WRK - Earnings call transcript Q3 2019

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Operator

Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the WestRock Company Third Quarter 2019 Earnings Conference Call.

At this time, I would like to turn the call over to Mr. James Armstrong, Vice President of Investor Relations.

conference. your begin may You

James Armstrong

The of on can link be and presentation Thank section you, to side right our our you joining accompanying and release Good of quarter XXXX ir.westrock.com Relations you release morning via slide view the third posted issued morning are webcast. thank at using or the presentation website. earnings our Investor a the accessed this the for application and Chris. to call. press We this

With the me WestRock's of Executive Officer on Packaging, as today's call Chief Consumer Lindner. Financial President of Chalovich; Pat Officer, are Chief our well Officer, Steve President as Corrugated and Chief Voorhees; Packaging, Jeff Ward our Dickson; Commercial

the session. call for Following prepared our a up comments, we open question-and-answer will

materially be of discuss our of XX-K to statements uncertainties ended with cause uncertainties including SEC, results related to During today's forward-looking plans, these during the estimates in may the will our those statements fiscal risks number These and XXXX. describe We we call, involve and making differ September expectations, course for a and year risks future beliefs actual our involving call. filing the could the from that events. XX, we

measures will be referencing the Additionally, we non-GAAP during financial call.

of presentation. We the most measures the slide the reconciliations non-GAAP have directly provided in to these of comparable GAAP appendix measures

slide the previously presentation is available mentioned website. As our on

to Steve. over With it that said, now I'll you turn

Steve Voorhees

This XX% over and year. discuss to WestRock's Thanks XX% segment increased morning. over year. fiscal net Good James. our was results last $XXX increased this to Adjusted billion. as you, joining outlook. This last $X.X million. EBITDA our Thank is call morning third quarter for we sales

margin was EBITDA segment adjusted Our XX.X%.

investments. generated as additional and see packaging, paper some is a in million. during million We capital team the quarter reduced We proactively $XXX markets. dividends debt in packaging we and million invested This landscape, of deployed combined $XXX this characterized increasing $XXX The We projects. operating performing to value-added in in strategic $XXX million well adjusted sustainable million e-commerce opportunities cash by capacity, capital net flow new our packaging with WestRock included demand challenges of we the softer and by respond $XXX in extremely solutions. changing industry paid we flow for cash our

end Our at net X.XX leverage the quarter the of times. was

funded. remain pension Our fully plans

Improvement driven by base our the we has in solutions I'll providing business our by our simplifying each capital our asset during areas progress to and improving to of results making been to take my advantage these the our of taken investment have organically actions our business customers, scale. comments. financial grow value-added in through we're discuss

million. to to favorable and $XXX Let's had the due segment slide containerboard flow-through to of volumes aside and price declined the KapStone, lower X. turn of EBITDA We previously impact primarily increases. Setting Adjusted due published in price shipments. paperboard mix by increased segments the both

recovered of Our cost cost cost. productivity million to offset and of was freight other due Inflation wage and essentially by fiber. the $XX outpaced Higher primarily were improvements inflation. wood lower

$XXX we've $XX $XX by from reduced the and captured performance-improvement other productivity improvement. year. KapStone We million past EBITDA capital, in the downtime outages EBITDA scheduled projects adjusted implemented million acquisition and consumer synergy of and the Economic contributed year-over-year segment over million

more. of as consecutive the improved that XX% EBITDA adjusted points. North margins EBITDA XX% seventh XX% corrugated adjusted fiscal quarter increased segment This recycling, excluding sales, American segment and American XX.X%, compared up of segment third to have Packaging XXXX. reported North quarter the we was adjusted XXX corrugated Corrugated EBITDA to or increased margins basis segment

cost processes while XXX,XXX Packaging result of containerboard approximately and XXX,XXX including investing of people win, reduced of by and the kraft strategy taking XX,XXX paper differentiation downtime, to capital our enable our customers across performance a team's economic quality downtime. production This We is focused and the help and planned in systems, products our maintenance of direct sustained tons to WestRock's tons system. all strong integrated tons Corrugated our in of improvements implementation attributable the to

inventories June XXX,XXX and below Our tons levels peak XXX,XXX below of March at tons the end the December. in were

inventory we desired efficiently our levels system. Our what to our are of now range in need operate

volumes XX% year. last per-day Our a increased basis over box on

enable win Western volumes into distribution due their increased down shipments United to due markets. Agriculture wet X.X% States. in Corrugated saw customized e-commerce our organic growth success that in and uses weather box to delivering our in food. up. packaged Our were to We solutions sales the customers were in

rate containerboard quarter. XX% for integration second consecutive Our was the

fiscal might recall, XX%. the to on integration first call to integration increase earnings that third time, XXXX At goal quarter articulated our was XX%. we our that You rate our

two We substantial years. have made in progress just

our to new grow integration updating provides preferred is several our is the schedule serving to volumes, rate target calendar project over machine export and The half underway ample us room of markets. are domestic up box We XXXX. start first our Florence XX% machine the the This on years. and well to paper while reach next during

designed reminder, a machines market requirements, and low-cost for lighter better-performing today's machine state-of-the-art, project obsolete replace linerboard. paper As a that's this paper will producing and with three new kraft optimally tomorrow's

