WRK - Earnings call transcript Q1 2022

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Operator

Good morning, everyone, and welcome to the WestRock Company Fiscal Q1 2022 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to James Armstrong, Vice President of Investor Relations. ahead. go please Sir,

James Armstrong

Relations thank call. joining release view ir.westrock.com are to WestRock our Officer, Sewell; We the the and and webcast. accessed Chief can website. quarter you're this first at XXXX on posted Investor Chief application to on presentation earnings and issued accompanying of you morning, the our They Alex via for Executive fiscal morning section or be With Good our Pease. Financial link me a the using this call Officer, today's David press

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

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

be also call. during the financial measures will referencing non-GAAP We

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

website. previously, over presentation available mentioned With turn is As now that to on slide I'll our said, David. the it you,

David Sewell

and James, joining our earnings all you, thank Thank for you call today.

quarter. We have a this updates new and communicate lot of to exciting

walk through quarter segment rationale high-level provide this a this the new overview of that, fiscal our I'll for I'll results. structure, First, into explain quarter which first reporting and effect went change. After

deliver significant the and you opportunities transformation in performance provide the for of is a update which change broad-based underway our on I'll step Lastly, we see to business. examples approach,

financial performance dive provide critical CFO, our that, our organized newly and segments quarterly our Alex new Following other a for performance. will deep Pease, into

our chain and our line year move quarter to higher our hard then expectations was inflation and have. increased absenteeism continued with the our in and I that Q&A range. may COVID, with quarter. fiscal Despite work want a a guidance off will We related you and within any take to to answer their around questions the disruptions, started solid We during thank to well. dedication for teammates supply moment world we executed XX,XXX

first For adjusted billion, consolidated at million, adjusted We fiscal in quarter, period share, sales the XX% EPS same up year-over-year. came and $X up of up over were EBITDA the $X.XX delivered X% X.X%. per $XXX

aggressively of within $XXX During the net stock while X.XXx quarter, range X.Xx, continued worth of roughly X.Xx. our million to desired to well buyback we of repurchasing also maintaining stock, leverage

and was quarters a As continues the impacting well supply COVID quarter Despite to to ongoing projects results. we all a we mills year, quarter safely. delayed execute our demonstrated strong and reminder, first labor for to these WestRock. plants due cause chain a from maintenance projects challenges. as at scheduled further box are well as and disruptions, our continue to resilient by as of to challenges, the contributing ransomware previous incident had completed last and record I'm pleased COVID maintenance report number We

product strong demand across products levels. backlogs remain and and Finally, machinery for our other corrugated, consumer, our near record are lines

on Slide Let X. on reporting I'm now new an our provide me structure. update

and consumer reported reminder, corrugated a As two WestRock in segments: previously packaging packaging.

following third-party highlight help we We markets of focus into critical performance roughly quarter provide converting of well the are packaging converting which merchant businesses. distribution which of This as will operations reorganized in for corrugated first and and elements all integrated is includes sales; consumer of and accounted XX% material made the packaging, now our sales; our consumer reporting operations performance We segments: first on integrated XX% quarter us first all distribution, structure and business business, sales; to into XX% for of of integrated segments converting packaging strategic new visibility includes X% of as up sales represented paper quarter Packaging, the includes our greater the sales. four providing our while portfolio. paper paper, corrugated which which includes which businesses,

reported our and we recast growth more of well in and performance more shortly. this benefit As will businesses further you of results portfolio improve profitability. enable describe assets. eight forward. quarterly our sales release, going help we this to as Relations within we well features clearly as enterprise press to between In integration detail the see synergy a our efficiency diversified will an provided press will website, structure new as of and to have vertical importantly, better of approach I located value drive mills the converting as Perhaps in our of Investor section model greater release quarters the

a on we Let where Slide today Please and are to me WestRock now is spend X. few minutes where turn headed.

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integrated that the have of strategy elements non-core our that and have We addressed. be we inefficiencies to portfolio must are

and is plan. our transformation where going they need to be. implement Our are not we as to our profitability change ROIC This

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cost mix a control. margins through step drive and excellence, Second, in change pricing our management productivity,

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three Let strategic each an of update me our provide priorities. on

agenda the is packaging growth value the designed can only WestRock maximize complete Our solutions provide. to of

plastic portfolio, ensure strategic we the integrated valued macro solutions responsive packaging paper, they that us to enables continues right using they have place capability our With packaging great that GM, in recognized packaging. we in of combat customers secondary by and for ensure process, provide replacement is It to and security sell this, that year. be as partnered unique distribution global the them right solutions Our we sustainable to to the it. With a partner supplier produced growth machinery access our deliver to are have we as and combination the full footprint options to supply counterfeiting of to our just Innovation and Motors primary of the help the issues are in example corrugated chain a and such is and packaging, and supply when consumer a industry with differentiator. parts corrugated they have are unmatched their driver. our need manufacturing were General brand and trends that to industry. our packaging

sustainability. introduce anticipate needs new support We products and also enhanced that customer can

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logistic our evaluated see we footprint have asset and and that are opportunities optimizing. warehousing We

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ROIC aggressively are excess our focused We cost capital. in our improving of of on

work, our capital. expand the of part equally important an opportunities and have we is utilization to identified Through capital productivity our diagnostic are adding without important. capital improving While equation, deployment initial capacity

our non-core return looked to thresholds, at projects. We portfolio our identified return the to don't meet that resources and highest have only capital approach a implemented have deployment disciplined we our assets and directs that

