Q3 FY19 Results August 1, 2019s21.q4cdn.com/975972157/files/doc_presentations/2019/07/... ·...
Transcript of Q3 FY19 Results August 1, 2019s21.q4cdn.com/975972157/files/doc_presentations/2019/07/... ·...
Q3 FY19 Results
August 1, 2019
Steve Voorhees
Chief Executive Officer
Ward Dickson
Chief Financial Officer
Jeff Chalovich
Chief Commercial Officer and President, Corrugated Packaging
Pat Lindner
President, Consumer Packaging
2
Forward Looking Statements:
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to the statements on the
slides entitled “Q3 FY19 Key Highlights”, “Q3 FY19 Corrugated Packaging Results”, “Successfully Integrating KapStone”, “Q3 FY19 Consumer Packaging Results”, “Sequential
Quarterly Guidance”, “FY19 Additional Guidance Assumptions”, “Key Commodity Annual Consumption Volumes” and “Strategic Capital Projects Driving Performance and Earnings
Improvements” that give guidance or estimates for future periods as well as statements regarding, among other things, that (1) we are focused on returning our leverage ratio to our
targeted level of 2.25 to 2.50 times; (2) the new paper machine at our Florence, SC mill is on schedule to start up in the first half of calendar 2020 and the transition to Porto Feliz is
on schedule to be completed in the fourth quarter; (3) we expect to realize $90 million of run rate synergies from the KapStone acquisition by the end of fiscal 2019 and more than
$200 million by the end of fiscal 2021; (4) we expect to realize synergies from the KapStone acquisition in the allocations presented on slide 6; (5) the sequential quarterly earnings
drivers and estimates will be as presented on slide 11; (6) we expect to generate $880 to $925 million of adjusted segment EBITDA in the fourth quarter of fiscal 2019; (7) the FY19
additional guidance assumptions and mill maintenance schedule will be as presented on slide 15; (8) the key commodity annual consumption volumes will be as presented on slide
16; and (9) our strategic capital projects are expected to generate $10 million, $80 million, $150 million and $240 million in annualized EBITDA by the end of fiscal 2019, 2020, 2021
and 2022, respectively, and the projects listed on slide 17 will be completed on the timelines presented on slide 17.
Forward-looking statements are based on our current expectations, beliefs, plans or forecasts and are typically identified by words or phrases such as "may," "will," "could,"
"should," "would," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "target," "prospects," "potential" and "forecast," and other words, terms and phrases of
similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. WestRock cautions readers that a
forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. WestRock’s
businesses are subject to a number of general risks that would affect any such forward-looking statements, including, among others, decreases in demand for their products;
increases in energy, raw materials, shipping and capital equipment costs; reduced supply of raw materials; fluctuations in selling prices and volumes; intense competition; the
potential loss of certain customers; the scope, costs, timing and impact of any restructuring of our operations and corporate and tax structure; the occurrence of a natural disaster,
such as hurricanes or other unanticipated problems, such as labor difficulties, equipment failure or unscheduled maintenance and repair; our desire or ability to continue to
repurchase our stock; risks associated with integrating KapStone’s operations into our operations and our ability to realize anticipated synergies and productivity improvements;
risks associated with completing our strategic capital projects on the anticipated timelines and realizing our anticipated EBITDA improvements; and adverse changes in general
market and industry conditions. Such risks and other factors that may impact management's assumptions are more particularly described in our filings with the Securities and
Exchange Commission, including in Item 1A under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2018. The information
contained herein speaks as of the date hereof and WestRock does not have or undertake any obligation to update or revise its forward-looking statements, whether as a result of
new information, future events or otherwise.
Non-GAAP Financial Measures:
We may from time to time be in possession of certain information regarding WestRock that applicable law would not require us to disclose to the public in the ordinary course of
business, but would require us to disclose if we were engaged in the purchase or sale of our securities. This presentation shall not be considered to be part of any solicitation of an
offer to buy or sell WestRock securities. This presentation also may not include all of the information regarding WestRock that you may need to make an investment decision
regarding WestRock securities. Any investment decision should be made on the basis of the total mix of information regarding WestRock that is publicly available as of the date of
the investment decision.
We report our financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). However, management believes certain non-GAAP
financial measures provide users with additional meaningful financial information that should be considered when assessing our ongoing performance. Management also uses
these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating our performance. Non-GAAP financial measures should be viewed in
addition to, and not as an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures presented by other
companies.
