPK:SMFTF) will start reporting combined financials from Q3 2024, positioning itself as a global leader in sustainable packaging [1] - WestRock's Q2 2024 EBITDA reached $669 million, an 8% sequential quarterly increase but below the consensus estimate of $730 million [2] - Smurfit Kappa's Q2 2024 turnover decreased by $107 million to $2.96 billion, with EBITDA at $480 million and an adjusted margin of 16.2% [2] Industry and Market Position - The paper industry is at the cycle's trough, with expectations of price improvements and margin expansion driven by increased box pricing and volume growth [3] - Smurfit WestRock is trading at a significant discount compared to peers, with a 2024 P/E of 14.2x versus the sector average of 17x, indicating potential upside [5] Synergies and Integration - The merger is expected to yield $400 million in synergies, primarily from cost savings, with potential for further upside through targeted mill improvements and integration opportunities [3] - Smurfit Kappa's management has a strong track record in Europe, which could facilitate smoother integration of WestRock's assets [3] Financial Projections and Valuation - Smurfit WestRock's 2024 CAPEX is projected to be between $2.2-2.5 billion, with sales forecasted at $31.7 billion and adjusted EBITDA at $5.09 billion [4] - The combined entity is expected to achieve a 2024 net income of approximately $1.5 billion, with an EPS of $3.2 [4] - Applying a P/E of 17x, the target price for Smurfit WestRock is derived at $54.4 per share, representing a 20% upside from the current stock price [5] CEO and Analyst Insights - CEO Tony Smurfit highlighted the industry's recovery phase and the potential for price increases to offset higher recovered fiber costs and lower box prices [3] - The analyst call reinforced confidence in the company's outlook, supporting the buy rating despite limited earnings visibility [8]

Financial Performance - Net sales for Q2 fiscal 2024 were $4.7 billion, a decrease of $550.9 million or 10.4% compared to Q2 fiscal 2023, primarily due to lower selling price/mix and volumes [190]. - Net income attributable to common stockholders was $15.5 million for Q2 fiscal 2024, compared to a net loss of $2.0 billion in Q2 fiscal 2023, which included a $1.9 billion goodwill impairment charge [191]. - Consolidated Adjusted EBITDA for Q2 fiscal 2024 was $618.3 million, a decrease of $170.3 million or 21.6% from $788.6 million in Q2 fiscal 2023 [192]. - Earnings per diluted share for Q2 fiscal 2024 was $0.06, compared to a loss of $7.85 per diluted share in Q2 fiscal 2023 [193]. - For the six months ended March 31, 2024, net sales decreased by $854.0 million, or 8.4%, compared to the prior year period, attributed to lower selling price/mix and volumes, partially offset by increased sales from the Mexico Acquisition [200]. - Adjusted Earnings Per Diluted Share for the six months ended March 31, 2024, was $0.59, compared to $1.32 for the same period in 2023 [288]. - Adjusted net income for the six months ended March 31, 2024, was $151.8 million, up from a loss of $1,960.8 million in the prior year [292]. Cost and Expenses - Cost of goods sold for the second quarter of fiscal 2024 decreased by $411.0 million, or 9.4%, compared to the prior year quarter, mainly due to cost savings and lower volumes [202]. - The decrease in cost of goods sold for the six months ended March 31, 2024 was $706.9 million, or 8.3%, compared to the prior year period, driven by cost savings and lower volumes [203]. - Selling, General and Administrative (SG&A) expenses excluding intangible amortization increased by $48.6 million in the six months ended March 31, 2024, primarily due to costs related to the Mexico Acquisition [208]. - SG&A intangible amortization expense was $161.0 million for the six months ended March 31, 2024, down from $172.8 million in the same period of fiscal 2023 [209]. - Restructuring and other costs for the second quarter of fiscal 2024 were $81.2 million, significantly lower than $435.8 million in the prior year quarter [210]. Cash Flow and Debt - Net cash provided by operating activities for the six months ended March 31, 2024, was $312.1 million, down from $550.0 million in the same period of fiscal 2023 [194]. - Cash and cash equivalents increased to $494.7 million at March 31, 2024, up from $393.4 million at September 30, 2023 [257]. - Total debt increased to $9.0 billion at March 31, 2024, compared to $8.6 billion at September 30, 2023, with short-term debt rising to $1.3 billion [257]. - The company plans to fund its capital expenditures and other obligations primarily from cash generated from operations and borrowings under credit facilities [276]. Strategic Initiatives - The company expects to exceed its