Top CEO Voorhees focuses on a WestRock 'culture,' buying KapStone, growing offshore, doubling profit

Reprinted with permission from RISI 

OAKLAND, CA, July 13, 2018 (PPI Pulp & Paper Week) - WestRock CEO Steve Voorhees is a consolidator. His company in the last three years has completed the most M&As of any in the industry. He's done this with a focus on aligning workers from different companies into one that is to be superior and more efficient than the individual ones.

Since WestRock was developed in 2015 from the merging of packaging giants RockTenn and MeadWestvaco, the company under Voorhees completed nine acquisitions, including the $2.28 billion buy in 2017 of Multi Packaging Solutions (MPS), as well as the spin-off of its specialty chemicals business, the sale of its dispensing business, and the sale of most of its land and development assets. The acquisitions dramatically grew WestRock in size, and with greater geographic and end-product reach for its containerboard, corrugated boxes, boxboard, and folding cartons. The firm also gained increased downstream integration from its board mills to its box and carton plants. WestRock, on track to $16 billion in revenue and with 45,000 employees, is the second largest US paper industry company, behind International Paper (IP). It is ranked No. 2 in containerboard and No. 1 in boxboard, based on RISI capacity figures for North America.

"He's a rare successful US industry consolidator—with sustained shareholder returns to prove it," a consultant for consumer and paper companies said.

Wall Street and North American industry analysts selected Voorhees as the RISI North American 2018 CEO of the Year. It is the second year in a row that a top American containerboard and corrugated company leader won the award. Packaging Corp of America's (PCA) Mark Kowlzan won in 2017.

Voorhees will be honored at RISI's 33rd annual North American Forest Products Conference on Oct. 11 in San Francisco.
Voorhees told PPI Pulp & Paper Week last week that he learned from the cultural challenges of integrating Smurfit-Stone Container and RockTenn after completing the $3.5 billion acquisition in May 2011. For acquisitions, he said, combining employee cultures is critically important. He said that occurred much more successfully with the MeadWestvaco merger than with Smurfit-Stone.

"(RockTenn and MeadWestvaco) together are significantly better than either would have been had they continued as individual companies," he said.

He credited long-time MeadWestvaco leader John Luke with playing an important role in the success of the merger. He said the RockTenn-MeadWestvaco merger was the most important one to him in his five years as the RockTenn and WestRock CEO.

The deal that created WestRock "brought scale" for "creating a unique company" that "has a tremendous future," Voorhees said.

WestRock expects to complete the $5.0 billion purchase of fifth-ranked containerboard producer KapStone Paper and Packaging at the end of the third quarter or in the fourth quarter, according to Voorhees on July 2. It's an important deal, he said. With Kapstone and its 4.1% capacity share, WestRock's containerboard share in North America would increase to an estimated 24%, behind IP's 32.1%, according to WestRock and RISI capacity figures. North American containerboard capacity was 40.9 million short tons in 2017 and RISI packaging analyst Ken Waghorne expected it to increase to 42.0 million in 2018.

Voorhees expects Kapstone will help "fill out" the company's US corrugated business, with top box plants in the Pacific Northwest that increase WestRock's position in the West.

"It's just a great fit for our business," he said.

He does not flinch when saying the anticipated 16.1-million-ton-capacity WestRock (including the 2.69 million from KapStone) will look at options for future growth and acquisition opportunities in paper and packaging. While IP was unsuccessful recently in acquiring Ireland-based Smurfit-Kappa Group, Voorhees, 64, said there's a strong probability that WestRock might expand outside the USA. For now, the company has a group of internal growth projects for the next two years, including two outside the USA. He noted its Grupo Gondi venture will start up what is to be the largest containerboard machine in Mexico at 400,000 tonnes/yr in Monterrey next year and WestRock recently put $108 million toward the Voith machine by upping its stake in Gondi to 32.3%; in Brazil, a new $125 million box plant is planned for startup in mid-2019 and will be "the best one around," Voorhees said; and in Florence, SC, WestRock plans to install North America's largest kraft linerboard machine.