Forward Looking Statements; Non-GAAP Financial
Measures
3
✓North American Corrugated
container per day volumes
up 2.7% organically
✓Corrugated Packaging
system: 259k tons of
maintenance and economic
downtime; inventories
returned to target levels
✓Consumer Packaging
system: 54k tons of capital
and maintenance outages;
stable backlogs across
SBS, CNK and CRB
✓Progress on strategic
capital projects
✓KapStone synergies ahead
of schedule
✓Net leverage ratio of
2.95x(2); focused on
returning to targeted
leverage range of 2.25x to
2.50x
✓Attractive dividend yield of
approximately 5.0%
✓Net Sales increased $658
million, or 16.3%, year-
over-year to $4,690
million(1)
✓Adjusted Segment
EBITDA of $858 million
and a margin of 18.3%(2);
Adjusted Earnings Per
Diluted Share of $1.11(3)
✓North American
Corrugated Packaging
Adjusted Segment
EBITDA margin of 23.1%(2)
Financial Performance
Markets & Operations
Capital Allocation
1) Excludes Recycling sales in Q3 FY18. See Reconciliations in the Appendix.
2) Non-GAAP Financial Measure. See Non-GAAP Financial Measures and Reconciliations in the Appendix.
3) Non-GAAP Financial Measure. On a GAAP basis, earnings per diluted share were $0.98 in Q3 FY19 and $1.03 in Q3 FY18. See Non-GAAP Financial
Measures and Reconciliations in the Appendix.
Q3 FY19 Key Highlights
4
Q3 FY19 WestRock Consolidated Results
Financial Performance
($ in millions, except percentages and per share items) Q3 FY19 Q3 FY18
Net Sales(1) $4,690 $4,032
Adjusted Segment Income(2) $482 $445
Adjusted Segment EBITDA(2) $858 $754
% Margin(2) 18.3% 18.7%
Adjusted Earnings Per Diluted Share(3) $1.11 $1.09
Adjusted Operating Cash Flow(2) $749 $783
Adjusted Segment EBITDA(2) ($ in millions)
+14%
1) Excludes Recycling sales in Q3 FY18. See Reconciliations in the Appendix.
2) Non-GAAP Financial Measure. See Non-GAAP Financial Measures and Reconciliations in the Appendix.
3) Non-GAAP Financial Measure. On a GAAP basis, earnings per diluted share were $0.98 in Q3 FY19 and $1.03 in Q3 FY18. See Non-GAAP Financial
Measures and Reconciliations in the Appendix.
Highlights
• Revenue and EBITDA growth reflect acquisition of KapStone
• Positive price realization in both Corrugated Packaging and
Consumer Packaging
• Adjusted Segment EBITDA up 14% year-over-year(2)
• Seasonally strong operating cash flow generation
(45)
$754 55 47
152 $858
(38) (44)(9) (14)
Q3 FY18 Volume Price / Mix Inflation Productivity FX Other CorrugatedEconomic
Downtime andConsumerOutages
KapStone (Excl.EconomicDowntime)
Q3 FY19
Excludes KapStone
5
Q3 FY19 Corrugated Packaging Results
1) Excludes Recycling sales in Q3 FY18
2) Non-GAAP Financial Measure. See Non-GAAP Financial Measures and Reconciliations in the Appendix.
Financial Performance
($ in millions, except percentages) Q3 FY19 Q3 FY18
Segment Sales(1) $3,073 $2,333
Adjusted Segment Income(2) $413 $332
Adjusted Segment EBITDA(2) $644 $503
% Margin(2) 21.7% 22.5%
North American Adjusted Segment
EBITDA Margin(2) 23.1% 22.0%
Brazil Adjusted Segment EBITDA
Margin(2) 27.9% 30.9%
Adjusted Segment EBITDA(2) ($ in millions)
+28%
Segment Highlights:
• Adjusted Segment EBITDA up 28% year-over-
year(2)
• North American box shipments up 20% year-
over-year; 2.7% organic growth, excluding
KapStone
• Lower year-over-year domestic containerboard
shipments, excluding KapStone
• Flow through of previously published PPW price
increases partially offset by current year PPW
price reductions and export price declines
• 165,000 tons of economic downtime and 94,000
tons of maintenance downtime
• KapStone synergy realization ahead of schedule
• Strategic investments on track
• Florence paper machine on schedule to
startup first half of calendar year 2020
• Transition to Porto Feliz to be completed
in fiscal Q4
• Construction underway at Tres Barras mill
upgrade project
$503
$644
19 639
152
(21) (23)
(8)(23)
Q3 FY18 Volume Price /Mix
Energy /Materials /
Freight
Wageand OtherInflation
Productivity Other EconomicDowntime
KapStone(Excl.