fiscal 2024 cost savings target of $300 to $400 million, with further progress anticipated in the second half of the fiscal year [195]. - The company invested $138 million in its business systems transformation in fiscal 2023, with $91 million expensed and $47 million deferred or capitalized [185]. - A Transaction Agreement with Smurfit Kappa was entered into on September 12, 2023, with expected closure in early July 2024, subject to regulatory and shareholder approvals [178]. - The company plans to permanently cease operations at its Tacoma, WA and North Charleston, SC containerboard mills, which ceased production in September and June 2023, respectively [177]. Segment Performance - Net sales for the Corrugated Packaging segment in fiscal 2023 reached $10,054.9 million, with an adjusted EBITDA margin of 15.9% [228]. - In the second quarter of fiscal 2024, net sales for the Corrugated Packaging segment decreased by $229.1 million, primarily due to $187.0 million of lower selling price/mix [229]. - Adjusted EBITDA for the Corrugated Packaging segment in the second quarter of fiscal 2024 decreased by $89.6 million, impacted by $145.8 million of margin decline from lower selling price/mix [231]. - Net sales for the Consumer Packaging segment decreased by $151.6 million in Q2 fiscal 2024, mainly due to $99.3 million of lower volumes [237]. - Global Paper segment Adjusted EBITDA decreased by $57.6 million in Q2 FY2024 compared to the prior year, primarily due to a $105.7 million margin impact from lower selling price/mix [246]. Tax and Pension - The company recorded an income tax benefit of $10.0 million for the three months ended March 31, 2024, compared to a benefit of $116.8 million for the same period in 2023 [221]. - The company expects to contribute approximately $25 million to its qualified and supplemental defined benefit pension plans in fiscal 2024, following contributions of $8.8 million in the first half of the fiscal year [273]. - As of March 31, 2024, the company recorded a pension asset of $637.2 million on its consolidated balance sheet, indicating that its pension plans in the U.S. are overfunded [273]. - The company anticipates a cash tax rate in fiscal 2024 to be approximately 30 percentage points higher than its expected income tax rate, primarily due to changes in depreciation timing and tax legislation [272]. Market Conditions and Risks - The company anticipates ongoing challenges related to pricing cycles, economic conditions, and supply chain disruptions impacting future performance [294]. - The company has not experienced material changes in market risk exposure since September 30, 2023, despite fluctuations in commodity prices [296]. - The company is focused on completing a proposed transaction, which may affect operational focus and financial performance [295].

Financial Performance - Net sales for Q2 fiscal 2024 were $4.73 billion, a decrease of 10.4% from $5.28 billion in Q2 fiscal 2023[4] - Net income for Q2 fiscal 2024 was $15.5 million, compared to a net loss of $2.01 billion in the same quarter last year[5] - Consolidated Adjusted EBITDA decreased by $170 million, or 21.6%, to $618 million compared to Q2 fiscal 2023[6] - Consolidated net income for the three months ended March 31, 2024, was $16.4 million, a significant improvement from a net loss of $2,004.8 million in the same period last year[27] - In Q1 2024, WestRock reported a net income attributable to common stockholders of $15.5 million, a significant improvement from a net loss of $2,006.1 million in Q1 2023[40] - Adjusted Net Income for Q1 2024 was $101.0 million, compared to an adjusted net income of $197.6 million in Q1 2023, indicating a decline of about 48.9%[42] - Adjusted Earnings Per Diluted Share for Q1 2024 was $0.39, a decrease from $0.77 in Q1 2023, representing a decline of approximately 49.4%[44] Segment Performance - The Corrugated Packaging segment reported sales of $2.40 billion, down 8.7% from $2.63 billion in Q2 fiscal 2023[11] - Consumer Packaging segment sales decreased to $1.11 billion, a decline of 12.0% from $1.27 billion in the prior year[13] - Global Paper segment sales fell to $1.02 billion, down 13.0% from $1.17 billion in Q2 fiscal 2023[15] - The Corrugated Packaging segment reported net sales of $2,398.3 million for the three months ended March 31, 2024, compared to $2,627.4 million in 2023, a decrease of 8.7%[26] - Consumer Packaging segment net sales decreased to $1,113.5 million in Q1 2024 from $1,265.1 million in Q1 2023, a decline of 12.0%[26] - Global Paper segment net sales were $1,012.6 million for the three months ended March 31, 2024, down from $1,116.8 million in the previous year, a decrease of 9.3%[26] - The Corrugated Packaging Segment reported adjusted