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down consistent our laser-focused debt end, strong reward business the over strength and our enables and consistently. that also in past Additionally, business in quarters generating past flexibility to all To and invest twice cash sheet. and have through are the the substantial balance aggressively have in free year. financial on us dividend flow This paid we we several cycles maintaining increased shareholders

aggressively Our growing commitment and also is continuing to stock. WestRock intent stable a our dividend to to reinforce while repurchase

XXXX, on $XXX million generation current to very buybacks of next cash to XXXX more free and get several aggressive As strategy. an of level, on strong With stock our QX our stock as we a up and targeting of $XXX repurchases payment approximately down months. initial QX our are reminder, and have valuation in the over flow repurchased intend this we million

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value drive our is shareholder We are at and ahead. motivated plan committed enhanced about executing team enthusiastic to WestRock is our and what to

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have Anderson, the operations excited in detailed us the effective have business has chain productivity Alex greater company I'll already optimization focus experience, We on Alex public November supply our years Peter And proven performance. savings. a as cost corporate capital transformation a on who join and with CFO, ask leader, aligning XX is company I'm be With brought Alex to as new finally, now in XXXX. Pease well chain provide across supply strong and broad-based portfolio M&A, strategy, to of rundown partner. over markets, as extensive a our Alex? to experience

Alex Pease

my Thank to you, excited be as everyone. David, hello, for and call CFO. first earnings here I'm

well first results want diversity performance. the of review future that David in of is The real. fundamentally drive change in a improvement Before is detail, to a I the the rarely quarter seen I the level the step team as to this I as commitment opportunities one. And are to opportunity significant for described aligned behind have different ROIC margin and vision reinforce reiterate

to costs, sales to we'll million. While offset to was fiber, mostly was impacted higher adjusted cover it's that, were the impact transportation positively results. mix margin as the discussed in and David previously $XXX including quarter by early billion as year-over-year. supporting $XXX year-over-year $XXX be earnings X% maintenance XX% Consolidated and process, higher that Fiscal first This conducted team conviction I adjusted every the well with quarter. increased million forward the look EBITDA Price up let's successful million the and high higher planned And consolidated XX.X%. and in journey. and pricing in the $X.XX in of EBITDA labor by have

the first As maintenance is quarter year. the of a fiscal quarter reminder, the highest

COVID materials, our challenges which output. related and faced freight raw impacted with production we addition, to In

Price were $X.X million sales giving XX.X% billion. an to adjusted additional up to of Packaging, $XXX $XXX also adjusted Sales white million an the in top white Adjusted Corrugated in year-over-year. sales. EBITDA excluding XX.X%, XX% Turning year-over-year excluding trade segment Slide EBITDA declined margin trade XX. EBITDA drove to top

million logistics in to productivity by as more of $XX $XXX absenteeism was labor $XX million inflation drove high this of and impact However, and decline. the challenges well of volume. due The level COVID-related offset million of with issues much as lower downtime, planned of both volume lower the and unplanned, than

as XXXX XXXX, of we first challenges as most well input higher chain quarter fixed supply impact and Following the experienced cost fiscal a significant of costs cost strong in in inflation the was productivity to maintenance factories. impacted high into for record labor mill and in COVID lower of our the the our by scheduled further inexperienced absenteeism planned system. introduction downtime This due

working We discussed. return address additional are over the balance the these to upside issues to levels the historical are anticipating more we system of and of that WestRock as business actively David deploy profitability the with that year each of operating will

our record COVID-related by year-over-year, slowdowns our quarter, American X.X% chain. maintenance the supply lower driven the North During disruptions levels, shipments box and mill continued in were

However, Packaging more, backlog sold for we have business strong. it. would could the made If Corrugated very remains certainly have we

business our two Over flow we to the published quarters, Corrugated the through Packaging expect next pricing increases. price additional from previously

pricing has only this published includes paper reminder, that pulp already been a week. in As and

though were $XXX declined X% the segment. Adjusted quarter. XX. billion, Slide on adjusted for business in to year-over-year were million the Packaging EBITDA XX.X% Consumer the to EBITDA to $X.X Sales X.X% Turning up margins

As improved better adjusted drove $X of million and mix added $XX to higher EBITDA. and million million respectively. and productivity price better $XX in Corrugated, adjusted volume EBITDA Also

test all Packaging higher the well remains of increases due $XX kit the government of kits published inflation very country. household as test the by and million high across strong offsetting COVID more transportation in to labor implement in with price other the announcement level COVID to as Consumer costs the negatively is to earnings to However, U.S. recent at consumer to production contributing The improvements. impacted free maintenance strong weeks, every five total continue backlog to grades. we the seven fiber, offer previously backlogs than Consumer packaging the and

to very XX. $X.X strong. was Revenue EBITDA came an previously EBITDA of up Turning EBITDA flow-through published to due in Export XX% with billion, markets impressive business $XXX increases. with an Slide improvements mix for of paper Adjusted our and XX%. at also adjusted year-over-year XX% up million was price margin year-over-year. price the Adjusted were

production lower While inflation, some paper face the headwinds quarter. we business well freight performed very with levels and this