The well Porto adjusted very EBITDA running margins segment plant up ramping Feliz the were and is production. box Brazil's XX.X%. Brazil. quarter for

first will this project We'll occur of for mill capital in largely October. most WestRock's investment box underway. calendar and Our Valinhos XXXX. fiscal The in is Construction's advanced box on half plant plant of project majority is Barras and incur -- largest of the on have Tres technically is will grand well track The upgrade our XXXX. scheduled opening the down. startup

progressed well. has exceptionally KapStone of integration The

of past investments million we target have made annual several the The at the our We from are fiscal and KapStone 'XX. to by mill realizing our the and end we improvement expect box $XX an benefited at of June exceed integration $XXX targets end in years. million ahead synergy the of performance our rate system over of pace the of schedule. and is We're

activities. scaled regional systems Our our operating accelerated integration have simplified and and structure

have box annualized the already And XXX,XXX the in mill shipments operating internalized to September. by WestRock systems. We've Longview plants tons we annualized to system. tons box Packaging Multiple of expect end KapStone Victory through achieve of our XX,XXX transitioned

With North the paper efficiently to of customers addition and Corrugated KapStone, the and and us of technologies kraft reach, grades our enables geographic scale, range our reliably containerboard serve throughout America. of box-making Packaging network full

the segment Packaging business. of $XX realized million improve the performance will a of The reported $X at our We Consumer improvements business we improvements strategic projects long-term price/mix and and in productivity capital that which of during EBITDA million three quarter invested mills in million. $XXX of adjusted margins

volume, for and completed performing at Our objectives and completed qualifications early in replaced are the the the project and and SBS, headbox capital mill our are four investment we Demopolis Covington exceeding in is at weeks Mahrt, well quality and Demopolis well. We process customer also CRB. major at CNK across our backlogs in June At have cost. date. and to remain We maintenance very outage this Covington quarter in the quarter. gone outages to The was six Mahrt

in our in of impact chain as million. maintenance mill $XX challenged other outages the The outages performance well The quarter our at financial resulting these mills mill outages million. by regular our due cost adversely Wood affected quarter, aggregate as weather -- in sales in particularly EBITDA the Evadale remained $XX an the region. the unusually in by additional paperboard remind our wet impacting the to at lower elevated quarter supply

American during market generating chains improvement stabilize current the interest. by in With and our shipments are demand expect and shipments converting significant Converting was see the declines margin Packaging year-over-year. plastics supply Asia. X.X% completion Sustainable and North of partially to Europe these in and increased Consumer projects, packaging X.X% we quarter. replacements offset increased

We of year. customers on with currently to of run fiber-based currently to million packaging. annual reach incremental $XXX we run and expect are a end working we're fiscal this replace sales with projects a rate rate by plastics million at $XX the of And dozens

and and customers to their in customers enables of using solutions. customized the total solutions their risk, reduce our This us sales, provide broadest sustainability portfolio and goals. help the value-added grow with portfolio industry's WestRock their We marketplace the costs, our differentiates paper lower packaging achieving

driving of than for approximately of more strategy from $X growth. products suite million our of segments, and represent to of years. customers improvement billion our past XXX accounting buying more than services year. over organic are per full corrugated customers numbers is Our $X.X bringing and both solutions sales the three a consumer our These XX%

we're downtime, and offerings include, of processes unplanned and variability. orders service use digital reduce view data systems. minimize the the automate that analytics and investments we in to of our customers issues place with channel simplify to our the We're currently customer digital strength examples A couple use experiences, our anticipate to many the advanced and technology making standardize product quality production our enhancing of and

primary, that of customers. and secondary tertiary the software create design packaging operate We benefit proprietary packaging and that waste for packaging minimizes our performance improves combines to