segment sales of $2,327.5 million in Q1 2024, down from $2,540.5 million in Q1 2023, a decrease of about 8.4%[45] - Adjusted EBITDA Margin for the Corrugated Packaging Segment was 13.3% in Q1 2024, down from 15.5% in Q1 2023, reflecting a margin contraction of 2.2 percentage points[45] Cost Management - The company achieved over $160 million in cost savings and expects to exceed the fiscal 2024 target of $300 to $400 million[5] - Cost savings are calculated based on year-over-year changes in manufacturing, procurement, logistics, and administrative costs, excluding economic downtime and inflation impacts[29] - Future cost savings estimates are subject to change and may not recur in future periods[29] - Business systems transformation costs incurred in Q1 2024 amounted to $20.2 million, which are considered non-recurring and not indicative of ongoing operating results[42] - Restructuring and other costs, net, were reported at $81.2 million in Q1 2024, down from $435.8 million in Q1 2023, showing a reduction of approximately 81.4%[40] Debt and Cash Flow - Total debt stood at $9.0 billion as of March 31, 2024, with Adjusted Net Debt at $8.4 billion[10] - Net cash provided by operating activities was $37 million, a significant decrease from $284 million in the prior year quarter[9] - Net cash provided by operating activities for the six months ended March 31, 2024, was $312.1 million, down from $550.0 million in the prior year[27] - Capital expenditures for the three months ended March 31, 2024, totaled $301.3 million, compared to $281.5 million in the same period last year[27] - Net cash used for investing activities was $(268.7) million for the three months ended March 31, 2024, compared to $(263.3) million in the prior year[27] - Net cash provided by financing activities was $234.3 million for the three months ended March 31, 2024, compared to a net cash used of $(75.3) million in the same period last year[27] - Cash and cash equivalents at the end of the period increased to $494.7 million from $363.4 million year-over-year[27] - Interest expense for the three months ended March 31, 2024, was $100.8 million, compared to $108.4 million in Q1 2023, a decrease of 6.9%[26] Market Outlook - The company anticipates continued challenges in the market, impacting future performance and guiding for a cautious outlook in the upcoming quarters[26] - The company emphasizes the importance of non-GAAP financial measures for assessing ongoing performance, which may differ from GAAP results[30] - Management believes that certain non-GAAP measures provide additional meaningful financial information relevant for performance assessment[30] - WestRock's management emphasizes the importance of non-GAAP measures like Adjusted EBITDA and Adjusted Net Income for evaluating performance and making strategic decisions[33] Asset and Liability Changes - Current assets increased to $6,343.3 million as of March 31, 2024, compared to $6,993.1 million as of September 30, 2023, reflecting a decrease of approximately 9.3%[28] - Cash and cash equivalents rose to $494.7 million from $393.4 million, representing a growth of about 25.7%[28] - Total assets decreased to $26,884.0 million from $27,443.7 million, indicating a decline of approximately 2.0%[28] - Current liabilities increased to $4,737.4 million from $4,919.4 million, showing a decrease of about 3.7%[28] - Long-term debt due after one year decreased to $7,718.2 million from $8,050.9 million, reflecting a reduction of approximately 4.1%[28] - Total equity increased to $10,008.3 million from $10,009.7 million, indicating a slight decrease of about 0.01%[28] Accounts Receivable - The company reported a decrease in accounts receivable by $154.7 million for the three months ended March 31, 2024, compared to a decrease of $114.6 million in the same period last year[27]

Financial Performance - Net sales for Q1 fiscal 2024 were $4.6 billion, a decrease of $303.1 million or 6.2% compared to Q1 fiscal 2023, primarily due to lower volumes and selling price/mix [170]. - Net loss attributable to common stockholders was $22.4 million in Q1 fiscal 2024, compared to net income of $45.3 million in Q1 fiscal 2023, a decrease of $67.7 million driven by lower selling prices and increased restructuring costs [171]. - Consolidated Adjusted EBITDA for Q1 fiscal 2024 was $570.7 million, down $81.4 million or 12.5% from $652.1 million in Q1 fiscal 2023, mainly due to lower performance in Global Paper and Consumer Packaging segments [172]. - Fiscal 2023 net sales totaled $2,014.4 million, with a net sales margin of 9.9% [183]. - Adjusted Earnings Per Diluted Share decreased to $0.20 from $0.55 year-over-year, reflecting a decline of approximately 63.6% [254]. - The net loss attributable