20% sales outside North America. He cited potential growth in the company's $1 billion consumer packaging business in Europe, and a $600 to $700 million corrugated business in China and Asia, including India, that includes five plants in China. The WestRock plants in China include three making cartons, one MPS literature consumer packaging plant, and a joint venture corrugated facility.

This diversity means that about 20-cents of every average $1 in sales for WestRock is from outside North America.
Also, 20% of the company's corrugated box demand – in its biggest individual business at $9 billion/yr -- is from customized special box making systems and WestRock machinery, he said.

Voorhees speaks confidently about the paper packaging business, while looking at a horizon highly influenced by Amazon, new US consumerism, and e-commerce expansion. He is not bashful about the benefit from e-commerce nor its challenge.

"Packaging is going to adapt … and continue to adapt," he said.

WestRock helps customers adapt their packaging in many ways, including with more than 2,000 corrugated box-making machines installed at customer locations for making custom boxes when and where the customer needs them. This year, WestRock enhanced this offering by acquiring Plymouth Packaging for $202 million. About 70% of Plymouth's business is from selling its Box-On-Demand and corrugated fanfold systems, and 30% from making boxes. Nearly a majority of Plymouth's systems are at e-commerce companies, according to WestRock.

Voorhees said WestRock's Corrugated Automated Packaging Systems can make a box right on-site for customers, including, for example, next to strawberries that need to be packaged in California's Central Valley. A freight cost reducer, this Meta box comes in 80 standard and customized configurations. WestRock also operates a beverage machinery business in its boxboard consumer packaging business. WestRock said that about 1,000 of customers use its Beverage Packaging Systems equipment.

Voorhees expected that WestRock someday would operate a box plant next to an Amazon fulfillment center, which continue to be added throughout the USA as e-commerce business grows and customer demand continues for quicker product deliveries to their homes. He added, however, that WestRock's box system already is big and spans the USA, with 92 of its 103 global corrugated plants in the USA. WestRock also operates 56 folding carton plants globally with 25 in the USA.

Voorhees said consumer packaging cartons contain greater print quality than corrugated, but he sees corrugated and consumer packaging substrates "converging" more so on the print quality front.

He said WestRock today does more high-impact graphic printing on corrugated than it did three years ago, partnering with customers to provide branding on applications such as e-commerce and retail-ready packaging.

Voorhees said that WestRock focuses on "making the perfect box, on time, every time" – whether that's making a box for "hot, fresh pizza" or one with high graphics. WestRock last year acquired the largest US manufacturer and distributor of pizza boxes, Star Pizza Box.

"The way consumers buy is changing," he said. "People want product delivered now and (to) where they want it."

Customer focus. This changing consumerism influenced by Millennials is part of why Voorhees said the company stresses that its employees understand customer and shopper needs, and why it also part of the philosophy of making a larger-mass company as high performing as possible. He said working closely with customers requires value and behavior, which he said WestRock "spends a lot of time" with for its employees.

Mexico, Brazil, Florence. He pointed to the company's $410 million new kraft linerboard machine project in Florence, SC. Three old narrow machines will be permanently shut and replaced by one large unit – with 710,000 tons/yr of capacity - that will have better trim for boxmakers. The new 330-in PM is to start up in first-half 2020. The three old machines run trims of 160- to 170-in that are inefficient for today's corrugators, which are mostly 98- to 110-in, Voorhees said. From Florence, WestRock will make a lower-cost, lighter linerboard than it now makes at the mill, he said.

"It will be a modern state-of-the-art, wide PM that trims better and is more efficient," Voorhees said.

Voorhees' faith in investing in his workers comes from his upbringing and his own corporate rise.

Michigan boy. The son of a US Navy commander, Voorhees and his family moved to Kalamazoo, MI, when he was in fourth-grade. At the time, his father was retiring after 20 years in the Navy to further help raise his own family. Voorhees said he learned about committing to work hard from his father as a youngster mowing the lawn or washing the car. A job not done correctly was redone, Voorhees said. One summer, the young Voorhees went on trips with his father who was a specialty chemical salesman in southwest Michigan. This included visits and meetings occasionally at pulp and paper mills.