SIOC want partner take in increase Own changing customers mandates. us to S-I-O-C positions I with packaging. uniquely talk a is portfolio to today's SIOC WestRock's about to few in Ships packaging the Container. minutes sustainable comprehensive meet to

which provide packaging. are suppliers ready-to-ship eight or provide certified items, XX used-packaging additional fees that inches -- or all larger that for item XX require soon face by will Amazon as by

that developed solutions changing meet working customers, SIOC integrated products we've of our branded Using and suite with our packages create these requirements. that

in develop packed packaging dozen our currently to solutions is by for with them very effort with Winston-Salem on of work folding the A that's combines Colgate, manufactured The with Grupo facility SKUs partner solution. carton this terrific for other using of Colgate. SmileBox our Packaging to a SIOC Gondi machinery. deliver manufactured been Colgate-Palmolive. collaboration two SIOC created branded package type partnering In WestRock joint-venture which example optimized SmileBox, an has We're our with we successful Corrugated our

our to solutions brand an more us renewable packaging, fiber their consumers with minimize meet these for provides recyclable, As of further comprehensive their improve packaging use, experience. SIOC and build material push that and loyalty based for our packaging WestRock's ones customer customers. enables to Branded opportunity recognition customers needs are portfolio sustainable and

helping with to boxes sustainable customers custom We're installing to them build on Auto On extends Demand machines our create their products. chain. Parts sized a U.S. for customers our Our working with including supply partnership Box

packaging packaging, of shipping costs. lowers rightsizing and This materials

lower and Our requirements. e-commerce meet packaging total our changing cost them market solutions help and the customers'

Ward? Ward. to over turn I'll Now

Ward Dickson

Steve. you, Thank

our Turning key for We to assumptions XX. outline quarter guidance. slide fourth our

the expect of $XXX to quarter million $XXX quarter. EBITDA We in EBITDA and adjusted to fiscal quarter last fiscal third $XXX our million. in fourth This $XXX the adjusted in million compares between year's be fourth segment segment and million

seasonal than and declines price flow lower higher both more previously segments across than volumes offset of export kraft -- containerboard should be through by paper and the published should Sequentially more containerboard prices.

lower seasonally We expect driven costs. in virgin deflation declines by costs, and freight cost costs, fiber energy fiber sequential recycled

see outages addition, to scheduled and In productivity improve to We over anticipate improvements seasonal packaging will quarter in mill lower gains we quarter. expect due material levels. third margins consumer fourth sequential the

$X.XX $XX similar Depreciation, million business other amount with and quarter City the rate fourth and we share in items proceeds should We our be in in rate. third received and fourth approximately per our expect insurance quarter quarter to the higher tax amortization should consistent from claim Panama third a quarter. be the the in interruption quarter-over-quarter receive

Turning significant remain returning free committed leverage generating to cash sheet. balance our flow. ratio long-term We our to and

expenditures $XXX year. less a level fiscal million decline of expect We to billion, $X.X XXXX approximately capital this than will

the $X billion XXXX. fiscal million to We also expenditures will capital decrease in anticipate $XXX

dividend committed we growing to As in free our strategic the debt a primary and will stable reduction. use be we complete remain near-term and our flow of projects cash capital

turn Steve closing for now remarks. over to it I'll back

Steve Voorhees

additional industry combined with paper Thanks, softer characterized changing a respond markets. Ward. new as extremely the proactively WestRock well of environment challenges by demand capacity some in team's we to performing

value-added to We're needs increasing support their value-added opportunities their We see sales, grow and that and by packaging packaging, packaging creating solutions while them our e-commerce reduce for their helping for sustainability organically total growing costs customers sustainable customized achieve solutions. all risks their goals.

our our and building of We're platform. and our advantage. of And the investing processes the for in to we're systems business advantage long-term expand competitive to take sustain our scale

productivity a our and growth in stockholders term. by cash into create of and advantages value the long building generation, moving increased for customers’, free a that business to organic on period from acquisition, focus scale and period flow the We're projects teammates our a innovation, large strategic a will growth, of investment for combination of

completes that ready for We're prepared Q&A. James, my remarks.

James Armstrong

Thank can you, Operator, first take [Operator question? please Steve. we Instructions] our

Operator

Certainly.

line the from of comes question Bank first Your with George Staphos of America.

is Your line open.