to common stockholders for the same period was $22.4 million, compared to a net income of $45.3 million in 2022 [258]. Cost and Expenses - Cost of goods sold for Q1 fiscal 2024 was $3.9 billion, a decrease of $295.9 million compared to the prior year quarter, primarily due to lower volumes and cost savings [181]. - SG&A expenses excluding intangible amortization increased by $48.0 million in Q1 FY2024, primarily due to the Mexico Acquisition and higher business systems transformation costs [185]. - Interest expense for Q1 FY2024 was $101.4 million, up from $97.3 million in the prior year, driven by higher interest rates and increased average debt related to the Mexico Acquisition [189]. - Restructuring and other costs, net, amounted to $65.5 million for the quarter, significantly higher than $32.1 million in the previous year [258]. - The company incurred $381.8 million in depreciation, depletion, and amortization expenses, compared to $373.2 million in the prior year [258]. Segment Performance - Corrugated Packaging segment net sales increased by $82.5 million in Q1 FY2024, largely due to $209.2 million from the Mexico Acquisition [202]. - Adjusted EBITDA for the Corrugated Packaging segment decreased by $1.6 million in Q1 FY2024, impacted by $124.7 million from lower selling price/mix [203]. - Consumer Packaging segment net sales decreased by $155.7 million in Q1 FY2024, primarily due to lower volumes and the divestiture of interior partition operations [207]. - Global Paper segment net sales decreased by $205.3 million in Q1 FY2024 compared to the prior year, driven by $114.1 million lower selling price/mix and $42.1 million lower volumes [211]. - Distribution segment net sales decreased by $31.8 million in Q1 FY2024, mainly due to $36.0 million lower volumes, partially offset by $4.0 million higher selling price/mix [216]. Investments and Acquisitions - The company invested $138 million in its business systems transformation in fiscal 2023, with $91 million expensed and $47 million deferred or capitalized [166]. - The company expects to invest approximately $0.2 billion in business systems transformation in fiscal 2024, with about $0.1 billion to be expensed when incurred [167]. - The company completed the Mexico Acquisition for $969.8 million in cash and debt assumption, which has been included in the Corrugated Packaging segment [156]. - A Transaction Agreement with Smurfit Kappa was entered into on September 12, 2023, with expected closure in early July 2024, pending regulatory and shareholder approvals [160]. - The company is evaluating potential acquisitions and divestitures to enhance its market position and operational capabilities [261]. Cash Flow and Liquidity - Cash and cash equivalents increased to $488.1 million at December 31, 2023, up from $393.4 million at September 30, 2023 [222]. - Total debt was $8.7 billion at December 31, 2023, slightly up from $8.6 billion at September 30, 2023 [222]. - Net cash provided by operating activities increased by $9.1 million in Q1 FY2024 compared to Q1 FY2023, primarily due to $120.5 million reduced working capital usage [229]. - The company had approximately $3.4 billion of available liquidity under long-term committed credit facilities and cash and cash equivalents as of December 31, 2023 [223]. - In the three months ended December 31, 2023, net cash used for financing activities was $804.0 million, primarily due to a $774.0 million payment of secured financing liability and cash dividends of $77.6 million [232]. Future Outlook - The company plans to balance supply with customer demand in Q2 fiscal 2024, expecting sequential improvement in consolidated volumes despite winter weather disruptions [175]. - The company expects to invest approximately $1.2 to $1.5 billion in capital expenditures in fiscal 2024 to support productivity and growth [231]. - The company anticipates its fiscal 2024 cash tax rate to be approximately 15 percentage points higher than the expected income tax rate due to various factors including depreciation timing and tax law changes [236]. - The company expects to contribute approximately $25 million to its defined benefit pension plans in fiscal 2024, following a contribution of $4.3 million in the three months ended December 31, 2023 [237]. - The company anticipates ongoing challenges related to economic conditions, including inflation and supply chain disruptions, which may impact future performance [260]. Shareholder Returns - The quarterly dividend declared in January 2024 is $0.3025 per share, reflecting a 10% increase from the previous year's $0.275 per share [234]. - The company has suspended its share repurchase program indefinitely due to restrictions from the proposed Transaction Agreement [235].

