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Domtar to Halt Paper Mill Operations Amid Coronavirus Scare

Zacks Equity Research
·3-min read

Domtar Corporation UFS plans to temporarily suspend operations of its Kingsport, TN mill and the A62 paper machine at its Ashdown, AR mill for three months on account of the unfavorable business conditions due to the coronavirus pandemic.

The operation suspension will reduce the company’s uncoated freesheet paper production capacity by 144,000 short tons during the three month-period resulting in the layoff of about 304 employees at its Kingsport mill and 142 employees at the Ashdown mill. Moreover, the pandemic has strained demand for communication paper as offices, businesses and schools are closed in response to the government’s restrictions to curb the spread of the virus.

The Pulp and Paper segment contributed 83% of revenues in 2019, producing more than 4 million metric tons of softwood, fluff and hardwood pulp at its mills. The segment includes the design, manufacturing, marketing and distribution of communication papers, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

The pulp and paper industry has been designated as an essential by both the United States and Canadian governments. Domtar’s pulp and paper mills support critical infrastructure, supply chains, manufacturers and distributors in delivering crucial materials, which are significant components in the production of vital items in the healthcare, food packaging and food processing industry.

Meanwhile, the company’s other facilities are fully operational and continue to ship products to all states and provinces without any supply disruption. The company is committed to operate its business efficiently in order to fulfill customers’ demand, while ensuring health and safety of its personnel.

Recently, Packaging Corporation of America PKG announced to temporarily idle both paper machines and the sheet-converting operation at its Jackson, AL mill to match supply with demand. The operations will stay suspended in May and June and resume on Jul 6, 2020. The company will lower paper production by approximately 70,000 tons and retrench about 340 employees as a result of temporary suspensions of its operations.
Price Performance

Domtar’s shares have depreciated 55.9% in the past year compared with the industry’s 40.4% decline.

Zacks Rank & Key Picks

Domtar currently carries a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the basic materials space are Daqo New Energy Corp DQ and Impala Platinum Holdings Limited IMPUY, each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Daqo New Energy has an expected long-term earnings growth rate of 29%. The company’s shares have surged 119.4% in the past year.

Impala Platinum has an estimated long-term earnings growth rate of 26.5%. The company’s shares have soared 214.3% in a year’s time.

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