John Babcock

John actually Babcock It's morning. George. line the on Good for

your to XX%. And provide And Just then wanted fiscal out integration could of wondering starting timeline referenced rate little color you there you on trends. well, was more all, can – talk earlier I more first also input? if bit your how on a about getting and volume to a you the bit to XQ detail get if of expect you get early

Jeff Chalovich

Sure. Good morning, John. It's Jeff Chalovich.

starting on are X.X%. July up So That's quarter-to-date about organic. shipments our

up take bit you and over little If KapStone XX%. a then we're

month So part e-commerce our early in of -- some the X% prime of day the came from shipments. in

So contributed X.X% that. that's of our that about one then shipments and point to X.X% about Victory

backlogs strong. little bit finished May in June. with they're from And are down the and X.X% half, May both first line Overall, our months. a and saw They've in what ticked in we we in June X.X% up but

I'm through but this month. strong X% backlog's So still a our not expecting and volumes

in seeing we're weather the and snack now see see Ag -- some markets west now We're we there. northwest. Cherry pickup we strong The was waiting e-commerce, of some we the started bakery, apple. continue with season foods. little slow as the better but markets certainly a and mentioned, pickup in strong decent

basically solution three a grow year And we continue ability sales we're if XXX,XXX the adding the while organically. to years shown grown Now system. XXX,XXX to to how win with we've last the converting look we've tons at to you

X that make years over that to integration rates. XX% can So ability we past imply the And years. we've to will the X do three shown that

Steve have some growing mentions of business what great on differentiation. we our Now our examples based

the automation problems solutions you providing costs the so that supply And on some we're DIM solving chain Demand weight in taking optimization out. of in saw Box

really of show across enterprise. of of breadth benefit but the clearly products the examples selling great the solutions bring the through the in corrugated some quarter segment, in have that period the We also we wins

added And based machinery that our large million we I'll point bakery with Linkx little out a sizing of few opportunity. customer on $X acquisition our pellet new

So two our that's had BoxSizer. sales the BoxSizer. of first We

XX customers’ about in about of us customers to queue talk those. that wants have machines XX line We in to the

customers So that's in open where at five of looking five years. an business. for up we wrapped late dozen have that a million house we $X But have million for August sales years, about two $X year

$X an sale that in their bags merchandise contract, We a into Our equipment million for foods, machinery boxes. of that group, into box. of there, or breakfast carton $X of display million. million cartons a had a and $X enterprise and through $XX carton first go had million seven-year sales win, year customer and our machinery their does in those go folding machine sales folding $XX a was about first That million then folding oatmeal

We And then, in and our obviously Victory $X $X machine, our packaging sales lift five-year. retail-ready We're shelf-ready had Corrugated through their first million great Packaging in machine consumables sales a through million in our $X.X million for business. seeing APS had group. from graphics in the

And and great and say, the you I'd want things those comment of consumer will Machinery continually. all grow. to combined with other and house, plastic for replacements side piece. that the if us then, help just to on we us our business, have So augmenting grow helping on They're going And shrink. on things Pat

Pat Lindner

little demand. Appreciate Jeff. a and around see Thanks, the how quarter Well, of first our volume still on the question bit In that. trends, fourth original demand. pretty Sure. seeing strong the we're we quarter all,

we're I a slightly. little think on sequentially, expect probably bit. flat, But to track year-over-year, up and we up be

America beverage see largely results continues outages North converting as as strategic quarter. up driven you'll and from in our this We and about strength service and as that in by our we're into in that’s food our mill well We see assets up, are you'll ramping from and service beverage food system. results our X.X% three see that also in our in

may and and really replacing industry of, this the I'll a paper We're our this this in our get see but material was plastic this what into of mentioning type Jeff for ramp for entire with this plastics company. tremendous It opportunity substitution. around really rare our an industry replacements a business call, later, seeing for tipping is and is and we like we're point up. What exciting. some It's to not-in-kind hit

this we wrap examples, some talked they -- an Diageo where quarter share A are we with couple I'll introduction, but solution. is briefly significant plastic right our Cluster-Pak It's with paper-based a about just of or and their business shrink last solution. the won one maybe replacing as

that comes our our that that's rates, operates machinery, business carton key at proposition earlier Jeff's and value faster our designing to is in of on this based competitions. with And and machine And along the that CNK much winning wet strength point bring a part high a around producing around and machinery CNK, it's -- strength product. high and us we producing the

that and And But as materials. we on, great machines, the example are up, example up where combining it So, third machinery, that. this great in they with cartons here that's in and around a reporting well the design a there we're quarter quarter, two have. that's our taking associated quarter as the others we just scale with picked new

our really to excited full opportunity value our leverage the proposition capabilities and driving efforts. the we're replacement plastics-to-paper in about So

James Armstrong

Operator?

