WestRock Company announced results for its fiscal fourth quarter and year ended September 30, 2023.
"The WestRock team delivered another strong quarter, demonstrating the power and resilience of our diversified portfolio, innovative solutions and scale," said David B. Sewell, chief executive officer. "I'm incredibly proud of our team's commitment to serving our customers, while executing on and accelerating our transformation actions. Through our portfolio optimization actions, cost savings initiatives and strategic growth plans, we are positioning WestRock well to deliver shareholder value. As we turn to fiscal 2024, we remain committed to unlocking additional cost savings and driving profitable growth."
CONSOLIDATED FINANCIAL RESULTS
WestRock's performance for the three months ended September 30, 2023 and 2022
The decline in net sales compared to the fourth quarter of fiscal 2022 was driven primarily by a $417 million, or 29.2%, decrease in Global Paper segment sales, which was partially offset by a $138 million, or 5.8%, increase in Corrugated Packaging segment sales. The increase in Corrugated Packaging segment sales in the current year quarter includes the operations of the Company's former joint venture in Mexico that were acquired in December 2022 ("Mexico Acquisition").
Net income declined in the fourth quarter of fiscal 2023 compared to the prior year quarter primarily due to higher restructuring and other costs, net, lower selling price/mix, lower volumes excluding the Mexico Acquisition, the impact of increased economic downtime, increased non-cash pension costs, the prior year ransomware insurance recoveries, higher net interest expense and business systems transformation costs. These costs were partially offset by the gain on sale of the Company's interior partitions converting operations and Chattanooga, Tennessee mill (collectively referred to as "gain on sale of RTS and Chattanooga"), increased cost savings, net cost deflation and the contribution from the Mexico Acquisition.
Consolidated Adjusted EBITDA decreased $184 million, or 20.0%, compared to the fourth quarter of fiscal 2022, primarily due to lower Global Paper segment Adjusted EBITDA that was partially offset by higher Adjusted EBITDA in the Company's Corrugated Packaging segment.
Additional information about the changes in segment sales and Adjusted EBITDA by segment is included below.
Restructuring and Other Costs, Net
Restructuring and other costs, net during the fourth quarter of fiscal 2023 were $344 million ($239 million of which was non-cash). The charges were primarily costs associated with the closure of the Tacoma, Washington containerboard mill, and the consolidation of converting facilities, ongoing costs related to previously closed operations, and acquisition, integration and divestiture costs, including those associated with the proposed Transaction, the sale of the Company's interior partitions converting operations and Chattanooga, Tennessee uncoated recycled paperboard mill.
Gain (Loss) on Extinguishment of Debt
In the fourth quarter, the Company discharged $500 million aggregate principal amount of our 3.00% senior notes due September 2024 using cash and cash equivalents and borrowings under our commercial paper program and recorded a $10.5 million gain on extinguishment of debt.
Gain on Sale of RTS and Chattanooga
In the fourth quarter, the Company completed the previously announced sale of the Company's interior partitions converting operations and the sale of the Chattanooga mill to its joint venture partner and received $318 million of proceeds, including a preliminary working capital adjustment and other customary adjustments, and recorded a pre-tax gain on sale of $239 million, excluding divestiture costs.
Cash Flow Activities
Net cash provided by operating activities was $584 million in the fourth quarter of fiscal 2023 compared to $540 million in the prior year quarter.
Total debt was $8.6 billion at September 30, 2023, and Adjusted Net Debt was $8.0 billion. Total debt decreased $443 million compared to the third quarter of fiscal 2023. The Company had approximately $3.4 billion of available liquidity from long-term committed credit facilities and cash and cash equivalents at September 30, 2023.
During the fourth quarter of fiscal 2023, WestRock invested $324 million in capital expenditures and returned $71 million in capital to stockholders in dividend payments.
SEGMENT RESULTS
We have included the financial results of the Mexico Acquisition in the Company's Corrugated Packaging segment.
WestRock's segment performance for the three months ended September 30, 2023 and 2022 was as follows:
Corrugated Packaging Segment
Corrugated Packaging segment sales increased primarily due to sales from the Mexico Acquisition that were partially offset by lower volumes excluding the Mexico Acquisition and lower selling price/mix. In addition, the fourth quarter of fiscal 2023 included $35 million of segment sales for certain converting operations that were included in the Consumer Packaging segment in the prior year period.
Corrugated Packaging Adjusted EBITDA increased primarily due to increased cost savings, net cost deflation and the incremental contribution from the Mexico Acquisition, which were partially offset by the margin impact from lower selling price/mix, lower volumes excluding the Mexico Acquisition, the net impact of economic downtime and prior year mill closures, the prior year ransomware insurance recoveries and non-cash pension costs, each as compared to the prior year period. Corrugated Packaging Adjusted EBITDA margin was 17.2% and Adjusted EBITDA margin excluding trade sales was 17.8%.
Consumer Packaging Segment
Consumer Packaging segment sales decreased primarily due to lower volumes. In addition, the fourth quarter of fiscal 2022 included $34 million of segment sales for certain converting operations now included in the Corrugated Packaging segment. These items were partially offset by higher selling price/mix and the favorable impact of foreign currency.
Consumer Packaging Adjusted EBITDA decreased primarily due to lower volumes, net cost inflation, the impact of increased economic downtime and non-cash pension costs. In addition, the fourth quarter of fiscal 2022 included $4 million of Adjusted EBITDA for certain converting operations now included in the Corrugated Packaging segment. These items were largely offset by the margin impact from higher selling price/mix and increased cost savings, each as compared to the prior year period. Consumer Packaging Adjusted EBITDA margin was 16.8%.
Global Paper Segment
Global Paper segment sales decreased primarily due to lower volumes and lower selling price/mix. Additionally, segment sales are lower than the prior year period because sales to the operations acquired in the Mexico Acquisition are now eliminated.
Global Paper Adjusted EBITDA decreased primarily due to the margin impact of lower selling price/mix, lower volumes, the impact of increased economic downtime and prior year mill closures, the prior year ransomware insurance recoveries and increased non-cash pension costs, which were partially offset by increased cost savings and net cost deflation, each as compared to the prior year period. Global Paper Adjusted EBITDA margin was 13.2%.
Distribution Segment
Distribution segment sales decreased primarily due to lower volumes. The lower volumes were primarily due to lower moving and storage business volumes in the current quarter.
Distribution Adjusted EBITDA decreased primarily due to lower volumes and increased cost inflation which were partially offset by increased cost savings, each as compared to the prior year period.
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