Sales Performance - Sales of corrugated packaging products to external customers accounted for 48.1%, 42.3%, and 43.2% of net sales in fiscal 2023, 2022, and 2021, respectively[23] - Sales of consumer packaging products to external customers accounted for 24.2%, 23.2%, and 23.5% of net sales in fiscal 2023, 2022, and 2021, respectively[26] - Sales of global paper products to external customers accounted for 21.5%, 27.9%, and 26.6% of net sales in fiscal 2023, 2022, and 2021, respectively[27] - Sales in the Distribution segment to external customers accounted for 6.2%, 6.6%, and 6.7% of net sales in fiscal 2023, 2022, and 2021, respectively[28] - Non-U.S. operations accounted for 24.4% of net sales in fiscal 2023, up from 18.3% in both 2022 and 2021[87] Financial Outlook - The company expects more earnings and cash flows to be generated in the second half of the fiscal year than in the first half due to seasonal demand variations[29] - The company estimates an investment of approximately $103 million for capital expenditures during fiscal 2024 for environmental compliance[47] - Freight costs continued to increase in fiscal 2023 compared to fiscal 2022, impacting overall operational expenses[34] Sustainability Initiatives - The overall fiber sourcing for all mills is approximately 60% virgin and 40% recycled, with recycled fiber costs lower in fiscal 2023 compared to fiscal 2022[31] - During fiscal 2023, the recycling operations helped divert approximately six million tons of paper and packaging from landfills[51] - The company aims to reduce absolute Scope 1 and 2 GHG emissions by 27.5% by 2030 from a 2019 baseline[55] - The company plans to invest in energy efficiency projects, fuel switching, and low carbon technology to achieve its science-based targets (SBT)[56] - The company’s sustainability program is built on three pillars: supporting people and communities, bettering the planet, and innovating for customers[54] - The company’s board of directors includes six members with sustainability experience, ensuring governance oversight on sustainability matters[52] - The company has systems in place for tracking GHG emissions and monitoring climate-related laws and regulations[62] - The company’s sustainability reports are prepared in accordance with the Global Reporting Initiative and include information on GHG targets and strategies[63] Workforce and Diversity - Approximately 56,100 employees were employed as of September 30, 2023, with 90% in sales and operations[68] - 24% of the global workforce is comprised of women, and 36% of the U.S. workforce consists of people of color[75] - The company has a multi-year Diversity, Inclusion, Equity and Belonging action plan to enhance workforce diversity and inclusion[75] - Approximately 71% of hourly employees in the U.S. and Canada are covered by collective bargaining agreements[68] - The company has implemented part-time work opportunities and benefits for employees working 20 hours or more per week starting January 2023[86] - Approximately 65% of the workforce is located in the U.S. and Canada, while 35% is in Europe, South America, Mexico, and Asia Pacific[68] Risk Management - The company emphasizes the importance of forward-looking statements, which are based on current expectations and involve various risks and uncertainties[90] - Key risks include economic conditions, supply chain disruptions, and competition, which could materially affect future performance[91] - The company is focused on sustainability targets and commitments, with potential impacts from climate change on operations[91] - The proposed Transaction may lead to integration difficulties and management focus being diverted, impacting overall business performance[91] - The company is actively managing risks related to indebtedness and potential increases in interest rates[91] - The company acknowledges the potential for adverse effects from information security incidents and the importance of business continuity plans[91] Governance and Compliance - The company has made available its SEC filings and corporate governance documents on its website for stakeholders[88] - The company is committed to providing copies of governance documents upon request from stockholders[89] - The company’s capital project approval process includes a tool to assess the impact of proposed investments on GHG emissions, water intake, and solid waste generation[57] - The company has established procedures for managing asbestos-containing materials in facilities where they are present, despite not using asbestos in manufacturing[44]

Financial Performance - Net sales for Q3 fiscal 2023 were $5.1 billion, a decrease of $398.6 million or 7.2% compared to Q3 fiscal 2022[197]. - Net income attributable to common stockholders was $202.0 million for Q3 fiscal 2023, down from $377.9 million in Q3 fiscal 2022, a decrease of $175.9 million[198]. - Consolidated Adjusted EBITDA for Q3 fiscal 2023 was $801.9 million, a decrease of $203.6 million or 20.2% from $1.0 billion in Q3 fiscal 2022[198]. - Net sales for the third quarter of fiscal 2023 decreased by $398.6 million, or 7.2%, compared to the same quarter in fiscal 2022, primarily due to lower volumes, partially offset by increased sales from the Mexico Acquisition and higher selling price/mix[211]. - For the nine months ended June 30, 2023, net sales decreased by $532.2 million compared to the prior year period, driven by lower volumes and unfavorable foreign exchange rates, but offset by higher selling price/mix and contributions from the Mexico Acquisition[212]. - Earnings per diluted share for Q3 2023 was $0.79, down from $1.47 in Q3 2022, with a year-to-date loss of $(6.88) compared to $2.28 in the same period last year[306]. - Adjusted Earnings Per Diluted Share for Q3 2023 was $0.89, a decrease from $1.54 in Q3 2022, while year-to-date adjusted earnings were $2.21 compared to $3.34 in the prior year[306]. - The company recorded a net loss of $27.8 million for the nine months ended June 30, 2023, which included a pre-tax goodwill impairment charge of $107.8 million[298]. Costs and Expenses - Cost of goods sold in the third quarter of fiscal 2023 decreased by $260.7 million compared to