Westrock Company

good morning and welcome to the west rock third fiscal quarter 2023 earnings call all participants will be in listen only mode should you need assistance please signal conference specialist by pressing the star key followed by zero after today's presentation there will be an opportunity to ask questions to ask a question you would press star then on your touchdown phone to withdraw from the question queue please press star then two please note that this event is being recorded I would now like to turn the conference over to Rob Cortaro, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining our third fiscal quarter 2023 earnings call. We issued our press release this morning and posted the accompanying presentation to the Investor Relations section of our website. They can be accessed at ir.westrock.com or via a link on the application you're using to view this webcast. With me on today's call are Westrock's Chief Executive Officer, David Sewell, and our Chief Financial Officer, Alex Pease. Following our prepared comments, we'll open the call for question and answer session. During today's call we will be making forward-looking statements involving our plans, expectations, projections, targets, estimates, and beliefs related to future events. These statements involve a number of assumptions, risks, and uncertainties that could cause actual results to differ materially from those we discussed during the call. We describe these assumptions, risks, and uncertainties in our filings with the SEC, including our 10-K for the fiscal year ended September 30, 2022, and our 10-Q for the fiscal quarter ended March 31, 2023. We will also be referencing non-GAAP financial measures during the call. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the appendix of this slide presentation. As mentioned previously, the slide presentation is available on our website. With that, I'll turn it over to you, David.

Thank you, Rob, and thank you all for joining our earnings call today. I'll begin our call with a review of our fiscal third quarter results and the progress we're making on our self-help initiatives. Following that, Alex will review our results in more detail and provide our outlook for the fourth quarter. Turning to our third quarter results on slide three. We exceeded our guidance due to strong execution, productivity gains, and moderating input costs. Net sales were $5.1 billion and consolidated adjusted EBITDA was $802 million. Adjusted EPS was 89 cents. Our strong results this quarter against a dynamic backdrop reflect the resiliency of our business and the tremendous efforts of our talented team members. As a reminder, we faced difficult comparisons with record results in the prior year quarter. While demand for corrugated packaging declined year-over-year, our North American shipments per day were sequentially stable. We've seen improvement in July with per-day shipments up mid-single digits from the third quarter and the strongest backlogs we've seen all calendar year. Consumer packaging market volumes were down during the quarter as customers and retailers reduced excess inventory, elevated inflation impacted consumer demand, and we lapped strong prior year healthcare results. Looking forward, we expect improvement in the first half of fiscal 2024 driven by inventory rebalancing, moderating inflation, and new business wins. Long-term fundamentals in our consumer packaging business remain healthy, and we are well-positioned with strong customer relationships and end markets that are growing. Over time, we expect continued organic growth due to our innovative solutions, growing demand for sustainable packaging, and our expanding machinery business. We've seen a moderation in our global paper business after a record year in fiscal 2022. To navigate the current environment, we are leveraging our scale, broad portfolio of substrates, and strategic customer relationships. Longer term, we expect our portfolio optimization strategy will enable us to prioritize our strategic customers while reducing our overall exposure to external paper sales. I'm extremely pleased at how our teams are executing and winning new business. Our commercial teams are focused on building growth pipelines and demonstrating the value of our differentiated offerings, all of which are delivering new business wins. Our cost savings progress to date has exceeded expectations, and I'm excited to report that we are on track to exit this fiscal year with more than $450 million in run rate savings. During the quarter, we achieved $66 million of cost savings and $150 million year to date, excluding downtime and inflation. We are making great progress and we see tremendous opportunities ahead. And we continue to optimize our portfolio. Earlier this week, we made the difficult decision with the announcement of the closure of our Tacoma Washington mill. We are working closely with our employees on the transition and expect to cease operations in September. Additionally, we sold our minority interest in a non-strategic joint venture and also announced the consolidation of three additional packaging converting locations, bringing our total to seven through July. I'll provide more details on our portfolio actions in just a moment. Turning to slide four, we are laser focused on unlocking value from our broad portfolio of assets and we've made tremendous progress already. We continue to target more than $1 billion in cost savings by the end of fiscal 2025 and we are well on our way. Our SG&A reductions, productivity efforts, and supply chain efficiencies are delivering significant results. As previously mentioned, we are on track to exit fiscal 2023 with