EconomicDowntime)
Q3 FY19
Excludes KapStone
6
Successfully Integrating KapStone
($ in millions)
Expect to realize more than $200 million in run-rate
synergies by the end of FY21
$80 $90
$200+
Q3 FY19 YTD FY19E FY21E
KapStone Run-Rate Synergy Progression KapStone Synergy Allocation
Converting, Network & Supply Chain Optimization
28%
Administrative Efficiencies
30%
Mill Performance Improvements
22% Procurement
20%
7
Q3 FY19 Consumer Packaging Results
Financial Performance
($ in millions, except percentages) Q3 FY19 Q3 FY18
Segment Sales $1,650 $1,670
Adjusted Segment Income(1) $93 $126
Adjusted Segment EBITDA(1) $233 $262
% Margin (1) 14.1% 15.7%
Adjusted Segment EBITDA(1) ($ in millions)
1) Non-GAAP Financial Measure. See Non-GAAP Financial Measures and Reconciliations in the Appendix.
Segment Highlights:
• Volume decline driven by lower paperboard sales
primarily due to supply chain impact of strategic
capital and maintenance outages
• Converting shipments increased 1.3%; North
American converting shipments up 2.7%, partially
offset by declines in Europe and Asia
• Price realization from flow through of previously
published PPW price increases
• Backlogs of 4-6 weeks across SBS, CNK and
CRB
• Higher year-over-year costs in wood and freight,
partially offset by recycled fiber
$262
38
9
$233 (16)
(5)(8)
(19)
(22)(6)
Q3 FY18 Volume Price /Mix
Pulp Price Energy /Materials /
Freight
Wageand OtherInflation
Productivity StrategicCapital and
MaintenanceOutages
Other Q3 FY19
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BROADEST PORTFOLIO OF DIFFERENTIATED PAPER GRADES AND PACKAGING SOLUTIONS
SBS CNK® CRB URBVirgin
Linerboard / Medium
White Top Linerboard
Recycled Linerboard /
Medium
Semi-Chemical Medium
Kraft Paper
Industry’s Most Comprehensive Product Portfolio
Driving Growth Throughout the Enterprise
102
144
80
100
120
140
FY16 FY17 FY18 June TTMNum
ber
of C
usto
mers
Customers Buying More than $1 Million from Both Segments
$4.7
$6.8
$4.0
$5.0
$6.0
$7.0
FY16 FY17 FY18 June TTM
Sale
s (
Bill
ions)
Net Sales to Customers Buying More than $1 Million from Both Segments
9
• Optimized, SIOC packaging
• Minimize quality issues and
product waste
• Assembly solution allowed
Colgate-Palmolive to execute
through a low risk “test-and-
learn” environment
• Differentiated packaging
solution for improved consumer
experience
• Increased e-Commerce product
rankings
• Final packaging design made of
recyclable and renewable
materials
C O L G AT E S M I L E B O X
CUSTOMER CHALLENGE
Colgate-Palmolive needed to expand its e-Commerce presence
with a “ships in own container” (SIOC) compliant package that
could handle a variety of oral-care products.
DELIVERING VALUE
We provided a unique design to meet SIOC requirements and
included features such as the smile-shaped opening perforation.
The package is filled by WestRock and is semi-automated.
Sustainable Packaging SolutionsE-Commerce
10
U . S . A U T O PA R T S
CUSTOMER CHALLENGE
Large auto parts and high product size variability resulted in
excess dimensional (DIM) weight charges, packaging
materials and labor.
DELIVERING VALUE
Our Box On Demand® Compack Evo and Matrix™
Dimensioning System:
• Creates a right-sized box for each order
• Improves overall process throughput
Sustainable Packaging SolutionsRight-size packaging
• DIM weight savings
• Uses less packaging/
corrugated material
• Labor savings in shipping lines
(boxes were previously
handmade)
• Proven scalable solution
provides supply chain reliability
• Increases efficiency to keep up
with orders and, thus, retain
customers
• Lower shipping costs allows
customer to be more
competitive
• Uses less packaging/fiber due to
right-size packaging
11
Q4 FY19 Sequential Guidance
1) Non-GAAP Financial Measure. See Non-GAAP Financial Measures and Forward-looking Guidance in the Appendix.