the prior year quarter, attributed to lower volumes and cost savings, despite higher wage and benefit costs[213]. - Selling, general and administrative expenses (SG&A) excluding intangible amortization increased by $37.2 million in the third quarter of fiscal 2023, mainly due to costs related to the Mexico Acquisition and business systems transformation[216]. - Interest expense, net for the third quarter of fiscal 2023 was $108.1 million, an increase from $78.5 million in the prior year quarter, primarily due to higher interest rates and increased debt from the Mexico Acquisition[226]. - Total restructuring and other costs for Q3 2023 amounted to $47.6 million, significantly lower than $0.6 million in Q3 2022, while year-to-date costs were $525.3 million compared to $366.3 million in the previous year[307]. Cash Flow and Investments - Net cash provided by operating activities decreased to $1.2 billion in the nine months ended June 30, 2023, down from $1.5 billion in the same period of 2022, a decrease of $236.5 million[200]. - Net cash used for investing activities in the nine months ended June 30, 2023, was $1,522.0 million, primarily due to $853.5 million for business acquisitions and $818.3 million for capital expenditures[283]. - Capital expenditures for fiscal 2023 are now expected to be approximately $1.0 billion, with potential additional investments of up to $0.5 billion per year in strategic capital projects[284]. - Net cash provided by financing activities in the nine months ended June 30, 2023, was $336.2 million, mainly from a net increase in debt of $561.1 million, offset by cash dividends of $210.8 million[285]. Acquisitions and Restructuring - The Mexico Acquisition contributed to increased sales, partially offsetting lower volumes[197]. - The company expects restructuring charges related to the permanent closure of the Tacoma, WA containerboard mill[202]. - The Mexico Acquisition added approximately 1.0 million tons of mill capacity to the pre-acquisition capacity of approximately 15.2 million tons[313]. - The increase in market risk due to the acquisition has been offset by mill closures announced during fiscal 2023[313]. Market and Economic Conditions - The company anticipates unfavorable non-cash pension expense of approximately $40 million in Q4 fiscal 2023[202]. - The company anticipates ongoing challenges and uncertainties in the market, which may impact future performance and results[310]. - If market interest rates increase by 100 basis points, the annual interest expense would rise by approximately $21 million[313]. - A 10% change in the price per MMBtu would impact the Cost of Goods Sold by approximately $6 million[313]. Taxation - The effective tax rate for the three months ended June 30, 2023 was 24.9%, down from 25.9% for the same period in 2022, with an income tax expense of $67.3 million[237]. - The company recorded an income tax benefit of $41.2 million for the nine months ended June 30, 2023, compared to an expense of $193.1 million for the same period in 2022, resulting in an effective tax rate of 2.3% versus 24.2%[238]. - The cash tax rate for fiscal 2024 is expected to be higher than the income tax rate due to changes in tax legislation affecting the amortization of research costs[289]. Segment Performance - Corrugated Packaging shipments for the nine months ended June 30, 2023, totaled 5,039.0 thousand tons, a slight increase from 4,903.2 thousand tons in the prior year[241]. - Net sales for the Corrugated Packaging segment increased by $609.0 million in the nine months ended June 30, 2023, driven by $770.2 million from the Mexico Acquisition and $386.4 million from higher selling price/mix[245]. - Adjusted EBITDA for the Corrugated Packaging segment increased by $163.8 million in the nine months ended June 30, 2023, primarily due to a $385.5 million margin impact from higher selling price/mix[247]. - Consumer Packaging shipments decreased to 1,063.0 thousand tons for the nine months ended June 30, 2023, down from 1,174.8 thousand tons in the prior year[250]. - Net sales for the Consumer Packaging segment increased by $71.2 million in the nine months ended June 30, 2023, mainly due to $363.2 million from higher selling price/mix[253]. - Adjusted EBITDA for the Consumer Packaging segment increased by $21.9 million in the nine months ended June 30, 2023, primarily due to a $352.2 million margin impact from higher selling price/mix[255]. - Global Paper shipments for the nine months ended June 30, 2023, totaled 3,397.5 thousand tons, a decrease from 4,806.8 thousand tons in the prior year[257]. - Global Paper segment net sales decreased by $544.6 million in Q3 2023 compared to Q3 2022, primarily due to $484.2 million of lower volumes and $35.5 million of lower selling price/mix[260]. - For the nine months ended June 30, 2023, Global Paper segment net sales decreased by $1,143.5 million, mainly due to $1,184.4 million of lower volumes, partially offset by $120.7 million of higher selling price/mix[261]. - Adjusted EBITDA for the Global Paper segment in Q3 2023 decreased by $222.0 million compared to Q3 2022, primarily due to $141.7 million of lower volumes and $56.2 million impact from economic downtime[262]. - For the nine months ended June 30, 2023, Global Paper segment Adjusted EBITDA decreased by $418.6 million, mainly due to $360.7 million of lower volumes and $130.7 million impact from economic downtime[263]. - Distribution segment net sales decreased by $39.9 million in Q3 2023 compared to Q3 2022, primarily due to $37.5 million of lower volumes[267]. - For the nine months ended June 30, 2023, Distribution segment net sales decreased by $98.2 million, primarily due to $115.2 million of lower volumes, partially offset by $14.4 million of higher selling price/mix[268]. - Adjusted EBITDA for the Distribution segment in Q3 2023 decreased by $13.2 million compared to Q3 2022, primarily due to $11.3 million of lower volumes and $2.4 million of increased net cost inflation[270]. - For the nine months ended June 30, 2023, Distribution segment Adjusted EBITDA decreased by $27.6 million, primarily due to $32.9 million of lower volumes and $18.4 million of increased net cost inflation[271].

