WestRock LLC (WRK) second-quarter revenue dropped below market estimates as the packaging company announced $1 billion in cost-cutting measures and reduced its dividend to preserve cash amid the coronavirus pandemic.
Net sales declined 3.7% to $4.45 billion in the second quarter ended March 31 year-on-year and came in $50 million below analysts’ estimates. Adjusted earnings per share amounted to $0.67 beating market expectations of $0.61 per share.
WestRock lowered its annual dividend to $0.80 from $1.86 previously, which means its quarterly dividend was reduced to $0.20 from $0.465. Shares dropped 5.6% to $28.60 in pre-market U.S. trading.
“In the second quarter, WestRock delivered solid results with improved demand in select key markets as the pandemic impacted consumer buying habits, especially in March,” said Steve Voorhees, chief executive officer at WestRock. “We are adapting quickly to the uncertain economic and market demand conditions and taking steps that we expect will provide an additional $1 billion in cash available for debt reduction through fiscal 2021.”
Georgia-based WestRock will cut fiscal 2020 capital investments by about $150 million to $950 million, while fiscal 2021 capital investments are expected to fall in a range of $600 to $800 million. Senior executives and board of directors’ salaries and retainers will be slashed by up to 25%. Discretionary expenses will also be cut, the company said.
In addition, the packaging company said it is withdrawing its fiscal 2020 guidance due to the unknown duration and severity of reduced economic activity as a result of the coronavirus pandemic.
As of March 31, the company had more than $2.5 billion in available credit facilities and cash and cash equivalents.
Wall Street analysts have a Moderate Buy consensus rating on WestRock’s stock based on 3 Buys, 1 Hold and 1 Sell. The $33.40 average price target implies 10.2% upside potential in the shares in the coming 12 months. (See WestRock stock analysis on TipRanks).
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