Operator

next Your Maguire Brian Sachs. question line from of with comes Goldman the

open. Your is line

Brian Maguire

Hi. Good morning everyone.

question on CapEx outlook. the a Just

late XXXX. like if to to last million flow-through I year, looks about in you XXXX $X $X you're projects think right. And $X.X billion XXXX, some now, to it you in talking billion. base billion April you lowered again XXXX, to heard XXXX $X.XX for it billion $XXX $X.X on from next $X billion taking I in $X And like maybe and billion in year down billion were of think I like then, growth into a more

industry the you're in just finding doing need are are what you projects spend and you today? more and imply there'll and savings Or there? projects? efficiencies the spending that think you don't the maybe in that growth Just as on moving Does wondering, to much maybe the that be pieces don't

of seems then the converting to And just into comment around assets kind of, integration improving needed is the in XX%, to sort there. imply sort tied downstream the that, get investment some to of

Just investment winds think the we'll that just wondering, the of some growth of mill as investment -- business you down. we in part if see might some Thanks.

Ward Dickson

Brian. This the Okay, on I'll converting Ward. I'll is investments. chime Jeff then have start and in

strategic billion. strategic in of $XXX we $X.X guidance our in our to So the year This year you're that right. peak $X.X billion, in the over was invest our investments capital We'll lowered this projects. projects. Embedded million

from FY pinpointed Next move we XXXX, range gave the year, we to in of the that midpoint previously XXXX as now XXXX FY we've FY you.

just We between $XXX $XXX and million, projects capital next for have over million, year. strategic million $XXX the that's targeted

So year-over-year strategic is the the decline driven really the decline projects. being by in

lower. the level will into say KapStone we that to a with CapEx approximately gotten assets, of set We I believe million. at assets, the now as an and investments those integration $XXX are remember ongoing of that the better KapStone we've had those assets understanding support

So of and we're continue we confident and strategic that's can make investments investments the the in why our that differentiation. capital to both system, generate productivity to – complete inside

invested the the through our As we our EVOL deployments. years container three into network have substantially into over five you last know, to –

And so that? we to have to been from add generating Jeff, you benefits those modernizing want that system and do the we're investments. anything

Jeff Chalovich

Sure. Hey, Brian.

said. to I'd So along what tag Ward

of in their million the we million we projects between and And over KapStone One looked three don't to things these $XX five at five the next on found they of that. were up. our years for on converting we coming $XX have in queue heavy in container and system, they need a capital period scale Based do Greenfields the on year as assets. the

said the has invested well in We as container systems. have Ward

five the So to the over grow capability we've up built last organically. years

been that high capital we've to rate what projects that. showed it seen our capital we've to based And create on we KapStone. return normal to do of able reallocate have assets. ability a so continue we on the in the But on And also list

that. of through for to because capital box So into reduce the the that. next we're year able of that needed don't the plants, we're need do we going to to and new that year continue this capital expense to through the but some And look system,

Brian Maguire

One on if great. follow-up could consumer for I Okay Pat.

a pricing change about Not and peers big much some the talked or as your term? of sure, know you're I any for forward. Just change seeing was one of you in any of to your shortening terms priority if implementing pricing. going lags that

Pat Lindner

for plans on forward-looking pricing, Thanks any to look when price we Yeah. marketplace we specific question question. dynamics a it customers pricing have increases, wide a Brian mechanisms at the around when might or lag in of know, cross-section at net it and the have. as in of comes that we in comment have. And terms the different that we this course, in capture we you of But of number of And we different published look markets. previously can't

well open So pricing terms link we as have pricing indices. cost and pricing or PPW of contracts in base contracts that to as

it million. it's months can third complication -- Actually, published to So so in of in much flow-through about realized $XXX of little million was answer think as increases. the previously a million But over million the last with we was one results, year just $XX those markets. nine the from it a And over year-over-year. little difficult quarter $XX $XXX bit it vary you alone, because I price associated you give the does customers because see a from that, the our across have

to little complicated it's previously to give price of published in ability you exact the a we mechanisms capture our have. So with number, we're confident increases, gains those different the an associated because that bit but

Brian Maguire

Okay. much. very Thanks

Operator

of Partners. Vertical line with next Dillon Chip comes the Your from question Research

Your line is open.