WestRock Company (WRK) Q3 2023 Earnings Call August 03, 2023 08:30 AM ET Company Participants Robert Quartaro - SVP - Investor RelationsDavid Sewell - CEOAlexander Pease - Executive VP & CFOMichael Roxland - MD - Equity ResearchGeorge Staphos - Managing Director Conference Call Participants Gabe Hajde - AnalystMark Weintraub - Senior Analyst and Head of Business DevelopmentCleveland Rueckert - ED - Equity Research AnalystNone - Analyst Operator Good morning, and welcome to the WestRock Third Fiscal Quarter ...

Financial Performance - Net sales for Q2 fiscal 2023 were $5,277.6 million, a decrease of $104.5 million or 1.9% compared to Q2 fiscal 2022, primarily due to lower volumes and unfavorable foreign exchange rates [187]. - Net loss attributable to common stockholders was $2,006.1 million for Q2 fiscal 2023, compared to net income of $39.9 million in Q2 fiscal 2022, driven by a $1.9 billion goodwill impairment charge [188]. - Consolidated Adjusted EBITDA for Q2 fiscal 2023 was $788.6 million, a decrease of $65.3 million or 7.6% from $853.9 million in Q2 fiscal 2022 [188]. - Net sales for the six months ended March 31, 2023, decreased by $133.6 million compared to the prior year period, primarily due to lower volumes and unfavorable foreign exchange rates, partially offset by higher selling prices and increased sales from the Grupo Gondi Acquisition [201]. - Net cash provided by operating activities for the six months ended March 31, 2023, was $550.0 million, down from $642.7 million in the prior year [191]. - The company reported a net loss of $88.7 million for the six months ended March 31, 2023, which includes a pre-tax goodwill impairment charge of $107.8 million [284]. - For the three months ended March 31, 2023, the company reported a loss per diluted share of $(7.85), compared to earnings of $0.15 for the same period in 2022 [291]. - The company recognized a goodwill impairment of $7.16 million for the three months ended March 31, 2023, and $7.17 million for the six months ended March 31, 2023 [291]. - Adjusted earnings per diluted share decreased to $0.77 for the three months ended March 31, 2023, down from $1.17 in the same period of 2022 [291]. - The company reported a total adjusted net income of $197.6 million for the three months ended March 31, 2023, compared to $309.4 million for the same period in 2022 [295]. Cost and Expenses - Cost of goods sold for the six months ended March 31, 2023, was $8,515.2 million, a decrease of $18.8 million compared to the prior year period, mainly due to lower volumes and increased net cost inflation [203]. - Selling, general and administrative expenses (SG&A) excluding intangible amortization increased by $32.0 million in the six months ended March 31, 2023, primarily due to $41.0 million of business systems transformation costs [206]. - Interest expense, net for the six months ended March 31, 2023, was $205.7 million, an increase from $159.2 million in the prior year period, primarily due to higher interest rates and increased debt from the Grupo Gondi Acquisition [214]. - Restructuring and other costs for the six months ended March 31, 2023, totaled $477.7 million, with $346.5 million being non-cash charges [210]. - The company incurred restructuring and other costs of $444.7 million for the three months ended March 31, 2023, compared to $363.4 million in the same period of 2022 [295]. Acquisitions and Investments - The Grupo Gondi Acquisition was completed for $969.8 million, resulting in a $46.8 million non-cash, pre-tax loss recognized [177]. - The company expects approximately $160 million in aggregate investment for business systems transformation in fiscal 2023, with $120 million expected to be expensed when incurred [185]. - The company anticipates over $250 million in cost savings from transformation initiatives in fiscal 2023, excluding impacts from economic downtime and inflation [192]. - The company experienced a $430.6 million increase in sales from the acquired Grupo Gondi operations for the six months ended March 31, 2023 [230]. - Grupo Gondi Acquisition added approximately 1 million tons of mill capacity to the pre-acquisition capacity of approximately 15.2 million tons [299]. Segment Performance - Net sales for the Corrugated Packaging segment increased by $308.4 million in Q2 fiscal 2023 compared to the prior year quarter, driven by $328.4 million from