Company Profile: WestRock Company

WRK:NYSE

I decided to profile WestRock Company this week after reading a recent news release indicating that the single-use foodservice product sector was set to hit over $200 billion by 2021. Single-use foodservice products are things like plastic utensils, cartons and packaging. What comes to mind for me most vividly when I think of this industry would be the classic Chinese food container. A timeless design that most everyone would recognize. Single-use foodservice product demand is set to grow by a large amount due to the rise of single serve foods found in groceries, convenience stores, takeout and most current, food delivery companies. Specialized packaging for consumers that want a single serving of food is in high demand given the way we all live and eat now.

Of course, the packaging industry is closely tied to marketing of the product which is always important. I will admit I am sucker for great packaging – it draws me in and makes me buy a product or switch brands. I also love really unique packaging. This past Christmas I saw some fantastic packaging including that for Lindt chocolate, Starbucks gift cards and seasonal coffee cups.  After I chose to profile WestRock, I found out today on its site that it was named as one of FORTUNE magazine’s List of World’s Most Admired Companies. Interesting coincidence.

·      As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer.  Also, I do not own WestRock Company stock and am not affiliated with them in any manner.    

What is WestRock Company (WestRock)? 

WestRock provides paper and packaging products in every shopping category. The company employees 45,000 people around the world in more than 300 manufacturing facilities, design centers, research labs and sales offices. It provides containerboard, corrugated containers, displays, folding cartons, kraft paper, paperboard, partitions and protective packaging, pulp and recycling. There are tons of products within these categories but I will highlight a few of the more interesting ones below:

·      Toothpaste displays;

 Courtesy of WestRock website

Courtesy of WestRock website

·      Large scale building wraps;

 Courtesy of WestRock website

Courtesy of WestRock website

·      Folding cartons for all kinds of food products; and

 Courtesy of WestRock website

Courtesy of WestRock website

·      Pizza boxes.

 Courtesy of WestRock website

Courtesy of WestRock website

This company doesn’t just create the packaging but it also works with its customers with the creative aspect of the designing the packaging. Other points of interest:

·      Opportunity to grow to $4 billion in earnings in 2022 (EBITDA);

·      Developed and commercialized Pizza Hut’s HOT packaging. This packaging allows for a better insulated delivery pouch and results in delivered pizza temperatures increasing by 15 degrees;

·      13 Paper Packaging Council Consumer Packaging Awards and 18 Design of the Times Merchandising Display Awards (2017);

·      Growing markets in Mexico and Brazil; and

·      Revenue, Earnings (EBITDA) and cash flow all forecasted to grow in 2018.

WestRock appears to offer the whole product for its customers and is well placed to meet the growing demand in this sector.

What is Westrock’s stock doing?

As at January 19, 2018, the numbers from our basic stock evaluation tools are as follows:

Share price: $69.16 USD

One share of WestRock’s would cost you $69.16 USD.  The price over the past 52 weeks has ranged from $68.16 to $69.30.

Price to Earnings (P/E): 18.7 (Forward)  

Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued.  The industry average here according to Morningstar is 22.9. To put this figure into perspective, the market is giving WestRock’s stock a value equal to almost 19 years of its earnings so it would appear investors are still looking for some growth on this company.

Dividend Yield: 2.36%

Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way.  

Earnings per Share (EPS): $2.77 TTM (Trailing Twelve Months, takes the numbers for the past twelve months to come to this figure)

This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. 

WestRock’s shares earn $2.77 per share and it has been generally increasing over the past 5 years which is a good sign. It is noted it had a negative EPS in 2016 but that appears to be a “one-off” and further investigation would be required as to why that is the case. 

Revenue: $14.860 Billion TTM

Increasing revenue is a good sign that the company is growing. If you look at past revenue figures, WestRock’s Revenue figures have continued to grow.

Return on Equity (ROE): 7.06% (TTM)

ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. WestRock’s ROE last year was negative for some reason that requires further investigation. By all accounts this was a “one-off” situation as the ROE has been healthy before and after this event.

Market Capitalization: $17.6 Billion

This indicates WestRock is a large cap stock. Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies. WestRock is a huge company!

Net Profit Margin: 4.77% TTM (Trailing Twelve Months)

This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin.

Cash Flow per Share: 4.19 (end of Sept 2017)

Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. 

This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, ie. “fixed assets”) that required large amounts of cash.   

Price to Sales (P/S): 1.2

This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the industry average is 1.1 so WestRock is directly on average.

Price to Book (P/B): 1.7

This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be leftover if the company went bankrupt for example. The industry average is 4.7 so WestRock’s is somewhat lower than industry average.

Price to Cash Flow (P/CF): 9.2

Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average for this industry is 10.8. 

This completes a basic evaluation of WestRock. As always, there are tons of articles and discussions online about this stock and all stocks so they are also a good place to look at for further consideration. I am very impressed with WestRock and the product and value they provide in this industry. We encounter their products in all aspects of our lives but if you are like me, I never gave much thought to the companies behind all of this packaging!

 

**Top photo by William Felker on Unsplash