Market Overview

WestRock Rides On Acquisition, Corrugated Packaging Demand

On Feb 1, 2018, we issued an updated research report on WestRock Company WRK. Favorable industry conditions and positive volume along with pricing dynamics will drive the company's fiscal 2018 results. Execution of its capital allocation strategy and the acquisition of KapStone Paper and Packaging Corporation KS, once it comes through, will drive growth.
Sound First-Quarter 2018 Results, Outlook
WestRock's first-quarter fiscal 2018 adjusted earnings per share surged 85% on a year-over-year basis and also beat the Zacks Consensus Estimate. Despite commodity cost inflation, the company expects adjusted earnings per share in the second quarter to be higher than year-ago quarter's adjusted EPS of 54 cents.
Backed by overall industry conditions and positive volume and pricing dynamics, the company anticipates strong growth in fiscal 2018. Net sales growth is projected to be up approximately 10% year over year, leading to revenues of around $16.3 billion. Adjusted segment EBITDA will likely be higher than $2.8 billion, a 20% increase over fiscal 2017. This includes approximately $275 million-$300 million in productivity and acquisition-related synergies.
KapStone Buyout Will Enhance Presence, Product Portfolio
WestRock announced that it will acquire all the outstanding shares of rival KapStone at $35 per share. On conclusion, the deal is anticipated to be accretive immediately to WestRock's adjusted earnings as well as cash flow and lead to around $200 million of annual cost synergies and performance improvements, with half to be realized within first 12 months.
KapStone's corrugated packaging operations will enhance WestRock's North American corrugated packaging business and provide complementary products in geographical locations that will enable WestRock to better serve customers across the system. The deal will help the company strengthen presence in western United States and to compete better in the growing agricultural markets in the region. It also fast-tracks its target to improve margins of North American corrugated packaging business.
WestRock will also be able to broaden portfolio of paper grades, allowing it to capitalize on the kraft bag market with the inclusion of KapStone's complementary specialty kraft paper offerings. Further, the deal will augment WestRock's portfolio of virgin fiber-based paper from 65% to 67%. Further, the combined company will be able to bring automated packaging solutions through and Box-On-Demand to the same expanded markets. This will benefit customers through lower cost, increased sales and reduced risk.
Active on the Acquisition Front, Focus on Corrugated Packaging
WestRock continues to grow through acquisitions. In fiscal 2017, the company completed five buyouts, including the acquisition of Multi Packaging Solutions, which is a leading global provider of print-based specialty packaging solutions.
Also, in a bid to tap growing demand for corrugated packaging, WestRock Company bought the assets of Island Container Corp. and Combined Container Industries LLC — two independent producers of corrugated boxes, sheets and point-of-purchase displays. WestRock purchased five corrugated converting facilities in Ohio, PA, and Louisiana, from U.S. Corrugated, a large independent manufacturer of corrugated products for packaging and displays. 
Recently, WestRock completed the acquisition of Plymouth Packaging, Inc. — a corrugated packaging company to tap growing on-demand corrugated packaging market. Notably, the addition of Plymouth Packaging's Box on Demand system will enhance WestRock's differentiation in e-commerce and other custom applications, where on-site box making is required. The acquisition will also fortify the company's automated packaging systems business. The recently announced KapStone deal is another step in sync with the strategy.
WestRock has outperformed the industry with respect to price performance over the past three months. The stock has gained 10.6%, while the industry has recorded growth of 10.1%.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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