WestRock (WRK) Up 7.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for WestRock (WRK). Shares have added about 7.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is WestRock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

WestRock Q1 Earnings Top Estimates

WestRock reported first-quarter fiscal 2020 (ended Dec 31, 2020) adjusted earnings of 61 cents per share, up from the 58 cents recorded in the year-ago period. Moreover, the fiscal first-quarter earnings surpassed the Zacks Consensus Estimate of 54 cents.

Including one-time items, earnings was 57 cents per share compared with 531 cents reported in the prior-year quarter.

Operational Update

WestRock’s total revenues edged down 0.5% year over year to $4,401.5 million. The revenue figure, however, beat the consensus mark of $4,392 million. The decline was mainly due to the absence of Land and Development net sales in the reported quarter due to the completion of the monetization program in fiscal 2020.

Cost of sales was marginally up 0.9% year on year to $3,649 million during the fiscal first quarter. Gross profit slid 6.9% year over year to $752.9 million. Adjusted segment EBITDA was $669.8 million compared with the $675.3 million witnessed in the year-earlier quarter. Total segment income came in at $307.5 million, down from the year-ago quarter’s $331 million.

Segmental Performance

Corrugated Packaging: Sales in the segment dropped 1.5% year over year to $2,864.5 million during the December-end quarter primarily on lower corrugated selling price/mix, lower volumes, and unfavorable impact of the coronavirus pandemic and foreign currency. Adjusted segment EBITDA decreased 9.8% year over year to $457.9 million.

Consumer Packaging: Sales in the segment were up 3.8% year on year to $1,5951 million. This upswing resulted from higher selling price/mix, increased volumes, and favorable foreign currency impact. Adjusted segment EBITDA rose 26.8% year over year to $233.7 million.

Financial Position

WestRock had cash and cash equivalents of $253.8 million as of Dec 31, 2020, up from $251 million reported as of Sep 30, 2020. The company reported total debt of $8.94 billion as of Dec 31, 2020, down from the $9.43 billion as of Sep 30, 2020. Net cash provided by operating activities for the first-quarter fiscal 2020 was $719 million as compared with the $431 million recorded in the prior year quarter. During the first quarter of fiscal 2021, WestRock invested $171 million in capital expenditures and paid out $53 million in dividends to stockholders.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.53% due to these changes.

VGM Scores

At this time, WestRock has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, WestRock has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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