WestRock Co.

Management will need to determine when and by how much to rebalance its production mix between virgin fiber and OCC to optimize profitability. The outlook is negative, indicating a 1-in-3 chance for a downgrade during the next two years. WestRock's credit measures have been stretched following the closing of its acquisition of KapStone Paper and Packaging Corp. in November 2018. Given challenges facing the paper packaging industry, we expect the company's revenue to contract 7% this year and adjusted-debt-to-EBITDA ratio to rise to 3.9x from 3.7x the year prior. Management has shown willingness to reduce expenses and apply savings toward debt reduction. But meaningful deleveraging to the point credit measures can be considered safe for the ratings would likely need

...The magnitude and duration of post-COVID-19 economic sluggishness could pose a major challenge to product volumes and profitability in 2020. WestRock Co.'s performance depends on healthy industrial production, but coronavirus containment regulations and changes in customer demand have reduced economic activity. Manufacturing producers such as WestRock have implemented control measures including plant closures, leading to lower volumes in the near term. Despite this, we note containerboard inventory is now roughly 10% higher than the five-year average of four weeks of supply. Volume growth may remain muted until capacity additions come online in the second half of 2021. However, the added capacity could temper industry pricing. The company has certain inherent business strengths and is taking actions to mitigate headwinds. WestRock and many of its customers are deemed essential businesses, with a good portion of the company's containerboard business weighted toward the food, agriculture/dairy,...

Full Report