Q3 FY19 Adjusted
Segment
EBITDA(1)
$858million
+$42 to +$57 millionProductivity and Other Items• Lower mill maintenance downtime combined
with seasonal productivity increases
Q4 FY19 Adjusted
Segment
EBITDA(1)
$880 - $925million
$(45) to $(30) million
Volume and Price / Mix• Higher seasonal volumes across Corrugated and
Consumer packaging
• Impact of previously published PPW North
America containerboard and kraft paper price
decreases and lower export containerboard prices
+$25 to +$40 millionCost Deflation• Lower recycled fiber, virgin fiber, energy and
freight costs
Other Sequential Adjusting EPS Items:• $(0.02) of higher depreciation and amortization expense and other non-
operating items
• Adjusted tax rate approximately in line with Q3 FY19
12
We Are a Leader in
Attractive Markets
We Provide a Winning
Value Proposition
We Have Multiple Levers
to Improve Our Results
We Generate Strong
Cash Flows
We have the #1 or #2 positions in
paper and packaging markets with
customers that value
differentiation to grow sales and
reduce their total costs
We create customized value-
added solutions using the
broadest portfolio of paper and
packaging products
Our commercial approach,
KapStone synergies and strategic
capital projects are levers unique
to WestRock
Our 12% Adjusted Free Cash
Flow Yield supports dividend yield
of approximately 5.0%(1)
1) Non-GAAP Financial Measure. See Non-GAAP Financial Measures and Forward-looking Guidance in the Appendix. Adjusted Free Cash Flow is
calculated on trailing twelve months ending June 30, 2019. Adjusted Free Cash Flow equals operating cash flow minus capital expenditures plus cash
restructuring and other costs, net of tax. Stock price is as of July 31, 2019.
The Case for WRK
Appendix
14
Non-GAAP Financial MeasuresAdjusted Earnings Per Diluted Share
We use the non-GAAP financial measure “adjusted earnings per diluted share,” also referred to as “adjusted earnings per share” or “Adjusted EPS”, because we believe this measure provides our board
of directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance since it excludes restructuring and other costs, net, and other specific items
that we believe are not indicative of our ongoing operating results. Our management and board of directors use this information to evaluate our performance relative to other periods. We believe the most
directly comparable GAAP measure is Earnings per diluted share.
Adjusted Operating Cash Flow and Adjusted Free Cash Flow
We use the non-GAAP financial measures “adjusted operating cash flow” and “adjusted free cash flow” because we believe these measures provide our board of directors, investors, potential investors,
securities analysts and others with useful information to evaluate our performance relative to other periods because they exclude restructuring and other costs, net of tax, that we believe are not indicative
of our ongoing operating results. While these measures are similar to adjusted free cash flow, we believe they provide greater comparability across periods when capital expenditures are changing since
they exclude an adjustment for capital expenditures. We believe adjusted free cash flow is also a useful measure as it reflects our cash flow inclusive of capital expenditures. We believe the most directly
comparable GAAP measure is net cash provided by operating activities.
Adjusted Segment EBITDA and Adjusted Segment EBITDA Margins
We use the non-GAAP financial measures “adjusted segment EBITDA” and “adjusted segment EBITDA margins”, along with other factors, to evaluate our segment performance against our peers. We
believe that investors use these measures to evaluate our performance relative to our peers. We calculate adjusted segment EBITDA for each segment by adding that segment’s adjusted segment income
to its depreciation, depletion and amortization. We calculate adjusted segment EBITDA margin for each segment by dividing that segment’s adjusted segment EBITDA by its adjusted segment sales.
Leverage Ratio and Net Leverage Ratio
We use the non-GAAP financial measures “leverage ratio” and “net leverage ratio” as measurements of our operating performance and to compare to our publicly disclosed target leverage ratio. We
believe investors use each measure to evaluate our available borrowing capacity – in the case of “net leverage ratio”, adjusted for cash and cash equivalents. We define leverage ratio as our Total Funded
Debt divided by our Credit Agreement EBITDA, each of which term is defined in our credit agreement, dated July 1, 2015. Borrowing capacity under our credit agreement depends on, in addition to other
measures, the Credit Agreement Debt/EBITDA ratio or the leverage ratio. As of June 30, 2019, our leverage ratio was 3.00 times. While the leverage ratio under our credit agreement determines the credit
spread on our debt, we are not subject to a leverage ratio cap. Our credit agreement is subject to a Debt to Capitalization and Consolidated Interest Coverage Ratio, as defined therein. We define net
leverage ratio as the product of our Total Funded Debt minus cash and cash equivalents divided by our Credit Agreement EBITDA. As of June 30, 2019, our net leverage ratio was 2.95 times.
Forward-looking Guidance
We are not providing a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP measure because we are unable to predict with reasonable certainty the
ultimate outcome of certain significant items without unreasonable effort. These items include, but are not limited to, merger and acquisition-related expenses, restructuring expenses, asset impairments,
litigation settlements, changes to contingent consideration and certain other gains or losses. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP
reported results for the guidance period.
Adjusted Tax Rate
We use the non-GAAP financial measure “Adjusted Tax Rate”. We believe this non-GAAP financial measure is useful because it adjusts our GAAP effective tax rate to exclude the impact of restructuring
and other costs, net, and other specific items that management believes are not indicative of the ongoing operating results of the business. “Adjusted Tax Rate” is calculated as “Adjusted Tax Expense”
divided by “Adjusted Pre-Tax Income”. We believe that the most directly comparable GAAP measures to Adjusted Tax Expense and Adjusted Pre-Tax Income are “Income tax (expense) benefit” and
“Income before income taxes”, respectively.