for expect historically X% remains both Slide our to our to domestic cost published to we by chain higher show our continue forward, business we strategic of labor our demand costs. the mainly distribution distribution margins strong and of at supply levels as the Backlogs in our and the and EBITDA markets remain value and $XXX and for challenges. the significant be diversified X.X% flows driven our service due to achieve profitability and strong high contractual through results. Those pricing highlighting portfolio. sales importance Demand Looking from paper were million. labor products last recently outpacing due chain year, to for supply XX, remainder to customers issues the export pricing year is On business. customers Adjusted markets, certain independent up to to fell X% fuel supply and and the ability higher of

change had reversal of of was the during pandemic much that plan free this we of action Our in significantly flow to quarter first the place due the was down fiscal for XXXX. but quarter year-over-year, cash the

level. impacted Specifically, previous compared in short-term negatively cash short-term we compensation incentive year previous led year. when in as our paid threshold incentive strength to year a by was that payment versus in bonus at pressure, the of payment were made fiscal Compounding compensation stock XXXX the to larger the payment the

still and impacted, of Act. impact from the cash as the the through required generate excess CARES $X.X progress flows negative returning year. highly than had of expect as to we of we we match payroll Finally, payments the Though cash quarter the to rather tax billion the stock XXX(k) was deferred repayment in part

quarter for the second XX and XXXX. of our Slide to financial guidance Turning

to continue price previously all published increases. implement We

flat cost roughly inflation expenses. higher offset improvements and as energy other costs OCC and expect wage should be in sequential We by freight,

of to past These we EBITDA share. months. scheduled So coming we tons the $XXX earnings million $XXX to result earlier due consolidated share along adjusted $X.XX in forecasted per delays mill of per XXX,XXX system and are downtime the to in our across maintenance our quarter planned million of with highest $X.XX XXXX still assumptions approximately adjusted in in fiscal have originally maintenance outages,

from we containerboard As a grades note, guidance price increase any benefit customers. include per $XX have that potential the our does communicated to not ton this our across

behind of back now Some down per and our continued David costs approximately logistics $XXX turn normal Q&A. expense, shares XX% OCC costs a to outlook outstanding freight sequentially. gas move diluted I'll ton, include down of assumptions tax Labor to it XX% to sequentially conclude to to David? before $XX we increases, expense and additional million. due rate to $XX merit natural inflation in up QX

David Sewell

In transforming environments. an that Alex. delivers closing, of through to process into all in leader shareholders Thank consistent, we're you, industry strong the results WestRock operating

in WestRock, operational and growth these optimization to path made and phases for to our are substantial on We Investor was efficiency, our forward look progress develop through portfolio and targets of our to vision. operating continue advance already, deep beginning forward providing dive We've the our long-term help made to investments. footprint a previously hire our key our journey about optimize which February. efforts and WestRock overview talent of us Day, We system scheduled XXXX at decisions

Day decided Q&A. person. situation to we meet current with we to the can to weeks, let's that your important details and continued that, thank the interest Given We'll With WestRock. for move in hope in more event share May you the this about COVID, Investor in coming with have move

James Armstrong

you, please? may first we David. question, Operator, our Thank take

Operator

from Our Mark first Weintraub question comes Instructions] today [Operator Seaport. from

Mark Weintraub

appreciate we'll details. deeper the about dive or. May to forward Certainly you. Look the be coming hearing Thank all

juncture to bit you're little going of undergoing? the going give quick one the be a well, a process. be – sense that first bottom something that to a it's question realize that becomes to can that to showing follow-up So that is the of I this year see at benefits should all, sooner? process? when think even of you actions part we us Or do we on up of type when timing likely But line? start the of next framework? what start Is driving Or

David Sewell

appreciate And Good – benefits journey, start question. begun the will you morning And this to see believe Mark. I we year. have I our and

were operating to heavy the already unexpected between we with starting implementing shutdown last But some scheduled a and an benefits. of really chain. maintenance WestRock challenged COVID-related absenteeism supply We are system. our quarter the see new We are in those

you business, integrated the our unique we've situations, business of We're business, MPS that we've former take our lot consumer mill now those starting a paper organization some especially see organization. productivity global and in to our one that seen If in improvements. out with consumer our of with

So it our There continue will move believe, as and to to throughout are see we be, forward. them. we we profitability, starting will benefit material just

as see we'll this think to start a I So we forward. benefit more material you'll And year. to start move I year, think benefit see next

Alex Pease

Mark, anticipating that about And what just think David a provided, more to really add segments. is lot return a as taking. we being the all remarks, on of we that by mentioned is to you actions guidance in I actually, across normalized if the the we're my to saying, margins are driven

year, full anticipate lot So our by if a of margins they were last being David year north what do at described. again of look where you you driven expectations,

Mark Weintraub

that chain you fair range? the Is we still in guidance increases, just following as do a you been Should that in other which absenteeism maybe a for year. enable to And fiscal that same that issues the COVID, highlighted guidance that that, have up despite and interpret slide that the the interpretation? are on be that happening established see the reiteration should in things you supply on Great. I this PPW haven't ex-price appendix,

Alex Pease

Yes.

our for said So I reaffirming were we year. that guidance explicitly the think full David

expect some to Just detail, a the the lot do to you the impact of inflationary give year. mitigate of over we additional course

a least Natural we've I $XX sequentially be said QX year-over-year sequentially but the a ton. be to at over we're in that of that basis year brought on think remarks prepared the expect as gas fairly that. course down the we to up, be down to we Logistics will Chain one still OCC a between $XX and for who's thing Anderson, is the addressing with Head Supply Freight battle. really continuing new of But will in Peter David significantly. mentioned,

flat freight to some expect at we roughly So least of keep to manage year-over-year. impact the it

a So yes, for fairly guidance we are quarter. in our reaffirming the print the strong in year confident full second expect and