Chip Dillon

as year which Good your DD&A earn you a generate just flow, thanks look at the you flexible zero higher for is make my the free right? of cash reflects of you rigid just free X% could of yield And math fiscal addition starts your than stocks. that price at zero question level to billion thought have assume a would earnings from do in details. almost three $X billion months fiscal stock and flow I'm to months sorry saves packaging billion $X.XX is the would also three your your And a in Yes. projects that guidance quick this sustainable XXXX morning. you you that would million sure sort means growth on be If whether cash maintenance? the I which $XXX Could year modest a from all is suggest – CapEx now of all to – CapEx $X.XX I at for if that

Ward Dickson

Chip, levers So in we clear, a that cash projects. To this of business. that Ward. the flow strategic have is one is this will we of be lot generate And free in we investing these have been

We will invest are cash million for projects. these EBITDA to generate of over through And that they in earnings to flow incremental flow approximately us. $XXX worth $X billion going generation both will and

ongoing strategic of to level we the There to is in in range. be the CapEx Barras Três fiscal So $X comfortable million a mill billion is are that that going $XXX tail – small base of XXXX.

believe of $XX of our the of about remains rest cash one that it CapEx and in We base is is that then XXXX, have FY dividend the capital compelling we're yield the million the yield that points comfortable of valuation. do free flow of We our WestRock to million $XX with. and

Chip Dillon

Okay. some initiatives that talking SIOC of the and about Amazon And gave on – the do at of are for just when leading of were slower reduction be parts think the both actually a you of of it an is that follow-up, moving industry? lot but look e-commerce SmileBox. and say than growth? of that Or are this? impact you seeing the impact packaging the you corrugated I others? of is helping? frustration-free of in How making there you example How quick demand know, is a yourselves because it will Or net you the

Jeff Chalovich

Like lot of a Jeff. parts. you Hey Chip there -- it's it's is moving said

We for are customers testing for our amount doing a of considerable SIOC packaging.

now seen it SIOC. all. right have plus because don't no -- a I of degradation be if will It's hasn't it know or at in minus, a We degraded demand our but

out We envelopes and have our in consumer coming from of from and in testing we speak smaller-box envelopes we as the fallout quarter. are more this business some fiber-based those the stuff with seen

with what we our also the And we are pouches. looking do of business some at can in paper

that with also new of is machine out We out pouches a fanfolds. came making

will markets in pack a hoodie will sweatshirt a to and from large meet also bulky pack and us a small SIOC on-demand dim sweatshirt, compete and our shipment in XxX So those reductions. help XxX, customers' up weight demand

innovate customers us to So, we that's our around I for help think, win, we And overall, in we think that. markets. when good the are design, overall, well-poised

James Armstrong

Just as one can reminder, our have a please? please question. to question limit next yourself we Operator,

Operator

Certainly.

Your Mark the next question comes line of Connelly with Stephens. from

Your open. line is

John Rider

morning. This on John Mark. for Rider is good Hey actually

markets a on just give other? are you over that So, impact expect could material if paper two, than kraft And us us doing sense a if to kraft is and question update three which plastics on business years? better an the have in on terms of business the paper you you give pressure that of if could just

Jeff Chalovich

Sure.

the we matching containerboard. is point The So, bit strong we the kraft it, saturated kraft. make It's start high paper is so can kraft in it. our I'll in the can a at that DuraSorb, of and market paper. aggregate sell if demand on Demand

I our market's the affected kraft-bag was really think lately pressure on the markets. because seeds, challenged cements, by who more there customers' floods. been in were fertilizer The extensible those more that has producing the and for Midwest,

substantial. that's not with expected. not along the thousand It's we -- what kraft it's from bag, a off So, few bit but a tons

where kraft space the overall inventories kraft where destocking bag. is our in more the we right a would containerboard destocking and sack different now. looked have bit higher And And slower extensible regular say space, we business inventories a bag see I stock we in the of is bit seen if at our than seen and you have a that in

envelopes, as we're in long-term, the have and things opportunities space. said opportunities I yes that use plastic looking in and sustainability replacements the other pouches, realm. can customers with think And at kraft In our we we through I our

Operator

Your next question Weintraub Global. comes with of from Seaport Mark the line

Your open. line is

Mark Weintraub

Thank you.

just clarify First, Jeff. to wanted I

suggests of competitors been represents of you were were as is as business, it So, another July kind they competitor as more you about pickup you what suggested? talking had say would same of that seeing your of what some had the Or when seeing? one the

Jeff Chalovich

a It's a and a of it's the without of Even pickup literally a prime bit bit Mark. pickup.