15
Additional Guidance
FY19
Depreciation & Amortization Approx. $1.5 billion
Interest Expense Approx. $480 - $490 million
Interest Income Approx. $55 - $65 million
Effective Adjusted Book Tax Rate(1) 23.5% to 24%
Adjusted Cash Tax Rate(1) Approx. 20%
Share Count Approx. 260 million
Capital Expenditures Approx. $1.4 billion
Estimated Future Capital Expenditures
FY20 Capital Expenditures Approx. $1.1 billion
FY21 Capital Expenditures Approx. $900 million to $1.0 billion
North American Corrugated Packaging Consumer Packaging
Mill Maintenance Schedule(2)(tons in thousands)
1) Non-GAAP Financial Measure.
2) Q4 FY19 amounts are forecasts.
Q1 Q2 Q3 Q4Full
Year
FY19 Maintenance 50 99 94 35 278
FY18 Maintenance 73 35 125 0 233
Q1 Q2 Q3 Q4Full
Year
FY19 Maintenance 17 42 54 5 118
FY18 Maintenance 28 11 8 0 47
16
Key Commodity Annual Consumption Volumes
Commodity Category Volume
Recycled Fiber (tons millions) 5.3
Wood (tons millions) 43
Natural Gas (cubic feet billions) 84
Electricity (kwh billions) 5.9
Polyethylene (lbs millions) 52
Caustic Soda (tons thousands) 231
Starch (lbs millions) 575
Approx. FY19 Annual Consumption Volumes
Sensitivity Analysis
CategoryIncrease in Spot
Price
Approx. Annual
EPS Impact
Recycled Fiber (tons millions) +$10.00 / ton ($0.16)
Natural Gas (cubic feet billions) +$0.25 / MMBTU ($0.06)
FX Translation Impact+10% USD
Appreciation($0.06)
17
Strategic Capital Project Anticipated
Realized EBITDA($ in millions)
Strategic Capital Projects Driving Performance and
Earnings Improvements
$1 billion of strategic investment expected to generate
$240 million in annualized EBITDA
Mahrt Curtain Coater
Florence Mill
Porto Feliz Plant
$10
$80
$150
$240
FY19 FY20 FY21 FY22
Anticipated Strategic Project Completion Timing
Mahrt
Covington
Porto Feliz
Tres BarrasFlorence
18
Adjusted Net Income and Adjusted Earnings Per Diluted
Share Reconciliation
1) The GAAP results for Pre-Tax, Tax, Net of Tax and EPS are equivalent to the line items "Income before income taxes", "Income tax (expense) benefit“,
"Consolidated net income“ and “Earnings per Diluted Share”, respectively, as reported on the statements of operations.
($ in millions, except per share data) Q3 FY19
Adjustments to Segment EBITDA Consolidated Results
Corrugated
Packaging
Consumer
PackagingL&D and Other Pre-Tax Tax Net of Tax EPS
GAAP Results(1) $ 331.4 $ (77.6) $ 253.8 $ 0.98
Restructuring and other items n/a n/a n/a 17.9 (4.0) 13.9 0.05
Direct expenses from Hurricane Michael, net of related proceeds 3.6 - - 3.6 (0.9) 2.7 0.01
Accelerated depreciation on major capital projects and certain plant closures n/a n/a n/a 9.4 (2.3) 7.1 0.03
Losses at closed plants, transition and start-up costs 6.7 1.1 - 8.6 (2.7) 5.9 0.03
Loss on sale of certain closed facilities n/a n/a n/a 2.7 (0.7) 2.0 0.01
Loss on extinguishment of debt n/a n/a n/a 3.2 (0.7) 2.5 0.01
Land and Development impairment and operating results n/a n/a (1.6) (1.6) 0.4 (1.2) (0.01)
Other - 0.5 1.0 1.5 (0.4) 1.1 -
Adjustments / Adjusted Results $ 10.3 $ 1.6 $ (0.6) $ 376.7 $ (88.9) 287.8 $ 1.11
Noncontrolling interests (1.2)
Adjusted Net Income $ 286.6
19
Adjusted Net Income and Adjusted Earnings Per Diluted
Share Reconciliation
1) The GAAP results for Pre-Tax, Tax, Net of Tax and EPS are equivalent to the line items "Income before income taxes", "Income tax (expense) benefit“,
"Consolidated net income“ and “Earnings per Diluted Share”, respectively, as reported on the statements of operations.
