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WestRock to Incur Higher Costs Due to Hurricane Florence

Zacks Equity Research
Updated

WestRock Company WRK, which operates an extensive network of mill and converting facilities in South Carolina, North Carolina and Virginia, announced that its facilities have not suffered any material physical damage owing to Hurricane Florence. However, incremental costs in shifting inventory, products and supplies to safeguard against the storm, impact of disrupted operations and increased input, operational and supply chain costs are likely to impair its fourth-quarter fiscal 2018 results.

 

The company is currently trying to resume operations at its facilities in the impacted region. Before the hurricane made landfall, the company had idled its kraft linerboard mill in Florence, SC. Two of the three paper machines at the mill have now resumed operations.

 

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WestRock had shifted inventory, finished products and critical supplies in advance and consequently has incurred incremental costs. The company is likely to incur increased input and operational costs and issues in its supply chain due to the flooding following the storm. In addition to halted production at its facilities, negative impact from disruptions at customers’ locations will also be a headwind. This will impact its fiscal fourth quarter and 2018 results. 

 

The estimated impact from the hurricane will be provided by the company later this month. WestRock’s during third-quarter 2018 conference call had stated that the company anticipates fourth-quarter fiscal 2018 adjusted earnings per share to improve significantly from third-quarter’s adjusted EPS of $1.09. Lower maintenance downtime and other items were expected to have an estimated $38 million cost benefit quarter over quarter. These factors, along with sales price increases, seasonally higher volumes, favorable mix and continued productivity gains were likely to lead to a sequential rise of $68 million to $83 million in adjusted EBITDA. However, this was anticipated to be offset by higher transportation costs, input costs as well as higher expected tax rate, higher depreciation and amortization.

 

Further, WestRock expects revenues of around $16.3 billion and adjusted segment EBITDA to come in above $2.9 billion in fiscal 2018 on the back of favorable demand, price and mix trends across its paper and packaging businesses for fiscal 2018.The company is likely to revise its guidance later this month.

 

The Zacks Consensus Estimate for the fourth quarter fiscal 2018 is pegged at $1.26, reflecting year-over-year growth of 45%. The estimate for fiscal 2018 is currently pegged at $4.06, projecting year-over-year growth of 55%.

 

 

Shares of WestRock have dropped 2% in the past year against the industry’s growth of 16%.  

 

WestRock currently carries a Zacks Rank #3 (Hold).

 

Some better-ranked stocks in the same sector include KapStone Paper and Packaging Corporation KS, Stora Enso Oyj SEOAY and Smurfit Kappa Group plc SMFKY. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

KapStone Paper has a long-term earnings growth rate of 14%. The stock has rallied 49% in a year’s time.

 

Stora Enso has a long-term earnings growth rate of 11.9%. Its shares have gained 31% in the past year.

 

Smurfit Kappa has a long-term earnings growth rate of 5%. The company’s shares have been up 25% over the past year.

 

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