Mark Weintraub

that reconfirm, doesn't quarter and it have just – Great. to that in, for anything also And mentioned I that current was from but I specific you quarter coming it's think the containerboard fair? this the include think it it's on or confidence full the I on price about increase made that statements that not the that in assume And that the true, the year, Is that motion. that's would dependent $XX. guidance be we're you too, for

Alex Pease

pricing, you just right. bit. to exactly that's a No, since And mentioned just little – I'll add-on

order successful improved have been impact customers. the per published that. if to most, what of contracts you've pricing, the of in We in $XXX realization realizing the the in seen of been have getting over. some we've communicated as We And have and we as of roll ton price realizing do do national we've all not

And year. a continue the do to tailwind favorable of pricing to so get we expect we as the into balance be

Mark Weintraub

appreciate detail. Okay, the

Operator

And go your our Please of Staphos Bank question George question. ahead from from with next comes America.

George Staphos

on you at key you XQ all last going businesses? comment down quarter. had comparison have in Did early you was Thanks your how all question said shorter as in as for with could should corrugated we materials, didn't in And for transformation. the for term, Kind a much. the cartons luck very are used get the fiscal – we morning. well good I folding to volumes was think one, it Hi, you X% there it have. volume details. if Good the cartons? I one guys disclosure see minor when Thanks of additional

Alex Pease

and the the team disclosure. of and just The has relates providing transparency forth. and of we your been get the But business the that hard exceptionally year. update detail on reason so beginning The I'll to anticipate just that get we then of to comment start, in segment of weren't disclosure David really the all the the in that the quarter volume level to provide we need the working it unfortunately, you Yes. to velocity related to didn't to new I'll models quarters come. able And as all was to let detail. the all

that velocity about So business I'll in this let the and talk the David year. nothing into read to

David Sewell

Thanks, Alex. George, seeing I levels. we as mentioned earlier, backlog are near record

And our feel about our really base. so we demand good customer from

really Our backlogs product situation are strong. out very a It's door. just getting the of

better we of come So volumes to down the COVID back these from better our some demand. the and and can we get meet supply backlog customer chain the work disruptions, our

So about our feel to service We getting we how disruptions, feel customers and door. through manufacturing freight of getting It's year. it good started very demand. good normalized volume these the so and a customer some situation can get about position, it, we out just more the

George Staphos

Okay.

the So because of I'm kind it, chain, not rather Is it's not juncture, volumes issue. really you'd at this supply a David, the that taking comparable fair how partly comment because on sense? are

David Sewell

to The is to is we demand That's there. It's to production be we continue able meet exactly the need right. volumes mean that I get quickly there. to how them be to where demand. backlog just

George Staphos

capabilities. Two to systems the machinery It has it offers its the offerings championed the and both always understood. picture so that corrugated WestRock maybe bigger questions, and consumer Okay, product fact customers. has

the about over couple years, talked of sustainability. certainly You've last

about and strategy And on progress been what's front? from WestRock, and offering what to accelerate expect And Paper it good going What's customer. So in as business? And part Thank think How the should what that going I or maybe be that's necessarily more that you this manage longer-term? more more to this the you to you should to the business? want and return should even margin Ultimately, you increase. of And integration vertical that the for business, integration to will are get because shouldn't to for strategy that we as it is specifically always so you luck allow maybe to going to margin? then business for hopefully to vertical from improve What's change the what success goal? that recall, that? expect grow quarter. why we we define business

David Sewell

that with on invested is a are new better better provide the to drive been take the be – Thanks, customer-facing system together. But we that is, tell you on, operating is both we have unique from our that goes drive a significantly business splitter where been, obviously, our that that has efficiency which Motors can one of value of I And scale see the more something we work start is on and our customers time. at to and example, now I'll corrugated and operating questions we your I differentiation should from thoughts convinced consumer that's significantly going have question in can can And together. first, because we're great better I standpoint, on. is value George. crux than with the provide I'll together. it the that And we're are mean your I capital, that never from productivity think think of I the journey going is that efficiencies and model. would we where I standpoint, in other and truly return what have, a and This solutions a doing the a to flexibility getting am is strategic that I and you're customers, think on to we that General it. better and There the a we really benefit in margins

the drive continue want just that we together. done infrastructure. mills continue something is with at brought former time some one will that I see continue business, the to we we mill. to driving as that that it our we're productivity, the short the you And It's in on And amazing on. think we're margin we've that down double already that and business improvement to driving productivity to and what of lower-margin MPS now seeing consumer ROIC

mill the transparency So business growing, as ties that paper you'll serve market to like to right our to your business, demand as system. with really it serve our What provide in but I especially key sustainability us continue to And see gives that our like the profitability. second we growing think markets. is does profile our that. demonstrates you the And that's very attractive packaging We one flexibility managing being a is paper is driver. that question, then that aligned also

to we the we past, So reduce segment exposure volatile I've to do in of the that externally. we more want and do do, said paper areas our the

are segments leader a to market So paper. that more you in will but are trim start we market go after see the us volatile, we

we through trim that we can splitting out this like as our profitable and we be, how you to part which business this portfolio business demonstrate can to so of And we once allows flexibility went flexibility us can review, plants Longview, and embedded we I markets mean containerboard kraft and have the Charleston footprint. Dublin, Rapid our between in amongst we paper mills in flex mill flex. to our strategic

profitability. great in and changing have XX we can as just flexibility supermarkets. market situation bags dynamic a shopping have our plastic where And So example, optimize banned we one states

demand the really years of couple the last has paper expensive. So over kraft been for

our a mills profitability an us. is really have position to flex ability kraft better and leading in We advantage paper for to drive

new and why the That's we this. in value do to tremendous like announced. we we structure in think paper that why that's tremendous there's So value

George Staphos

very much. you Thank

David Sewell

George. Thanks

Operator

Wells And question Gabe our your go Please ahead question. Fargo Hajde from comes next with from Securities.