($ in millions, except per share data) Q3 FY18
Adjustments to Segment EBITDA Consolidated Results
Corrugated
Packaging
Consumer
PackagingL&D and Other Pre-Tax Tax Net of Tax EPS
GAAP Results(1) $ 355.8 $ (84.5) $ 271.3 $ 1.03
Impact of Tax Cuts and Jobs Act n/a n/a n/a - 4.1 4.1 0.02
Multiemployer pension withdrawal n/a n/a n/a 4.2 (1.1) 3.1 0.01
Restructuring and other items n/a n/a n/a 17.1 (4.4) 12.7 0.05
Land and Development impairment and operating results n/a n/a (10.3) (5.8) 1.6 (4.2) (0.02)
Losses at closed plants and transition costs 0.6 0.1 n/a 0.8 (0.2) 0.6 -
Accelerated depreciation on major capital projects n/a n/a n/a 6.8 (1.9) 4.9 0.02
Gain on extinguishment of debt n/a n/a n/a (0.9) 0.2 (0.7) -
Gain on sale of waste services n/a n/a n/a (12.3) 3.7 (8.6) (0.03)
Other 2.7 n/a 0.1 5.2 (0.8) 4.4 0.01
Adjusted Results $ 3.3 $ 0.1 $ (10.2) $ 370.9 $ (83.3) 287.6 $ 1.09
Noncontrolling interests (3.1)
Adjusted Net Income $ 284.5
20
Adjusted Tax Rate Reconciliation
Adjusted Operating Cash Flow
($ in millions, except percentages) Q3 FY19 Q3 FY18
Adjusted pre-tax income 376.7$ 370.9$
Adjusted tax expense (88.9) (83.3)
287.8$ 287.6$
Adjusted Tax Rate 23.6% 22.5%
($ in millions) Q3 FY19 Q3 FY18
Net cash provided by operating activities 734.6$ 661.9$
Plus: Retrospective accounting policy adoptions - 109.7
Plus: Cash Restructuring and other costs, net of income tax benefit of $4.7 and $3.9 14.6 11.1
Adjusted Operating Cash Flow 749.2$ 782.7$
21
Adjusted Segment Sales, Adjusted Segment EBITDA
and Adjusted Segment Income(1)
1) Segment EBITDA Margins are calculated using Segment / Net sales, Corrugated Packaging and Consumer Packaging Adjusted Segment EBITDA Margins
are calculated using Adjusted Segment Sales; the Consolidated Adjusted Segment EBITDA Margin is calculated using Segment / Net sales.
Q3 FY19
($ in millions, except percentages)
Corrugated
Packaging
Consumer
Packaging
Land and
Development
Corporate /
Eliminations Consolidated
Segment / Net sales 3,072.8$ 1,650.1$ 8.6$ (41.5)$ 4,690.0$
Less: Trade sales (100.0) - - - (100.0)
Adjusted Segment Sales 2,972.8$ 1,650.1$ 8.6$ (41.5)$ 4,590.0$
Segment income 392.7$ 91.0$ 1.6$ -$ 485.3$
Non-allocated expenses - - - (24.4) (24.4)
Depreciation and amortization 241.4 140.7 - 3.2 385.3
Segment EBITDA 634.1 231.7 1.6 (21.2) 846.2
Adjustments 10.3 1.6 (1.6) 1.0 11.3
Adjusted Segment EBITDA 644.4$ 233.3$ -$ (20.2)$ 857.5$
Segment EBITDA Margins 20.6% 14.0% 18.0%
Adjusted Segment EBITDA Margins 21.7% 14.1% 18.3%
Segment income 392.7$ 91.0$ 1.6$ -$ 485.3$
Non-allocated expenses - - - (24.4) (24.4)
Adjustments, including D&A adjustments 20.3 1.7 (1.6) 1.0 21.4
Adjusted Segment Income 413.0$ 92.7$ -$ (23.4)$ 482.3$
22
Adjusted Segment Sales, Adjusted Segment EBITDA
and Adjusted Segment Income(1)
1) Segment EBITDA Margins are calculated using Segment / Net sales, Corrugated Packaging and Consumer Packaging Adjusted Segment EBITDA Margins
are calculated using Adjusted Segment Sales; the Consolidated Adjusted Segment EBITDA Margin is calculated using Segment / Net sales less Recycling
sales.