If last it's you into look through the pickup. a quarter, this quarter

Mark Weintraub

that were period you then Can corrugated And that potentially now over? that think roughly great. you of a Okay, of and be your us what defined could systems. previously sales I us update time? go now going you Any might through told machinery-tied think where to XX%

Jeff Chalovich

towards getting continue more packaging. now as XX to will grow. That machine to business. associations we to XX our over We're Sure. pull expand with And also machinery ratio the our continue of

higher, So, differentiation at our and look pillar major in major as differentiation strategy challenges solving for driving that's our a we our customers.

a that's today don't and having there's to customer So, labor issues. chain challenges, not efficiency their solve streamline not supply observations trying to talk challenges we

design platform across So, innovation and to that with then our that. our from automation expect enterprise, whole ability of our we sales marry lift with

Mark Weintraub

a in the sounds a why in think last big That or Okay. two? share been year Thanks. really very you've that like successful you increase. Is big gaining reason

Jeff Chalovich

of part that's it. Yes,

that the solution think other goes the that part design I the innovation set. with is the just and

folding we're now for a carton to able solutions customers business. that do providing with are and array We our broad across

one. NPS is another

their the pots. a example give an replaced and with great So, solution flower space needed be going were in horticulture They just automated a are to we They horticulture had. tags you I'll labels. label to

the produced without scan got person with They can supplier the for that. And a upside so labels. and so there's a four designed machine. partner, the And sold are digital on having We XX kept machines we label labels, we the days, tag a horticulture the great in immediately. machine

to in great that grow the whole across of So and a is differentiate our way sales. ability enterprise type system our

Mark Weintraub

you. Thank

Operator

next Ketan with Capital BMO Markets. the from Mamtora comes Your line question of

Your open. line is

Ketan Mamtora

us you view integration remind your Can morning. Consumer your in in to Packaging? of level you Good Consumer need be what kind And is there Packaging? what on at level has all changed

Pat Lindner

This Thanks is for Yes. much Pat. the very question.

level XX%. be So our consider is integration to overall about we

conversion. About business In bit whole. how XX% little a so of bit of folding our internal SBS a we our through describe me Let a little as integrated over carton internally, breaks are XX% that goes down. that

understated bit applications we of we such specialty of because those have most where little liquid like consider be are we to print those a specifying and tobacco, that's effectively couple other as a because integrated packaging applications downstream. But commercial

all together put about when XX%. you we So that actually SBS are of in

than are higher of that. CNK terms In we

XX% XX%. down We portfolio about URB uncoated CRB recycle is the is And part our board a of are smaller XX%. at around

So weighted company. the that as overall overall XX% net-net is average of an about

your around an question are second this with look it to we basis. continue where at is on as that far and ongoing we happy As

to main it's system, an opportunity now drive in and replacement as play growth our the about general. as we strategic our -- is further paper-based in organic great And our and right replacements really markets about that our to how integrated and we for that one integration solution move priority all organic we opportunity But with growth do with markets those think customers again see being an in best how opportunity. to we serve plastics plastics

you are probably as multiples high. be but inorganic would space deals opportunities got that other that not won't is pretty think That's attractive on say to selective -- look very selectively And us. know to we've there I still in this to explore we

increase so to growth And organic our in right to integrate now is or to to we drive levels. certain places look our focus integration as

Ketan Mamtora

Thank you.

Operator

question Davidson. next Steve with comes Chercover line of from Your D. the A.

Steve Chercover

Good morning everyone.

debt, framework, capital in pecking the coupons up your debt? might have your -- of target are stock point capital you got a debt dividend still all commenced order respect I are some ratio. of leverage you a repayment in QX the know touch you allocation with the the repurchasing with So -- above that's following probably on the to first X% where But move approaching on considering there your priorities a up allocation

Steven Voorhees

question. a great That's

that's at I periodically. we something look think that

Just past the of time. that trade-off this I we will look to continue down over pay think But quarter as chose at to we debt.

you us have both. If we time over done look at

paying of And almost this down the quarter aspects of you've from very more enterprise comfortable I because would our past cited kind share that dollar. But benefit of I for think think getting are we make attractive. an stockholders dollar that debt relatively standpoint repurchase a were I couple think

Steve Chercover

agree. I Yes.

Is KapStone guess of makes be a one stage think the just load equity undervalued to I ahead on they quick continuing front-end it that it. your much synergies, you'll are said million $XXX where So to you that do a know to be million I at quantify sense target. also you then point And achieve? $XXX some schedule. you accrue able than how going better more there the initial which was are you if to than is might

Steve Voorhees

be there won't point. a think I

how we'll million. past I we'll get far then to million figure $XXX and think $XXX get -- our out we'll

Steve Chercover

Thanks Steve. Okay.

Operator

of from with comes question UBS. line Your next Edlain Rodriguez the

open. is line Your

Edlain Rodriguez

been similar hasn't what's the seeing on Thank Consumer from market of you shifting seeing you. on Packaging, One as Good plastics quick outlook in terms the at you also U.S. And as are other in in strong in trends SBS has which of sustainability paper-based guys. as packaging? Europe -- to grades? been morning one the terms are your

Pat Lindner

Yes.

