Company Reports

No-moat-rated WestRock reported mixed fiscal second-quarter results. Net sales fell over 10% year over year as all segments reported declines. This was largely expected given the capacity WestRock has taken offline over the last year and lower published index prices experienced in the quarter. More importantly, management noted the firm has made significant progress on its cost-savings initiatives. Management had previously targeted $300 million to $400 million of cost savings for fiscal 2024, but the company has already achieved roughly $370 million in cost savings through the fiscal second quarter. We are very encouraged by this progress, and we think the company can drive improved results through the year as end market demand recovers. We maintain our $55 fair value estimate.

WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

No-moat WestRock reported fiscal first-quarter earnings that were largely in line with our expectations. Net sales fell 6% year over year as WestRock faced another challenging quarter. While demand headwinds persist, WestRock also navigated lower index pricing in the quarter, which affected much of its business. While inventory destocking trends have moderated from their peaks in 2023, WestRock still experienced volume declines across much of its portfolio as some demand headwinds persisted through December. That said, WestRock noted that it expects significant recovery will occur in the second half of 2024. We maintain our $55 fair value estimate.

WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

No-moat-rated WestRock reported fiscal fourth-quarter results that came with few surprises. Net sales in the fourth quarter fell almost 8% year over year as volumes remained pressured across much of WestRock’s network. Inventory destocking and a shift from goods to services constrained global demand for packaging despite recent signs of improvement. That said, the company’s operational overhaul continues to bear fruit, with WestRock exiting the year with run-rate cost savings over $450 million, which exceeded management's initial target. Management also announced it is targeting an additional $300 million to $400 million of cost savings in fiscal 2024, which appears to be even more achievable now and we expect will greatly benefit Smurfit WestRock’s North American operations once the merger closes. We maintain our $55 fair value estimate.

WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

WestRock and Smurfit Kappa announced they have agreed to terms of a merger after news of a potential deal was reported last week. This comes as little surprise to us because both companies issued a statement last week confirming they were engaged in merger discussions. The deal would create a global packaging behemoth, combining the containerboard operations of both companies across North America, South America, and Europe. The new entity will be known as Smurfit WestRock and will be led by Smurfit's current CEO, Tony Smurfit. WestRock shareholders would receive one share of the new entity for every share of WestRock they own and an additional $5 cash payment per share, which will be financed with debt. Barring any issues, management expects the deal to close in the second quarter of 2024. We are maintaining our $55 per share fair value estimate for WestRock as a 2% decline from incorporating the merger was offset by the time value of money. Based on our analysis, if the company achieves its $400 million synergy target, we think the deal would be value neutral, but we are taking a more conservative stance and expect roughly 85% will be achieved.

Smurfit Kappa Group and WestRock confirmed on Sept. 7 that the two parties are engaged in merger discussions. Smurfit Kappa is one of the largest containerboard producers in Europe in addition to operations in the United States and Latin America. The potential merger would combine WestRock's robust North American operations with Smurfit's substantial European portfolio. We are maintaining our $55 per share fair value estimate for shares of WestRock for now, but we'll revisit our valuation assumptions once the merger is officially announced and more details are disclosed.

We see value in WestRock’s shares, which are now trading 40% below our $55 fair value estimate. WestRock was formed after the merger of RockTenn and MeadWestvaco in fall 2015. Following its merger, the newly formed entity began seeking acquisitions to grow its containerboard business and boost volumes. In the first five years following the merger, WestRock spent over $5 billion on containerboard-related acquisitions. While it achieved its goal of growing volume, the company put stress on its mill and box plant network while underinvesting in many of its assets, leading to inefficient and high-cost operations.

No-moat rated WestRock’s fiscal third-quarter results came with few surprises and were largely in line with our expectations. Volumes remained pressured during the quarter as the packaging industry continued to toil with persistent inventory destocking across much of the supply chain. Despite improvements in selling prices during the quarter, net sales declined roughly 7% year over year while the firm’s adjusted EBITDA margin fell 250 basis points. While WestRock faces near-term challenges, we think the company is well positioned to capitalize on sequential improvements in demand and its improving cost structure should provide a runway for margin expansion. As such, we maintain our $55 fair value estimate.

WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

No-moat-rated WestRock reported fiscal second-quarter results that were largely in line with our expectations. Revenue decreased roughly 2% year over year as strength in the company’s corrugated packaging segment was more than offset by lower sales in global paper. Volume remained pressured in the quarter as inventory destocking persisted, but higher selling prices provided some relief. Management noted sequential improvements throughout the quarter and into April as destocking trends appeared to moderate. Nevertheless, WestRock faces a challenging second half of the fiscal year as heightened economic uncertainty is likely to weigh on end-market demand. We’ve decreased our fair value estimate to $55 per share from $58 to reflect a slight reduction in our near-term revenue and profitability assumptions.

WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

No-moat-rated WestRock reported fiscal first-quarter results that were largely in line with our expectations. Demand for corrugated packaging continued to face pressure as consumers pull back spending and retailers look to destock inventories. Revenue decreased roughly 1% year over year as higher selling prices partially offset lower volume across all segments. That said, management noted that inflation continues to outpace price increases.

Westrock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

We are initiating coverage on WestRock with a fair value estimate of $59 per share and a no-moat rating. While we maintain our view that WestRock does not benefit from an economic moat, we have upgraded our trend rating to stable from negative previously. WestRock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. This merger occurred during a decade of consolidation in the corrugated packaging industry. During this time, producers were able to aggressively raise prices, but increased competitive intensity from legacy paper producers has limited pricing power in recent years.

Westrock manufactures corrugated packaging and consumer packaging products, such as folding cartons and paperboard. It accounts for roughly 20% of the North American containerboard market and is the second-largest producer. WestRock was formed from the 2015 merger of RockTenn and MeadWestvaco, which combined two of the largest containerboard and paper companies in North America. WestRock’s formation is a result of a decade of consolidation in the containerboard industry, where four players now account for over 70% of the previously fragmented market. During this time of consolidation, producers were able to raise prices and expand margins, but increased competitive intensity and rising input costs have weighed on profitability in recent years.

We are dropping coverage of WestRock. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.