more than $450 million in run rate savings. We are pleased with the progress we've made and we remain committed to unlocking further efficiencies in our business. We've been proactively optimizing our footprint by closing less efficient facilities and consolidating production in larger plants. Our goal is to improve our cost structure, drive efficiencies, and improve our return on invested capital. Our recent announcement to close our Tacoma mill is another example of this strategy. Similar to our previous mill closures, the Tacoma mill required significant investment to remain competitive, and we did not see a path to achieving our return targets. By closing the mill, we can shift capital toward other projects with greater returns. Additionally, with Tacoma and our previous mill closures, we are lowering our costs and improving our overall margin structure. Tacoma's annual production capacity is approximately 510,000 tons, including liner board, white top, craft paper, and pulp. With the closure, we plan to shift the majority of the mill's production, excluding pulp, to other facilities in our network. We expect to incur $345 million of restructuring charges, with the substantial majority recognized in our fourth quarter. Approximately two-thirds of these charges are expected to be non-cash. With the announcement of the Tacoma closure, our mill portfolio is substantially different than it was 15 months ago. As we evaluated our assets, we considered mill profitability, technical age of assets, ongoing capital needs, product mix, strategic fit, and our network flexibility. With our announced closures of higher cost mills and production capacity, we are reducing 1.9 million tons of capacity. These closures enable us to repurpose anticipated annual capital spending averaging approximately $120 million and exit non-core end markets. In addition, with these actions, we are decreasing our exposure to the open market and reducing our North American corrugated average mill cost by $12 per ton. Our smaller yet more efficient mill system enables us to serve our strategic end markets and customers. Through our current footprint, we are well positioned to serve these customers in 2024 and beyond. We've also been disciplined in our capital allocation and remain focused on investing in our assets to improve our return on invested capital, returning leverage within our target range of 1.75 times to 2.25 times, and returning capital to shareholders through a sustainable and growing dividend. As we work to recapitalize our assets, we are targeting a greater than 15% IRR on future return-generating projects. We expect our mill investments to drive efficiencies and enable us to further reduce our mill costs. Through our portfolio optimization and asset recapitalization strategies, we expect to improve margins and drive return on invested capital. Lastly, we continue to invest in growth. We're close to completing construction of our world-class Longview box plant, which is expected to start operations in November. This state-of-the-art facility will enable us to further consolidate converting operations in the Pacific Northwest and is expected to deliver $25 million in annual benefit once fully mature. Another example of our investments in growth is our Mexico acquisition. This transaction increased our exposure to the fast-growing Latin America market and brought us closer to many of our multinational customers. Our Mexican operations are exceeding our expectations and we are excited about future growth prospects due to economic expansion and shortening supply chains. Through these ongoing initiatives, we expect to drive significant improvement in margins and return on invested capital, increase integration, reduce volatility, and drive profitable growth. Turning to slide five. Before passing it to Alex, I'd like to highlight a recent example of how our broad portfolio and innovative solutions are helping our customers win and meet their sustainability needs. Costco recently approached us with a request to replace single-use plastic multi-pack handles with a fiber-based, sustainable solution. In response, our designers developed EnduraGrip and ClusterClip. These new solutions provide bundling for multi-packs of bottles and jars in a range of shapes, sizes, and weights. They are engineered for durability and comfort while providing a fully printable surface for crisp, vibrant graphics and eliminate the use of plastic in these handles. Our strategic machinery business is also helping drive adoption. As part of our partnership, we are working with Costco manufacturers to automate their production lines, increase packing speeds, and drive efficiencies. We're proud to partner with Costco and their manufacturers to introduce sustainable packaging solutions that help reduce single-use plastic packaging. This is just one example of many of how Westrock's unique capabilities position us for growth. Costco is one of our enterprise sales customers, and we serve them through both our corrugated and consumer segments. Enterprise relationships like this demonstrate the value that Westrock's broad portfolio and differentiated solutions provide. Through our diversified portfolio, commercial excellence, and strong customer relationships, we've achieved over $9 billion in enterprise sales. Our plastics replacement innovations continue to gain traction, and we are on pace to deliver over $400 million in revenue this year. We are targeting more than $700 million by fiscal 2025. With a global total addressable market of $50 billion for plastics replacements, we see significant opportunities ahead. I'll now turn over to Alex to discuss our segment results in more detail.