acquired Grupo Gondi operations [229]. - Adjusted EBITDA for the Corrugated Packaging segment in Q2 fiscal 2023 rose by $78.8 million, primarily due to a $154.5 million margin impact from higher selling price/mix [232]. - Consumer Packaging segment net sales increased by $14.5 million in Q2 fiscal 2023, mainly due to $125.4 million of higher selling price/mix [237]. - Global Paper shipments decreased to 2,270.6 thousand tons in the six months ended March 31, 2023, down from 3,174.1 thousand tons in the same period of fiscal 2022 [243]. - Net sales for the Global Paper segment decreased by $369.9 million in Q2 fiscal 2023, primarily due to $384.5 million of lower volumes [245]. - Adjusted EBITDA for the Consumer Packaging segment increased by $12.8 million in Q2 fiscal 2023, driven by a $122.0 million margin impact from higher selling price/mix [239]. - Global Paper segment net sales decreased by $598.9 million in the six months ended March 31, 2023, primarily due to $700.2 million of lower volumes, partially offset by $156.2 million of higher selling price/mix [246]. - Adjusted EBITDA for the Global Paper segment decreased by $196.6 million in the six months ended March 31, 2023, primarily due to $219.0 million of lower volumes and $83.4 million of increased net cost inflation [249]. - Distribution segment net sales decreased by $58.3 million in the six months ended March 31, 2023, primarily due to $77.7 million of lower volumes, partially offset by $16.6 million of higher selling price/mix [254]. - Distribution segment Adjusted EBITDA decreased by $14.4 million in the six months ended March 31, 2023, primarily due to $21.6 million of lower volumes and $16.0 million of increased cost inflation [257]. Liquidity and Capital Structure - Cash and cash equivalents were $363.4 million at March 31, 2023, compared to $260.2 million at September 30, 2022 [260]. - Total debt increased to $9,505.6 million at March 31, 2023, up from $7,787.2 million at September 30, 2022, primarily due to the Grupo Gondi Acquisition [260]. - Available liquidity under long-term committed credit facilities and cash and cash equivalents was approximately $3.2 billion at March 31, 2023 [261]. - The board of directors declared a quarterly dividend of $0.275 per share, representing a 10% increase from the prior year [273]. - The board of directors authorized a new repurchase program of up to 25.0 million shares, representing approximately 10% of outstanding Common Stock, with 29.0 million shares available for repurchase as of March 31, 2023 [274]. - In the six months ended March 31, 2022, the company repurchased approximately 7.2 million shares for an aggregate cost of $332.1 million [274]. Tax and Pension Obligations - The effective tax rate for the six months ended March 31, 2023, was 5.3%, significantly lower than 21.2% in the prior year period, primarily due to tax effects related to the goodwill impairment [223]. - The company has approximately $51 million in future potential reductions of U.S. federal, state, and foreign cash taxes, primarily from net operating losses and credits expected to be utilized between fiscal 2023 and 2040 [275]. - The company expects to contribute approximately $28 million to its pension plans in fiscal 2023, having contributed $15.0 million in the six months ended March 31, 2023 [276]. - Withdrawal liabilities are expected to be approximately $12 million per year in fiscal 2023, excluding accumulated funding deficiency demands [277]. - As of March 31, 2023, the company recorded withdrawal liabilities of $213.1 million, a slight decrease from $214.7 million as of September 30, 2022 [279]. Market Conditions and Future Outlook - The company expects ongoing challenges related to pricing cycles, economic conditions, and supply chain disruptions, which may impact future performance [297]. - The company plans to continue focusing on business systems transformation and operational improvements to enhance performance [297]. - The company anticipates potential impacts from acquisitions and divestitures, particularly related to the Grupo Gondi Acquisition [297]. - If market interest rates increase by an average of 100 basis points, annual interest expense would increase by approximately $26 million [299]. - A 10% change in the price per MMBtu would impact Cost of Goods Sold by approximately $5 million, excluding April 2023 [299].