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Morningstar | WestRock Reports Decent Fiscal Fourth Quarter Performance; FVE Unchanged at $53

Both top- and bottom-line performance were strong for WestRock in its fiscal fourth quarter, with sales rising more than 4% and adjusted segment EBITDA up 23% over the prior year. As has been the case for all three containerboard players, strong results were largely attributable to a favorable pricing environment amid constrained near-term capacity. We've left our $53 per share fair value estimate and no-moat rating unchanged, given our bearish long-term outlook for containerboard pricing and margins is still intact.

Corrugated segment performance improved substantially from the prior year, with adjusted EBITDA up 42% to $548 million. This was driven by favorable price movements for linerboard and medium, along with input cost relief. Old corrugated container (OCC) pricing has ebbed over the last 12 months, following a variety of trade barriers imposed by China. This allowed for a margin catch up to the company's more wood-fiber oriented peers. In addition to the roughly 3 million tons of incremental corrugated production WestRock purchased through Kapstone, the company also plans on making meaningful upgrades in Brazil. The project will both increase virgin fiber mix and boost throughput by 230,000 tons starting in roughly 2021. While the containerboard business in Brazil remains in the early innings, the long-run potential for strong volume growth is certainly present.

Performance was middling in the consumer segment, as productivity gains were eroded by increased freight, material, and wage costs. Altogether, segment adjusted EBITDA fell slightly to $275 million in the fiscal fourth quarter, leading to some margin contraction versus the prior year. We think WestRock should be able to garner some additional pricing offsets in the coming years as consumer packaged goods companies make progress passing on higher costs.