Q3 FY18
($ in millions, except percentages)
Corrugated
Packaging
Consumer
Packaging
Land and
Development
Corporate /
Eliminations Consolidated
Segment / Net sales 2,444.6$ 1,669.6$ 64.8$ (41.5)$ 4,137.5$
Less: Recycling sales (111.4) - - 5.7 (105.7)
2,333.2 1,669.6 64.8 (35.8) 4,031.8
Less: Trade sales (97.9) - - - (97.9)
Adjusted Segment Sales 2,235.3$ 1,669.6$ 64.8$ (35.8)$ 3,933.9$
Segment income 321.9$ 126.1$ 9.9$ -$ 457.9$
Non-allocated expenses - - - (13.0) (13.0)
Depreciation and amortization 177.6 136.1 0.4 1.3 315.4
Segment EBITDA 499.5 262.2 10.3 (11.7) 760.3
Adjustments 3.3 0.1 (10.3) 0.1 (6.8)
Adjusted Segment EBITDA 502.8$ 262.3$ -$ (11.6)$ 753.5$
Segment EBITDA Margins 20.4% 15.7% 18.4%
Adjusted Segment EBITDA Margins 22.5% 15.7% 18.7%
Segment income 321.9$ 126.1$ 9.9$ -$ 457.9$
Non-allocated expenses - - - (13.0) (13.0)
Adjustments, including D&A adjustments 10.1 0.1 (9.9) 0.1 0.4
Adjusted Segment Income 332.0$ 126.2$ -$ (12.9)$ 445.3$
23
Corrugated Packaging Adjusted Segment EBITDA(1)
1) Segment EBITDA Margins are calculated using Segment sales and Adjusted Segment EBITDA Margins are calculated using Adjusted Segment Sales.
2) The “Other” column includes our Victory Packaging and India corrugated operations.
($ in millions, except percentages)North American
Corrugated
Brazil
CorrugatedOther
(2) Corrugated
Packaging
Segment sales 2,690.5$ 102.8$ 279.5$ 3,072.8$
Less: Trade sales (100.0) - - (100.0)
Adjusted Segment Sales 2,590.5$ 102.8$ 279.5$ 2,972.8$
Segment income 368.9$ 8.9$ 14.9$ 392.7$
Depreciation and amortization 223.7 14.3 3.4 241.4
Segment EBITDA 592.6 23.2 18.3 634.1
Adjustments 4.8 5.5 - 10.3
Adjusted Segment EBITDA 597.4$ 28.7$ 18.3$ 644.4$
Segment EBITDA Margins 22.0% 22.6% 20.6%
Adjusted Segment EBITDA Margins 23.1% 27.9% 21.7%
Q3 FY19
24
Corrugated Packaging Adjusted Segment EBITDA(1)
1) Segment EBITDA Margins are calculated using Segment sales and Adjusted Segment EBITDA Margins are calculated using Adjusted Segment Sales.
2) The “Other” column includes our Recycling and India corrugated operations.
($ in millions, except percentages)North American
Corrugated
Brazil
CorrugatedOther
(2) Corrugated
Packaging
Segment sales 2,208.5$ 104.9$ 131.2$ 2,444.6$
Less: Recycling sales - - (111.4) (111.4)
2,208.5 104.9 19.8 2,333.2
Less: Trade sales (97.9) - - (97.9)
Adjusted Segment Sales 2,110.6$ 104.9$ 19.8$ 2,235.3$
Segment income 304.6$ 14.0$ 3.3$ 321.9$
Depreciation and amortization 158.9 15.7 3.0 177.6
Segment EBITDA 463.5 29.7 6.3 499.5
Adjustments 0.1 2.7 0.5 3.3
Adjusted Segment EBITDA 463.6$ 32.4$ 6.8$ 502.8$
Segment EBITDA Margins 21.0% 28.3% 20.4%
Adjusted Segment EBITDA Margins 22.0% 30.9% 22.5%
Q3 FY18
25
Reconciliation of Net Income to Adjusted Segment
EBITDA
1) Schedule adds back expense or subtracts income for certain financial statement and segment footnote items to compute segment income, Segment
EBITDA and Adjusted Segment EBITDA.
($ in millions, except percentages) Q3 FY19 Q3 FY18
Net Income attributable to common stockholders 252.6$ 268.2$
Adjustments: (1)
Less: Net Income attributable to noncontrolling interests 1.2 3.1
Income tax (expense) benefit 77.6 84.5
Other income (expense), net (3.7) (9.7)
(Loss) gain on extinguishment of debt 3.2 (0.9)
Interest expense, net 111.1 76.7
Restructuring and other costs 17.9 17.1
Land and development impairments - 1.7
Multiemployer pension withdrawals (1.7) 4.2
(Loss) gain on sale of certain closed facilities 2.7 -
Non-allocated expenses 24.4 13.0
Segment Income 485.3 457.9
Non-allocated expenses (24.4) (13.0)
Depreciation and amortization 385.3 315.4
Segment EBITDA 846.2 760.3
Adjustments 11.3 (6.8)
Adjusted Segment EBITDA 857.5$ 753.5$
Net Sales 4,690.0$ 4,137.5$
Less: Recycling sales - (105.7)
4,690.0$ 4,031.8$
Net income margin 5.4% 6.5%
Segment EBITDA Margin 18.0% 18.4%
Adjusted Segment EBITDA Margin 18.3% 18.7%
26
1) Includes 59 days of KapStone.
