On Jun 24, 2016, we issued an updated research report on WestRock Company WRK, a provider of paper and packaging solutions in consumer and corrugated markets.
WestRock’s recent spin-off of its specialty chemicals business, into a new independent public company Ingevity Corp. NGVT is a prudent move as it was not in line with the company’s core business. The spinoff will better position both businesses to pursue their respective operating priorities and strategies. As part of the separation, WestRock will receive a distribution of $518 million, from which it will retain approximately $438 million for use in general corporate purposes.
Formed by the merger of MeadWestvaco and Rock-Tenn, WestRock is realizing the strategic benefits of the merger, having already achieved an annual run rate of over $350 million of synergies and performance improvements. WestRock expects an annualized run rate of $450–$500 million by the end of fiscal 2016. The company remains on track to meet its $1 billion objective by the end of fiscal 2018.
WestRock Company has completed its joint venture with Grupo Gondi in Mexico to create superior packaging solutions for consumers. This joint venture accelerates WestRock’s ability to win share in the growing Mexican packaging market, and provides fresh growth opportunities for both the companies. Further, WestRock's acquisition of SP Fiber Holdings, Inc. and its 48% interest in Green Power Solutions of Georgia, LLC (GPS) is expected to generate significant synergies and be accretive to earnings in the second half of fiscal year 2016.
On the flipside, the folding carton markets remain challenged by weak primary demand for processed, frozen, and dry foods. This is in line with the ongoing consumer preference for fresh foods and the shrinking center of the supermarket. Moreover, demand for carbonated soft drinks continues to remain soft, particularly in North America. In addition, merger related costs and unfavorable foreign currency will continue to be headwinds for WestRock in the near term.
WestRock’s estimates have gone down 10% ahead of its Q3 results. The company however has a positive record of earnings surprises in the last few quarters.
WestRock currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked stocks in the same space are Clearwater Paper Corporation CLW and Neenah Paper, Inc. NP. All of these stocks carry a Zacks Rank #1 (Strong Buy).
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