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Consumer packaging business exceeds expectations in WestRock earnings report

Steve Voorhees, WestRock CEO, joins The First Trade with Alexis Christoforous and Brian Sozzi to discuss the company’s third-quarter impacts report, the company’s path toward sustainability and much more.

Video Transcript

BRIAN SOZZI: Welcome back to "The First Trade." The business of packaging, WestRock is one of the largest paper and packaging companies around. It makes one out of every five boxes in the US. Today the company posted it beat on earnings estimates but missed slightly on sales.

Steve Voorhees is the CEO of WestRock, and he joins us now. Steve, good to see you this morning. The stock is up. So certainly, investors liking what they saw in the report. But there are two different paths in your report.

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The corrugated packaging business is faring probably a little worse than the consumer packaging business. Why is that the case?

STEVE VOORHEES: Well, in fact, both of our businesses were doing well. For those of you who-- I think some viewers might not know about WestRock. We're an $18 billion company. We operate around the world from 300 operating locations in 25 countries. And we do make one out of every five boxes in the United States.

Our corrugated packaging business, I thought, did really well in the quarter. EBITDA margins were 19.8%. They were higher than they were in the prior quarter, sequential quarter. And then, like you said, our consumer packaging business exceeded expectations. In fact, the margins improved over both last year and sequentially. And that's a credit to our team because our team did a remarkable job at posting those margins in a really uncertain environment.

ALEXIS CHRISTOFOUROS: You know, I'm sure that you have to deal with this all the time, the climate crisis and how do you stay eco-friendly in the paper and packaging business. I know Amazon is trying to reduce things by putting more items and shipping it out in one box, trying to use smaller boxes. How has that impacted your business? And what steps are you taking to help with climate change?

STEVE VOORHEES: Climate change and sustainability has provided us a terrific opportunity to work with our customers. Many of our customers, in fact, most of our customers have very ambitious sustainability goals. And fiber-based packaging fits with that incredibly well. We're part of the circular economy. You can recycle our product.

The product, the fiber-based packaging, comes from forests, which regenerate. So I believe our business is very well attuned to the sustainability needs and climate change needs of our customers over time.

BRIAN SOZZI: What is your packaging business telling you right now about the state of the US economy? Do you think we have moved beyond the recession?

STEVE VOORHEES: We look at our volumes on a monthly basis. So our volumes went down in April. And they've increased sequentially each month. In fact, our volumes in July were up 1.7% over our June volumes. And so I think that speaks to some stability, particularly in our business.

Packaging is needed almost throughout the economy. So we have a very diverse set of customers.

ALEXIS CHRISTOFOUROS: You have about $7 million of restructuring costs right now. Can you give us an idea of what specifically what some of those costs are?

STEVE VOORHEES: We operate 300 operating locations. So it's not unusual for us to have to adjust our system. And when we do that, we recognize the restructuring cost as a separate item. We identify those for investors so that they can see what we're doing.

BRIAN SOZZI: One trend I think we've seen out of all this, Steve, the pandemic, is more ordering online in a substantial way, whether it's clothing or household cleaning products. As you plan your business out for the next five years, does that trend-- are you going to be building more plants to service that type of capacity?

STEVE VOORHEES: I'm not sure we'll be building more plants. We will be adjusting the capabilities of our plants to do that. And we've invested heavily in our box plant system over the past several years, in fact, to do just that.

The trends are toward smaller boxes. And so we've invested in our facilities so we can very economically make smaller boxes, which as you said, are needed by the trends in e-commerce.

ALEXIS CHRISTOFOUROS: What has the situation been like at your plants? Have you had to deal with employees getting sick with the virus? Have you had issues meeting this increased demand now that you're seeing?

STEVE VOORHEES: The virus has impacted all of our teammates at the plants. And we've taken all the measures and more that are appropriate for us to keep our employees safe. And I think that those include social distancing, hygiene, temperature checking, so on and so forth. And I really couldn't be more proud of our teammates at the plants.

And I've gone to a plant each week during the pandemic really to support all of our teammates that are helping us deliver essential products to our customers.

BRIAN SOZZI: All right, let's leave it there. Steve Voorhees, the CEO of WestRock, good to speak with you this morning.

STEVE VOORHEES: Yeah, thanks, Brian. Thanks, Alexis.