David B. Sewell
Chief Executive Officer at WestRock
Thank you, Rob, and thank you all for joining our earnings call today. This morning, I'll provide an overview of our fiscal first quarter results, followed by a review of our strategy and progress on our transformation. Then I'll turn it over to Alex who will review our segment performance in more detail, review our adjusted free cash flow and provide our outlook for the fiscal second quarter. We will then move to Q&A.
Turning to our first quarter results on Slide 3. Net sales were comparable to prior year at $4.9 billion and consolidated adjusted EBITDA declined 4% to $652 million. Adjusted EPS was $0.55, a decrease of 15% compared to the prior year quarter and the company generated $30 million of adjusted free cash flow. It's important to note that consolidated adjusted EBITDA was negatively impacted by $119 million due to economic downtime and weather disruptions. Pension and foreign exchange rates also negatively impacted our year-over-year consolidated adjusted EBITDA growth by $57 million combined.
As we anticipated, the first quarter operating environment saw continued inventory rebalancing, elevated inflation and shifting consumer spending. These trends primarily impacted external containerboard demand as well as our Corrugated Packaging segment. However, Corrugated Packaging improved quarter-over-quarter with North American packaging shipments up 2% and to 373 million square feet per day. We continue to balance our supply with our customers' demand and we incurred 356,000 tons of economic downtime during the quarter.
Our Consumer Packaging business and external paperboard continue to see consistent demand supported by exposure to several resilient end markets and adoption of our plastics replacement solutions. During the quarter, our consumer business was negatively impacted by weather disruptions and other items in several of our mills. However, we continue to see healthy demand and backlogs. The resiliency of our consumer business illustrates the benefit of our diversified business model and differentiates us in the market.
Longer-term, it also positions us well to capture more share of wallet as we are the only paper and packaging company able to offer a full range of packaging solutions, including machinery and automation. Corrugated Packaging adjusted EBITDA margins excluding trade sales were 14.2%, an increase of 70 basis points. Consumer Packaging adjusted EBITDA margins were 15.1%, an increase of 20 basis points. Both Corrugated and Consumer margins benefited from strong year-over-year pricing. We are continuing to implement previously published price increases in our consumer business, which should continue for several more months.
Global paper margins declined 320 basis points to 14% as inventory rebalancing and softer demand pressured results. Distribution adjusted EBITDA margins increased 140 basis points to 3.4%, primarily driven by favorable selling price and mix. We ended the quarter with net leverage of 2.35 times, slightly above our targeted range of 1.75 times to 2.25 times. We intend to use proceeds from the expected sale of our stake in RTS and our Chattanooga Mill as well as our free cash flow to return leverage to our targeted range over time.
We remain focused on executing our transformation and striving toward the goals we outlined in our Investor Day last May recognizing the uncertain macroeconomic environment. We see significant opportunity to drive productivity, increase our margins and improve our return on invested capital. We will continue to leverage our robust cash flow to invest in growth, manage our leverage and return capital to shareholders.
Before moving to an update on our transformation initiatives, I'd like to highlight that for the third consecutive year, WestRock was included in the Dow Jones Sustainability North America Index in recognition of our commitment to sustainable business practices. The index recognizes the top 20% of sustainability performance among the 600 largest U.S. and Canadian companies. Sustainability is core to what we do at WestRock and we're proud to be recognized for our efforts and I'd like to thank our 58,000 team members for living our values in everything they do.
Turning to Slide 4. Last May, we communicated the four key pillars of our transformation strategy and we continue to make progress in each of these areas. First, leveraging the power of One WestRock. Given WestRock's broad capabilities and scale, we are uniquely positioned to deliver value to our customers and serve their packaging needs. An ongoing example of this is our relationship with Molson Coors. Through our partnership, Molson Coors is replacing their use of plastic rings with our cluster pack packaging and automation solution. Molson Coors estimates this solution will eliminate over 1.7 million pounds of plastic waste annually by 2025.
The complementary relationship between our machinery business and packaging serves our customers well, creates deeper relationships and drives organic growth. We now have over 5,100 machines in our installed base and it continues to grow. We see strong demand for our machinery solutions with backlogs of 12 months as of the end of the quarter. Our next pillar is innovating with a focus on sustainability and growth. We are investing in innovative solutions to help our customers meet their sustainability targets and displace plastic packaging with more than 225 innovation projects in development. More than 30 of those projects are related to plastics replacements. Our plastics replacement revenue continues to grow and is currently estimated at a $365 million run rate and we are targeting increasing that to more than $700 million in run rate revenue by fiscal 2025.
Our third pillar is relentless focus on margin improvement and increasing efficiency. We are executing on our productivity initiatives and we are on track to achieve $250 million in cost savings in fiscal 2023. These initiatives are driving savings through logistics and planning optimization, centralized procurement, SG&A reductions and efficiencies in our mill and converting network. We continue to see significant cost-saving opportunities beyond fiscal 2023 and we remain focused on unlocking these savings to expand our margins.
And finally, executing disciplined capital allocation. We remain focused on using our cash flow to drive value through our disciplined capital deployment strategy. Last year, we invested more than $860 million to maintain and improve our assets. We've increased our dividend over 37% in the last seven quarters while also repurchasing more than $700 million of our stock. We are also continuing to refine our portfolio to focus on the most attractive markets, reduce volatility and improve our return on invested capital.
Last year, we permanently shut capacity in higher-cost facilities in Panama City and St. Paul enabling us to redirect significant capital investment toward better use in other assets. In December, we closed on the sale of two non-core URB mills and we continue to work toward closing on the sale of our stake in RTS and our Chattanooga mill, which remains subject to regulatory approval. We also recently completed our Grupo Gondi acquisition, which complements our North American footprint and increases our exposure to the attractive Latin America market. The IMF projects the strategically important market will grow more than 50% faster than the United States driven by economic growth and export product expansion in produce, protein and industrial goods.
In addition to attractive financial returns, Grupo Gondi's high-quality assets bring us closer to many of our large multinational customers operating in the region. Grupo Gondi is already contributing to our growth with adjusted EBITDA of $17 million since the acquisition closed in December and its full year results were in line with expectations. The results for Grupo Gondi are included in other unallocated this quarter given the timing of the closing and we are near finalizing how we will report it longer term.
I'll now turn it over to Alex to discuss our segment results in more detail.
