WestRock(WRK)2023-05-05 20:05Financial 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].