Gabe Hajde

And maybe of been at it clarity Thank least wasn't there have you. to in I availability that Good heard clear past, in what wanted the on thought get kind me a I to I morning, dig or debottlenecking. capacity David. Welcome, Alex. issues. little was

on side, or if velocity some maybe an impact that and of about is, what think you a I comments on I if made And the to you then expand So detail warehousing if and profitability, maybe system also my talking a potentially is enable there better sort maybe you hear you're capital little optimization. through from about side logistics on bit the can converting more that? just working on or so of could give but mill and the question need that, build

David Sewell

unlocked or Gabe. we referring versus appreciate really was have your we our opportunities. start first mills Thanks, is where capacity plans I with I Sure. untapped I'll think to question. question. our conversion the

this opportunities, in operate market introduce assets getting we efficiently. systems, very especially can we we're have our and detailed operating improvement, that WestRock As more today, metrics a like continuous identification in much found, high-demand new we very

going better throughput, – asset really operational a better our we're planning, drive efficiencies. that's quite better to going excellence drive manufacturing to better productivity, program frankly, through better detailed and assets get So very utilization, better current volume through operational more

I what so that's mills. more the was So referring versus to

question I warehousing The this the, corrugated part second the of your together. value part logistics, for untapped is of potential and believe, being consumer and on of

to were consumer running chains. go separately, supply and we were you businesses we So had corrugated our back, and if separate

So now now Anderson Peter with coming in, one chain. supply created we've common

can logistics leverage corrugated So We mills were as corrugated for warehousing mill consumer separated both as we the because well and system well. consumer. can leverage a now for and one

So that's have part creation of value to talking what we're about I'm that drive. the we that we going believe

out inventory as trouble position, I kind some it inventories, And as it just And so of even throw I unload. because think we that as of way. box our We of had getting use getting – our from far to plants especially hard then about a absenteeism our you trouble it's wouldn't we had in getting rail, metric door COVID quarter kind the And trouble in that's at think first how we December. mills, it freight. had then

a was of So storm. perfect just kind it

working capital as no So there's working see actually that this we see. extra capital. benefit a We for

Alex Pease

Yes.

on Just bit little to on just point. maybe layer a inventory the

inventory deliberately tons about actually did we the that anticipation build mill of outages in we XX,XXX So anticipated. of

a So that deliberate was step.

containerboard about has healthy at it's think level. low. running you a It little the If been bit inventory, basically

dealt now was down we And then we're that CNK brought the SBS some think, the mentioned. level. inventory as inventory issues to, a flat. normalized of more back So we with David I transportation

just is healthy, maintain So where that reiterate we'll think our to levels are going point, about inventory David's I and forward.

Gabe Hajde

then to are to quantify of improvement sorry, a I'll are kind through stock the about that's would it as progresses? be And you embedding number a maybe it, you that to bit segue And willing velocity Okay. question given year No, Can next backlogs in provide juncture? you might delays, the brief. in to – embedding question. carrying the consumer this at or known keep these be extent number little one, availability two, the you safety great business call I'll an the of, you try system? talk

Alex Pease

Yes.

want at I'll Let me David it, shot and will sure – take a add-on. I'm to

our healthy think Just at we I reiterate, inventories view to levels.

So I think that's the headline.

We finished have described. to being product. system in roll that to seen related Largely, that's convert the congestion the just issues stock, freight able David that to in

and through system inventory the system, the basically as deploy and the deliver demand. consume that operating velocity on greater so we'll we WestRock get we And

backlog. think that point can backlogs healthy, it the we question We're get and yXour at through your record individual I are by don't level. out on believe, are I anything we but sell breaking system. extremely not backlogs segment, a Backlogs on or

of behind, for that's optimistic So the the I outlook year. one think, drivers the

add anything So I'll to add. let David on wants he

David Sewell

Thanks. Yes.

are record as five share, as corrugated and close our would weeks, – to consumer, far levels we are higher I to at seven that's backlogs we Just growing year-over-year.

