WestRock, the colossal paper and packaging company, just released its Q3 2023 earnings transcript. Amidst the usual analysis of price fluctuations, mill closures, and cost-saving measures, a subtle but potentially seismic shift is quietly unfolding south of the border. While analysts are focused on the company's domestic challenges, a deeper dive into the transcript reveals a whisper of a silent revolution brewing in Mexico, driven by the Grupo Gondi acquisition.

WestRock's acquisition of Grupo Gondi in December 2022 has, until now, been viewed primarily as a strategic move to increase exposure to the burgeoning Latin American market. However, the language used in both the Q2 and Q3 2023 earnings calls reveals that Gondi is exceeding expectations and may be driving a transformation within WestRock that extends far beyond simple geographic expansion.

The Q2 transcript hints at this outperformance. Alex Pease, WestRock's CFO, states that Gondi is "performing better than our initial expectations, despite a challenging macroeconomic environment." This positive sentiment is echoed and amplified in the Q3 transcript, where Pease again highlights Gondi's exceptional performance, stating that it "continues to really perform well," attributing part of Q2's earnings beat to Gondi's success.

These repeated pronouncements, particularly against the backdrop of a challenging economic environment, suggest that Gondi is not merely meeting expectations but actively exceeding them. This outperformance begs the question: what exactly is driving Gondi's success and what are its implications for WestRock's future?

One clue lies in the unique nature of Gondi's pre-acquisition business model. Unlike traditional paper companies focused solely on commodity production, Gondi operated a hybrid model encompassing both corrugated packaging and high-graphics consumer packaging. This inherent "enterprise sales" approach, where a single customer is served across multiple product lines, appears to be resonating powerfully within WestRock, especially as the company seeks to solidify its own enterprise sales strategy.

David Sewell, WestRock's CEO, highlights the potential of Gondi's model in the Q3 transcript, emphasizing that the company is "just scratching the surface" of Gondi's enterprise sales potential. He specifically mentions leveraging Gondi's existing capabilities in both corrugated and high-graphics consumer packaging to capture a greater share of wallet from multinational customers seeking to expand in Mexico and Latin America.

The numbers themselves lend further credence to this hypothesis. WestRock's enterprise sales grew from $8 billion to $9 billion year-over-year, a significant jump coinciding with the Gondi acquisition. While it's impossible to definitively attribute this entire increase to Gondi, the timing and Sewell's comments strongly suggest that Gondi is playing a pivotal role in accelerating WestRock's enterprise sales strategy.

Financial Performance: Q2 2023 vs Q3 2023

Enterprise Sales Growth

Furthermore, Gondi's success could be a sign of a broader strategic shift within WestRock. The company's repeated emphasis on Gondi's outperformance, coupled with the accelerating portfolio optimization strategy and continued investment in Latin America, suggests that WestRock is increasingly prioritizing higher-margin, value-added products and services over commodity production. This shift, if true, would represent a fundamental change in WestRock's identity, moving away from its traditional role as a paper commodity giant towards a more agile and customer-centric solutions provider.

Here's where the hypothesis gets truly intriguing. If Gondi is indeed spearheading this internal revolution within WestRock, its impact could be profound. Gondi's success provides a tangible blueprint for achieving profitable growth in a challenging environment, demonstrating the power of enterprise sales and value-added solutions. This could embolden WestRock to further invest in similar initiatives, accelerating its transformation and potentially reshaping the entire paper and packaging landscape.

It's worth noting that this silent revolution is happening amidst significant headwinds. The global paper market is facing price pressures, declining demand, and supply chain disruptions. However, Gondi's resilience and success offer a glimmer of hope for WestRock, suggesting that the company is not simply weathering the storm but actively shaping its own destiny.

While other analysts focus on the headline figures of price decreases and mill closures, the subtle but consistent references to Gondi's performance paint a far more nuanced picture. It appears that WestRock, through its Gondi acquisition, is quietly piloting a new model for success, one that could redefine the company's future and potentially disrupt the entire paper and packaging industry. This Mexican whisper might just be the harbinger of a global roar.

"Fun Fact: Paper is one of the most recycled materials in the world. In the U.S. alone, the paper recycling rate has been consistently over 60% for the past decade! This highlights the sustainability potential of the paper industry, and companies like WestRock are at the forefront of driving circular economy solutions."