So thanks is Pat. the very This much question. for

the are good actually you growth. because unlike their a on one in we areas focused which And others it serves the So, of some little the as is SBS broad market markets. SBS work a know pretty of see pretty of bit complicated more market that

also looking meals at meals. more those with by right I than at the foodservice eating couple smaller just is think pretty driven a you it's sustainability, interest segments, when today. and an by but now just take-out out in strong driven So of big and and look example trends lot foodservice in a There's consumers rather that's as snacks

is to America. customers That plastics that. were are that extent they service moving now about in North take and towards of lot needs helps of in those offer more trend question and more. of they're to packaging many right our a the And those are and demand. and that that the paper moving so There's looking advantage no towards applications And retailers

tobacco Now decline, as that for a SBS, so some certainly increases. commercial markets, as other and secular those offsets of be far continue to certainly print tobacco in

in your be around replacement. to that by question in we thing well cup one the is some stock. around also and pretty question, plate sustainability think the happening is second in could demand trends the as other markets cup we're this excited stock driven about some that's sustainability America as Now well North of of future The SBS what's Europe your but in also

cups, on coated so at those Starbucks and plastic example, today others polycoated for And the are inside.

recycle entire our can that the all many that's Now industry. system, recycle true at our system. WestRock, other of way But not we through recyclers the in

developing And Challenge. by we're Starbucks the the won we're We so an things NextGen supported that coating of and number was doing award that won is and like and Cup different Coca-Cola that that, of there we recently recyclable a a and fully for one that companies others.

we're excited about that so And win.

We are of process the in customer trials.

we turns We’re if that can the -- in there's paper over really where cups and scaling world. that if billion that think up XXX used cups commercialize we

there's very think development. demand. that's obviously, to But so much in And still we there, some SBS piece an drive opportunity a that's

others other around closing wrap terms And has lead Europe other up on just on replacement sustainability, brands. certainly we happening example well and retailers areas, been big out shrink big business in beverage some there's Diageo North mentioned I versus think your picked where with some in Europe side. America and nice in the of the as I

has packages That at side. that been America America around specifically think different bit in beverage. bit happen North Europe of plastics focused diverse that will packaging but behind when pretty aluminum types one's in the selection foodservice has beverage trend a are eclectic cans look of different and and North used. will on little that but a come, We a you on more particular,

Edlain Rodriguez

Okay. Thank very you much.

Operator

from comes of the Seaport question next Global. Mark with line Weintraub Your

is Your line open.

Mark Weintraub

I project if A just Florence be a you. going delivered question give sense et focus for in can that that and just given productivity capacity. the is of on next how just facility -- much is that Thank us position be? how on that? So to year. much the improved cetera, costs, lot you big improved of can that on forgetting an a assume the we How impact lower cost that But small increment

Jeff Chalovich

Sure.

I million in think previously range. it's we've the $XX said what

Mark Weintraub

Okay. Thank you

Operator

line of of comes question next from with Bank Your America Merrill Lynch. the Staphos George

line open. Your is

George Staphos

in just on some little supply changes box talk -- to wondering mean so I follow-up about, bit Actually I can SBS. a about quickly we in was particularly you if want basically for SBS. read just had I

for so you're associated demand get an whether seeing that? And essentially wanted a in to sense increase with

Pat Lindner

Yeah.

a capacity overall has you've SBS and market. So other we announced all and can't been comment subtractions lot that changes the the of previously some that additions changes than seen. in of And there to

opportunity to SBS plastics increased I think going some earlier my drive back to us demand. comment an replacements give

capture on to direction think be dependent I ability the its those some long-term of plastics wins replacement. to in is going

print commercial The tobacco are that. the as to as offsets well

all ramping bit long we and we much is the little six even that weeks tell of that. we from of how a up backlogs as production to of it's now outages maybe still but SBS. the on our some as sort right what can. upper to capture from We're out, So end going to strategic now They're that see have in difficult to is four right

and pretty of solve now innovative right that the robust. right in really of some particularly space. some new term these near-term and sustainability solutions So pretty immediate help it's foodservice challenges the think on the strong still -- capturing But the in in long-term depends I

Operator

back to [Operator this turn I Instructions] at There James Armstrong. are time. the no further over questions call

James Armstrong

for our you, Chris audience our today. Thank joining you thank and to call

have reach As us questions. you to if always any out

We a are help. day. to always Have happy great

Operator

concludes This call. today's conference

You may now disconnect.

WestRock (WRK) 1 Aug 192019 Q3 Earnings call transcript