So we still see strength there.

that continue backlogs see we and down. the be to slowing So healthy, don't

Gabe Hajde

you. Thank

Operator

comes question Please from your And with Anthony ahead question. next our Pettinari from Citi. go

Anthony Pettinari

Good you business, on business, maybe have WestRock there past And you your business. I'm have would thoughts does very to a been talked distribution large which arms companies as that add the few if whole? paper a and over of that share vision strategic morning. kind some for of paper decade, judge the could packaging what about helpful. spun-off distribution performance the distribution wondering how the David, you is

David Sewell

viewpoints is the that with of and With question. Yes. me the is chain their struck inventories supplies this I one Anthony. things the Thanks, changing our world business, distribution our customers on suppliers. appreciate in supply disruption, of of new

local inventory customers And of really security predictable so and are delivery. we seeing wanting supply,

the value maybe viewpoint. there's, there great customer an from a to I in And within so a was It's strong pull-through think, enhanced past than business. our do. margin greater having the our expansion. customer much critical pull-through for To a everything proximity question, to second really your is that and is expectations the to part of we incredibly distribution And is just the

have projects higher get where multiple undergone so be. of believe And we them those margins to distribution expand to that could to we levels

– So being of being of but the to see continue we close proximity proximity to expansion, like the customer. you'll our margin

Alex Pease

on add just capital. aren't to distribution our to I And focused of to one XX%, we're where of be, the we we're things in them margins our like think is ROIC. the of about cost going well is on the just ROIC excess under interesting improve still business, But would and which One, obviously, margin profile.

bad us the intensity, capital not with think for to given narrow So do be lower a it's even in. I a business margin,

So just to add back I'd David's comments.

Anthony Pettinari

Okay. as, investment. And very helpful. That's example I an think, Northwest the you mentioned Pacific then plant a box maybe high-return of

then any you there's of if time And investment maybe in targeted that can return on wondering line? point box you plant your look across of Just finer terms CapEx or put Longview. you kind operations? similar network, maybe box opportunities understanding have there? the network plants greenfield plant box construct across great consolidate or thoughts a any Just you see Do to position at larger as

David Sewell

Yes, do. about integration. we talked And vertical we've also

there. going showcase right So near It's and for and is efficiency automation a to a feet. located XXX,XXX in It's be which a to going manufacturing. mill, several really – things Longview site digital us. does be our on square It's

it of transportation. cost out So takes

it's market is will So a right which for strong us very – now, and growing. you see

going be is It's our site. talked to to will to because we efficient volume a it's mill, get about. transportation. going So that a And be be it efficiency we produce does able to to like more be which what manufacturing our Longview that to close very site reduces larger high that

world as in manufacturing rest good investment footprint be internal the to in So the class an closer at our on and areas, where we our North footprint to our to business, our America look continue metro large mill can customer. to look side be our a drive at of we'll especially those opportunities, around of close you return very to be

Anthony Pettinari

That's Okay. it helpful. over. turn will I

David Sewell

Thank you.

Operator

question. next question from your with Phil from comes Our Jefferies. ahead Please Ng go

Phil Ng

these do Hey, good the of levels are at that really you quite normalizing year? demand is are performing? Do least see strong, improving morning when course production the guys. of limiting see you over David, underlying do great that see robust. your to of sequentially? How you that kind And see backlogs kind bottlenecks

David Sewell

just see will do We I you tell then first that especially plants, hit our schedule improving sequentially. had And got throw we really quarter. COVID with the Yes. maintenance in our Good in morning. you, in record corrugated that hard they absenteeism.

our start COVID see I in improve we improvement that to So through you'll absenteeism sequentially. as think seen We've progress already January.

throughout to force that our higher, at with all labor the improve think sequentially productivity continuing to get is to we expectation flow being labor back the our productivity, our So continuing to that get our uptime year. our will through continuing mills

Alex Pease

our just a of give QX historically, you is mean, sort And seasonal to Yes. sense, low. I

I And you've bit the got perfect of think so a storm.

low. You've got a seasonal

chain the WestRock in got issues issues You've really all is David And absenteeism operating the of David mentioning. then that mentioning, the innings that is the supply opening just system.

duration sequential the So the think the about improvement over the in really baked of if outlook you we've year. year, for

expect So we the of the balance margins and into volumes see should improve to year. you both as get

Phil Ng

just given solid. guide pretty mean I absenteeism, great. that's No, Yes. the your XQ was I thought fiscal

longer new efforts up is Anything operations stacked operating or some to consumer think term and you with process fruit in when this what relative where of kind just David, to the that And out, we given tough how of medium are in you integrate corrugated, are big front. stands that quite your guys as you well a performance segments the embark buckets these term, that's So environment. place, improving the opportunity? expectations? see even on low-hanging better

David Sewell

to of probably more the answer Well, your impatient people of meet. part one first ever I'm question, the you'll

I want everything me, tomorrow. for So

this So is a – but journey.

like scale integrate as the really lot on mentioned, opportunities, the but as we fully efficiency, just footprint I just fully you I at you been expansion that, once in really improve margin integrated a Phil, is your of position, I've our around And remarkable – – where efficiency, acquisitions not and great we when have feel the chain the of as I investments capture the make. well the operational think we ROIC so look create a and just starting the can we that business. you supply that have And to value it

business. call execute to we rigor standardizes we improvement, metrics immediately It then developed and critical we've this operating that. important are believe I So put system, to WestRock for run what and just and the that and so we – areas that identifies tools just process our believe

we're create going going think I that's operationally in place, to to lot value. focused all of assets highly these a So be now and that are

Alex Pease

and page. Slide my all are slide got to document Phil, our This going But headline looks across deep isn't agenda agenda here the transformation the Investor be to the walk profile. we've into we're We're transformation margin that words Day. this – just real. the a in the sort on broad-based different these we I of the X, levers details through P&L the push what all going driving is of what get that's very favorite think we And depth through a slide is like. of when as where we in go to fundamentally

Phil Ng

Okay. Super. Thanks a guys. lot

Alex Pease

Thanks Phil. Have a good day.

Operator

with Mark your from question question. Our from Please Montreal. ahead comes Wilde go of next Bank

Mark Wilde

Good Good David. morning, morning, Alex.

