WestRock (WRK) is a multinational provider of paper and packaging solutions for consumer and industrial markets, explains Zach Jonson, CFA and Chief Investment Officer at Stack Financial Management.
The company operates in two main segments: corrugated packaging and consumer packaging. Corrugated packaging and containers provide solutions to a wide array of customers to protect, ship, store, and display products.
The consumer packaging segment broadens outside of the pure corrugated box market and provides other types of specialty solutions such as beverage carriers, express mail envelopes, and premium folding cartons.
WRK resulted from the combination of MeadWestvaco & RockTenn in July 2015. Since that time, WestRock has focused on becoming a fiber-based paper and packing leader through various acquisitions and divestitures.
WestRock has the #1 or #2 position in numerous paper and packaging markets. This has allowed them to better weather the pandemic downturn and placed them in a position of strength for the corresponding rebound. Additionally, WRK has been a beneficiary of the shift towards e-commerce and the use of home delivery packaging services.
The first half of 2021 saw continued strength in e-commerce channels accompanied with a reemergence of other key markets, such as food and healthcare, as consumers began to return to more normal daily lives.
This transition helped improve Westrock’s sales mix by shifting to higher margin packaging and quick service restaurants. The company dealt with a ransomware attack which caused production and shipping volumes to fall by approximately 85,000 tons compared to what was originally planned.
This shortfall was quickly closed as systems were restored, but the net effect reduced adjusted EPS by $0.23 in the second quarter of 2021. However, WRK exhibited the strength of their management team, navigated this challenging environment, and produced solid returns for investors.
We continue to hold our position in WRK as key markets benefit from the ongoing economic recovery. Higher margin segments of the business should experience additional gains contributing to both top and bottom-line growth. Additionally, the transition to more sustainable packaging solutions has only just begun presenting numerous opportunities over the second half of 2021 and into the future.
Disclosure: It should not be assumed that future performance of any specific investment, including the above, will be profitable, equal any historical performance level, be suitable for your portfolio or individual situation, or prove successful. Clients and individuals associated with Stack Financial Management may hold positions in and may, from time to time, make purchases or sales of this security.
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