2) Combined North America, Brazil and India shipments.
Shipment Data
Corrugated Packaging
North America Corrugated Unit Q1 Q2 Q3 Q4 Q1(1) Q2 Q3
External Box, Containerboard & Kraft Paper Shipments Thousands of tons 1,950.4 2,039.9 2,030.0 2,081.3 2,295.7 2,459.6 2,561.9
Pulp Shipments Thousands of tons 95.2 72.2 66.4 82.5 51.0 61.2 82.3
Total North American Corrugated Packaging Shipments Thousands of tons 2,045.6 2,112.1 2,096.4 2,163.8 2,346.7 2,520.8 2,644.2
Corrugated Container Shipments Billions of square feet 19.8 19.7 20.5 20.3 22.5 23.6 24.3
Corrugated Container Shipments per Shipping Day Millions of square feet 325.4 311.7 320.5 321.9 369.4 374.8 384.7
Corrugated Packaging Maintenance Downtime Thousands of tons 73.1 35.2 125.2 - 50.1 99.4 93.8
Corrugated Packaging Economic Downtime Thousands of tons - - - - - 197.7 164.8
Brazil and India
Corrugated Packaging Shipments Thousands of tons 170.5 174.6 178.6 196.7 185.6 176.5 171.0
Corrugated Container Shipments Billions of square feet 1.6 1.5 1.6 1.6 1.6 1.5 1.6
Corrugated Container Shipments per Shipping Day Millions of square feet 21.7 20.6 20.2 21.0 20.7 20.6 21.0
Total Corrugated Packaging Segment Shipments (2)
Thousands of tons 2,216.1 2,286.7 2,275.0 2,360.5 2,532.3 2,697.3 2,815.2
Consumer Packaging
WestRock
Consumer Packaging Paperboard and Converting Shipments Thousands of tons 936.8 955.6 986.4 995.3 932.5 949.4 949.0
Pulp Shipments Thousands of tons 40.2 30.5 31.5 28.8 37.1 36.1 31.1
Total Consumer Packaging Segment Shipments Thousands of tons 977.0 986.1 1,017.9 1,024.1 969.6 985.5 980.1
Consumer Packaging Converting Shipments Billions of square feet 10.6 10.6 10.9 11.1 10.5 11.0 11.1
Consumer Packaging Maintenance Downtime Thousands of tons 28.1 10.4 8.2 0.4 16.5 41.7 53.9
FY18 FY19
27
LTM Adjusted Free Cash Flow
LTM
($ in millions, except per share data and percentages) Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 6/30/2019
Net cash provided by operating activities 795.6$ 303.1$ 361.9$ 734.6$ 2,195.2$
Plus: Retrospective accounting policy adoptions 118.6 - - - 118.6
Plus: Cash Restructuring and other costs, net of
income tax benefit of $4.2, $14.5, $0.6, $4.7 and $24.012.0 44.6 12.3 14.6 83.5
Adjusted Operating Cash Flow 926.2$ 347.7$ 374.2$ 749.2$ 2,397.3$
Less: Capital expenditures (334.4) (322.0) (303.4) (351.4) (1,311.2)
Adjusted Free Cash Flow 591.8$ 25.7$ 70.8$ 397.8$ 1,086.1$
Shares outstanding 257.3
Share price - July 31, 2019 36.05$
Market Cap 9,276.6$
Adjusted Free Cash Flow Yield 11.7%
28
LTM Credit Agreement EBITDA
1) Additional Permitted Charges includes among other items, $224 million of EBITDA of acquired companies and $147 million of restructuring and other
costs.
Total Debt, Funded Debt and Leverage Ratio
($ in millions) LTM 6/30/2019
Net Income Attributable to Common Stockholders 831.7$
Interest Expense, Net 382.0
Income Tax Expense 282.9
Depreciation and Amortization 1,442.4
Additional Permitted Charges and Acquisition EBITDA(1)
485.1
Credit Agreement EBITDA 3,424.1$
($ in millions, except ratios) Q3 FY19
Current Portion of Debt 779.1$
Long-Term Debt Due After One Year 9,759.1
Total Debt 10,538.2
Less: FV Step Up and Deferred Financing Fees (191.0)
Other Adjustments to Funded Debt (77.8)
Total Funded Debt 10,269.4$
LTM Credit Agreement EBITDA 3,424.1$
Leverage Ratio 3.00x
Total Funded Debt 10,269.4$
Less: Cash and Cash Equivalents (179.1)
Adjusted Total Funded Debt 10,090.3$
Net Leverage Ratio 2.95x