Alex Pease

morning. Good

Mark Wilde

where following opportunities two see put biggest and work to next to level you around share to capital returns? can start over discussion some thoughts and just on you spending or three Longview, improve wondered the us capital I the of just to on direction the with this years

Alex Pease

capital the diet is our typically, $X order of in billion. So

So I guidance $XXX to this year. we've think provided million billion of $X

projects just round I ROIC. and that that around the I company think sure David numbers, sake highest making we're lot X to deploying for have $X billion return the passion both of is the deploying of focusing and a on things of really

course, basic growth the to of investments, the technologies. We're productivity think example. sustaining then future, investments. have a we all automation, and safety the factory world-class and And a investments we of to I about going there's build So is digital perfect but leveraging of growth health make, the and Longview plant as there's think that these

digital investment We and the what have in our setup that reduce customers And another to us shorter really are preprint runs around for. times deliver on script into talk we allow about preprint bringing asking didn't the capacity. and

do threshold, highest how where as we capital uses we be capital or the alternative alternative look all do to disposition things there's of it's at delivering $X to deploy that forward, going consider billion assets. going And our how and the aren't about of So about return those we projects. deployment return portfolio on think the

obviously, best So we're the that business, investments is the on capital-intense return and And that we're think strategy getting sure extremely talk about making. the I for we more can work there's to can that. an do make David this

David Sewell

plant, the would square building great to Yes. foot we independent easy example customers capacity to okay, box XXX,XXX exactly your have that have is Well, we an build to our incredibly the our I and want an I it in we needs. be a up the box box think efficient in this to, close Longview at to Pacific mean, than point, help it increasing there way the exact much that. for we want build – of Mark, plant would is want to thing lowers us plant same That geography could been lower been a how the with time. Northwest, return, sets run cost, buy to it, lower our

Northwest. higher be going on make just the Pacific So is ROIC the if or to an return the to in acquisition were that we much than

about of how we're kind it. So that's thinking

Mark Wilde

which like in you've often on how industry manage changes I the national now. things debate That's David, or the for Okay. a area potential I'm within just curious, guess WestRock XX helpful. sector. XX how months you are or at follow-on, Any about been of an thoughts handles for accounts, integration

David Sewell

coming this came Yes. I been I'm interesting industry. different industry. a into Obviously, from Mark. It's smiling,

in and we that the opportunities, I margins. I of can there's cyclicality of our think value at And we as solutions. selling, platform especially think account which value commercially look out continue especially national innovation provide, everything opportunities gets and some sustainability business the machinery of with how us we there's

this always you cyclicality. that the make at may make look piece in going to our to look mentioned with I how acquisitions, at I So one plus of three. we're believe to when look have if customers have I very but to it, at hard that, partner integration And before, reduce you we one equal

shareholder and significantly for reason, value it's You and and to value. a to customer better be better bring better do it

acquisitions we but And fully we all of these brought integrated haven't so together, them.

one not we're We're our which to plus three, equals able all why our doing, three, we're to at just quite and efforts ROIC which and execute. that's the be is So to confident our get helping to profile. one to not going are going but margin going be we're we growth,

Mark Wilde

All turn year. it right. Good I'll balance the the luck through good. Very over. of

David Sewell

Mark. you, Thank

Operator

Kjellberg Lars Please comes from ahead with your question next Credit question. from go Suisse. Our

Lars Kjellberg

that quite turn just know you to business low-growth can back past, e-commerce. if how And business be two. the of what you potential view sustainable in on that the relatively has e-commerce, you mentioned want you to you've solutions. the what like packaging building pathway to similar I how in a – may in your curious sustainable I'd you this packaging to you opportunity to light and comment in if morning. to growth are capture to good potential need seen frequently been And that it's see say Hey, anything, accelerate pipeline growth? to if do, compare to

David Sewell

that for Yes. much question, Thanks so Lars.

the things think something piece environmentally solutions most I provide. the because of about industry of that friendly the is that one we this sustainable exciting is sustainability

and on we measure – opportunities. rate our Our replacement plastics run

plastics solutions way well. we sustainable and it Our say rate the run is I to improve replacement would quarter in every that continues on as capture really business

billion. to sequentially quarters side run then throw our now, I bags. run it We broken program this, translate We've mentioned And overall measuring improved just attractive shopping which have believe continues Canada And just I mean with – mentioned believe later, Tim mean of we started you I about just in And the could million. paper a now exciting solution very last at it, banning below what as of we're that to states for is across kraft we last billion. rate a incredibly earlier, couple see We to for. paper, good had the down see $X multiple is the rate available year, – have market we on grow. a a the we about $XXX It's packaging. completely we to million. quarter, well in as $XX $XXX XX the over service. we cup, food as applications plastic that it an I And market even right $XXX Hortons So And paper just million. sustainable opportunity. the billion we we with – then of in $X plastics that's

Lars Kjellberg

opportunity? to to Got need anything it. you change that capture And do

David Sewell

Yes, we're Lars. no, really – our you're doing and investing What absolutely R&D right, we're really is in innovation labs.

to Virginia expansion partnering hiring the side that barrier customers in because innovation solutions really plant these products. on to finalizing we're is pilot develop to more packaging of are we properties because lot ton a on we all for have a barrier pilot a think We programs We're of properties the our with with Richmond, of R&D key sustainability.

grow. continue this, and as we of to are that to So investment expansion opportunities investing in our see you'll continue

Lars Kjellberg

how do question do in where relative a just this this years see from being about has delivered from X% the had – of view you the to XX business, then you to XX% to potentially now? you e-commerce And X what

David Sewell

question. your I not apologize, I sure I'm heard

You said e-commerce?