Sonat Energy. After an undergraduate degree from Northwestern and an MBA from the Darden School at the University of Virginia (UVA). Voorhees wanted to work in a planning or consulting role in the southeast. During a recruiting session at UVA, he was interviewed and hired by Jack Ahearn to work at energy company Sonat Inc. in 1980 in Birmingham, AL.

Voorhees learned how Ahearn hired talented people and worked to advance them into an operating role in the company, usually in about a two- to three-year period, he said. Ahearn was successful at doing this by setting high standards and providing support, Voorhees said.

"He gave very direct feedback when needed. … He invested time in his people," Voorhees said.

RockTenn CFO. Voorhees worked at Sonat until 1999 and was selected by Jim Rubright in 2000 to be RockTenn's CFO under Rubright who was the CEO. Rubright had led the Sonat pipeline group and energy trading group. Voorhees said that at the time, he connected with Rubright, and that he had limited experience in the paper industry and in leading the finance functions.

Rubright, a two-time RISI CEO of the Year, saw promise in Voorhees.

"Rubright had confidence in me," Voorhees said. "I learned a lot from (Rubright)."

RockTenn with Rubright and Voorhees acquired Gulf States Paper, Smurfit-Stone, and Southern Container and Solvay Paperboard. Smurfit-Stone was the largest containerboard producer at the time of the RockTenn acquisition.

RockTenn and now as WestRock today dramatically grew over the last 20 years, from $1.5 billion in sales in fiscal year 2000, when Voorhees joined the company, to $16 billion in sales in fiscal 2018. The market value of equity of the company expanded from $300 million in 2000 to more than $15 billion in 2018, according to WestRock.

The company said its total shareholder return increased at an annual compound rate of 18.8% in the last 12 months (LTM) through Mar. 31. That LTM rate was 3.9% as of July 6, Vertical Research Partners analyst Chip Dillon said. He said WestRock's LTM 3.9% rate from stock price and dividends was below PCA's 5.0% and above IP's negative -3.3% for the period.

$4 billion profit. Voorhees' top goals now are to continue building the capabilities for WestRock for the long-term and to nearly double the EBITDA of the company from $2.3 billion last year to $4 billion by fiscal 2022.

For these goals, Voorhees returns to an important staple for WestRock, which is to "hire talented people and "provide these people the support they need to succeed as part of WestRock," he said. He told of 850 WestRock workers or 2% of its workforce trained in Six Sigma methodology for completing projects that are to improve quality and productivity.

The company's internal branding -- "Winning Together" -- sounds as if comes from the playbook of the recent National Basketball Association champion Golden State Warriors. Yet "Winning Together" also had been championed by Amazon, Walgreens, and Dell. It encompasses WestRock's four values, according to Voorhees: integrity ("do the right thing"), respect ("earn the respect of others through our actions"), accountability, and excellence ("We strive to perform at the highest levels – for ourselves and our customers, investors and communities").

"Our values," Voorhees said, "resonate across our company and are part of the way we do business every day. Living our values helps us build our culture – one that recognizes and rewards doing business the right way, everywhere we do business."

"It's remarkable to me the enthusiasm that people have about training and the connectivity it gives them," Voorhees told attendees at the annual American Forest & Paper Association (AF&PA) conference last year.

An industry CEO described Voorhees as "very focused" who "is very sharp and, when he makes a comment, he is typically spot-on."

"When it comes to advancing solutions that support the entire paper and packaging products manufacturing industry, we know we can count on Steve Voorhees to share his deep knowledge and roll up his sleeves to get the job done," said AF&PA pres/CEO Donna Harman. "That quality of leadership translates into respect, inspires confidence, and propels our industry to continue its contribution to economic growth and American manufacturing job creation."

WestRock: Building our porfolio