Ward H. Dickson
Executive Vice President and Chief Financial Officer at WestRock
Thanks, David. We executed well in the third quarter, and our results reflect this. As David mentioned, we generated revenue of $4.8 billion, adjusted segment EBITDA of $811 million and adjusted EPS of $1 per share. These results exceeded the high end of our guidance range we outlined last quarter. Demand was strong with record net sales that increased 14% compared to the prior year. Our revenue grew across all of our businesses, and we continue to focus on improving our business mix. The implementation of published price increases and improved business mix drove $320 million in year-over-year earnings improvement and exceeded cost inflation by more than $100 million. Cost inflation was driven by higher transportation, energy, chemical and recycled fiber costs. Operating costs were higher year-over-year due to the nonrecurring nature of some of the cost actions taken last year as part of the pandemic action plan.
In addition, Q3 was our peak maintenance outage quarter in FY '21. We generated more than $550 million in adjusted free cash flow in the quarter and used the majority of that cash to reduce debt. Our net leverage is approaching the high end of our 2.25 to 2.5 times leverage target. Our packaging businesses continue to grow with sales increasing 15% year-over-year. This revenue increase is due to both strong demand and the implementation of published price increases. As you can see on this slide, our packaging sales were 71% of our total sales in the third quarter, while paper sales were 29% of total sales. Packaging volumes were up year-over-year, with strong demand in food and beverage, retail, e-commerce and distribution. Demand in markets such as cosmetics and spirits also improved as global economies continue to recover. External paper sales increased 10%, with price increases more than offsetting lower volumes. We are focused on growing our integrated packaging, domestic containerboard and paperboard businesses.
We are also working to reduce our volumes in lower-margin specialty SBS and export containerboard markets. For reference, the combination of the adjusted EBITDA margins in our lower-margin specialty SBS and export containerboard markets is below 10% as compared to WestRock's 16.8% total company average. As we actively manage our mix, we will improve our profitability going forward. We look forward to updating you on our progress. We believe it's important to also discuss our results on a sequential basis to highlight current trends. We reported significant improvement in earnings with revenue up 8.5% and adjusted segment EBITDA up 27% quarter-over-quarter. Increases in pricing and improved mix enabled us to outpace inflation by approximately $100 million sequentially. While we had the sequential benefit from the ransomware and weather impact in the second quarter, third quarter was our peak maintenance outage period. Inventories in both of our business segments remained tight. Turning to the segment results. Our corrugated packaging segment reported revenue of $3.2 billion and adjusted segment EBITDA of $557 million.
Adjusted EBITDA margins for our North American corrugated business were 19.3% and our Brazil adjusted EBITDA margins were 23.2%. As I mentioned before, demand remains strong across a broad set of end markets. Corrugated box shipments increased 3% sequentially. Sequential cost inflation was driven by higher recycled fiber costs, which were up $22 per ton versus Q2, along with increased transportation, energy and chemical costs. Corrugated packaging, pricing and mix outpaced inflation by $89 million from Q2 to Q3. Inventory levels remained low as we came out of our peak mill outage quarter. We have only 11,000 tons of planned maintenance outage downtime in the fourth quarter. Finally, the Florence mill continues to increase production and operate well, and we expect the mill to be at full production levels at the end of the fourth fiscal quarter. Demand is very strong in the Brazilian market, and we expect margins to improve in the fourth fiscal quarter as the Tres Barras mill continues to ramp up.
Turning to Consumer Packaging. The segment reported revenue of $1.7 billion and adjusted segment EBITDA of $269 million. Adjusted segment EBITDA margins were 15.5% in the quarter and were up 210 basis points sequentially. Sales mix continues to improve, driven by strong demand in higher-margin food and beverage packaging and paperboard sales. Packaging sales increased in North America, Europe and Asia and paperboard sales were up in all substrates sequentially. Our backlogs remain very strong and are currently at six to seven weeks across our grades. Our mill system performed exceptionally well with strong production and high operating rates. On price/mix, we saw the benefit of the flow-through of published price increases. Our sales mix improved as we sold less pulp and had higher sales of containerboard and CNK from the reconfiguration of our Evadale, Texas mill. In Q3, we produced 44,000 tons of kraft liner and 18,000 tons of CNK at this mill. Cost inflation has increased at higher-than-normal levels throughout the year.
Many of our commodity input costs have increased significantly, including OCC, which is up -- July is up $77 per ton since the end of FY '20. However, we have been successful in implementing previously published price increases across our system, which have offset this inflation. In the fiscal third quarter, the spread between price and inflation turned significantly positive. The April containerboard published price increase should be fully implemented in our system at the end of August. We are also implementing published price increases in kraft paper and realizing higher pricing in export containerboard. Consumer price flow-through will continue accelerating into fiscal year 2022. We generated more than $1.1 billion in adjusted free cash flow in the first three quarters of this fiscal year. Following the KapStone acquisition, our adjusted net debt peaked in the second quarter of fiscal 2019 at $10.5 billion.
We've made outstanding progress in reducing this debt quickly and exited the third quarter with $7.9 billion in adjusted net debt. We are quickly approaching the high end of our 2.25 to 2.5 times net leverage target. We continue to reduce debt and strengthen our balance sheet. We recently announced the redemption of $400 million of our senior notes that mature in March of 2022. The redemption will occur in September using cash on hand, which will reduce our debt even further. Turning to fiscal fourth quarter guidance. we expect higher prices, stronger volumes, minimal scheduled maintenance downtime and improved productivity. This will be partially offset by sequentially higher recycled fiber, virgin fiber and energy costs. As a result, we expect adjusted segment EBITDA to be in the range of $870 million to $920 million, and adjusted earnings per share in the range of $1.15 to $1.29.
And now I'll turn it back over to David.