Lars Kjellberg

to what delivered? if Yes, compare you has e-commerce this opportunity

David Sewell

of definitely us. players. market with for I a the from starting I reason is of pack not demand, like airspace was E-commerce plateau the think but of package doing market. pre-pandemic the packaging. there's interesting also of on we're work to little it's mean the the levels, some in than them for we And important in where size, higher It's get things an bit lot an a is I e-commerce that, because you're – significantly right a see to think, major have where we waste it

with people I customers. and the if in interaction opportunities innovation the So just But too. have there's When about we packaging about our continues think and are e-commerce, think to you getting that that e-commerce, the smart there's supply chains less connectivity the omnichannel But to and and of we packaging number of packaging. into grow. think

also in innovation we're an side that looking at regard. So

growth as about them. it's high of I market is a it me. important Is for plastics say get for as e-commerce us. – So both I excited really hard to replacement.

Lars Kjellberg

Thank Got good it. luck. you and

David Sewell

Thank you.

Operator

Our Please comes your with next question go from Mike ahead question. from Truist. Roxland

Mike Roxland

Congrats much. that the good Alex, with. Thanks transformation very really David, Great. you're James on proceeding

David Sewell

Mike. Thanks,

Mike Roxland

And of want highlighting Slide know quick we the that I Alex soon a that how that get out? phases X rough plan you're give How Dave, Can year timing two to referenced of you key highlighted your we that's possible. you – question, that slide, various Just on about each the phases completing out, various improvement is transformation plan? to Realizing a complete as should plan. it and years timing one? you've the us this one those pursuing, as think sense

David Sewell

Well, – opportunity. there's it's question much because a – there good there's much so really we so believe

at make of to Investor value we there's So won't talked measuring some for benefit see our are about, bucket, big are material the we've value timing of and is that that as the Day, year. But the But it There we each that. projects Alex walk to continuous see until next our we'll we'll through year. completed the see start expectation sequentially. this projects progress we of what kind probably

take bigger might but a year, fruit the X.X years, year. is to starting projects take low-hanging there a going advantage we're that of of of Some this lot

Mike Roxland

Got you.

point, fiscal complete So be X.X take years, from year, larger plan of our the completion by vantage do itself products should one roughly? XXXX, some if the

Alex Pease

way, focus improvement tackle we're never – a allocation. culture going we're a disciplined different on the ROIC, optimize and completion, continuous guess continuous fundamentally margin, to So on capital I might the I drive going there's is, question journey, around continuously the company, focus any extremely with to we're Mike, right? improvement, as

more get to close think I be is. meeting our the going prepared be divest the a And part historical aspects going mentioned the When Investor going competitors. guidance, And course into to that of I There's out to over and our to we year the to that I improvement be lay change we We're until to get margins. that's So of the unveil the beyond, return on wait to to going we're not XXXX driving. of is to XXXX. to where the Day, what next we're in year to there's aren't sequentially think as we going improvement we're going thresholds. get portfolio David gap as target

hold And term near be you we So milestones for it, a for going clear accountable out you very with us very the to I that tangible once there's think long we're lay for. to vision going looks next we're stop. like get to can term. there, what and And years not three call going then

Mike Roxland

it. Got

I color. appreciate Now understand. the I additional

provide the in that provide Just Realizing color May. are you to around details Is could at X there Investor incremental question. operating you last Day system these later going even this WestRock any mentioned reference really of others. call. couple times high very It's – is a truly the I wonder unique said a WestRock it and level? you during does and at David, it from differentiate

it? it certainly unique versus level operating So that how WestRock operate just high really is what And than to as it to and and Thanks. any differently had allows color at system a about peers? this

David Sewell

starts It Yes. across them really at of right measuring right the level the company. Thanks, and things Mike. the foundational way measuring the

margins, on safety. our growth and training invested of So our growth, in people capital, and investing vision their return

are metrics for drive what right trying So the that drive. to we're what to

across immediately we now continuously how and improve metrics we established So we've identified. to that these Alex's we – how have once world all And gaps have identify is established, that. to we point, do now that what of class

system it, to So we tools and to the identified in measure review transformation execute going it, probably processes rigor it, it's have put our as new that's that operating are our we to commercial about more and going we drive it. more we've value projects operationally And detail it we it, but Day, we We'll been drive mentioned, focus rigor, excellence on we change and team Investor plans We've a also that the and focused compensation share than at to our we've has around. before. have, transformation. place,

it's have the for going excited we're implement vision really it, and that help future. to drive to we So the

Mike Roxland

luck Good year. the the you. of rest Thank for

David Sewell

you. Thank

Operator

with turn Q&A today's I'd like management the And going to the we're to and over session. any floor remarks. that, team gentlemen, ladies closing back close to for

James Armstrong

you today. Thank for joining our call

you. forward shoot or any give Armstrong, have please you me James email. call If talking a to quarter. me, Look questions, Thank next to you

Operator

call. today's And we'll that, ladies and gentlemen, thank you conference do today's for We with joining presentation. conclude

You may now your disconnect lines.

WestRock (WRK) 3 Feb 222022 Q1 Earnings call transcript