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Domtar (UFS) Q3 Earnings Surpass Estimates, Revenues Miss

Zacks Equity Research

Domtar Corporation UFS reported third-quarter 2019 adjusted earnings of 89 cents per share, which beat the Zacks Consensus Estimate of 58 cents by a margin of 53%. However, the bottom line marked a decline of 35% from the prior-year quarter figure of $1.46.

Including one-time items, Domtar reported earnings per share of 32 cents in the quarter, significantly down from the year-ago quarter figure of $1.57 per share.

Consolidated sales went down 6% year over year to $1,283 million, missing the Zacks Consensus Estimate of $1,334 million.

Domtar Corporation Price, Consensus and EPS Surprise

 

Domtar Corporation Price, Consensus and EPS Surprise
Domtar Corporation Price, Consensus and EPS Surprise

Domtar Corporation price-consensus-eps-surprise-chart | Domtar Corporation Quote

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Operational Highlight

Consolidated adjusted operating income came in at $73 million compared with the year-ago quarter’s $148 million. The operating income during the third quarter declined due to lower selling prices in pulp, market-related downtime costs and the Espanola outage. However, lower maintenance and raw material costs, lower selling, general and administrative expenses and freight, fixed and other costs partially offset these negatives.

Segmental Performance

Quarterly revenues of the Pulp and Paper segment came in at $1,071 million, down 6.5% year over year. Adjusted operating income for the segment was $68 million in the reported quarter, down from the year-earlier quarter figure of $148 million.

Sales in the Personal Care segment declined 4% year over year to $227 million. The adjusted operating income for the segment came in at $9 million, up from the $3 million reported in the comparable period last year.

Balance Sheet & Cash Flow

At the end of the third quarter, the company had cash and cash equivalents of $98 million, down from $111 million at the end of 2018. Net debt-to-total capitalization ratio was 26% as of Sep 30, 2019, up from 22% as of Jun 30, 2019.

Domtar generated $282 million of cash from operating activities during the nine-month period ended Sep 30, 2019, compared with $337 million reported in the comparable period last year.

Outlook

For fourth-quarter 2019, the company anticipates higher maintenance costs. The Paper segment is likely to be impacted by a seasonally unfavorable mix. Volatility in softwood and fluff pulp markets is also expected to hinder performance. The Personal Care segment is anticipated to benefit from its margin-improvement plan and increased sales volume, aided by a strong order book.

Price Performance

The stock has declined 14.1% in the past year against the industry’s 48.5% slump.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the Basic Materials space are Agnico Eagle Mines Limited AEM, Franco-Nevada Corporation FNV and Kirkland Lake Gold Ltd. KL, all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle Mines has an expected earnings growth rate of 168% for 2019. The company’s shares have gained 66% in the past year.

Franco-Nevada Corporation has a projected earnings growth rate of 39% for the current year. The company’s shares have rallied 55% in a year’s time.

Kirkland Lake Gold has an estimated earnings growth rate of 93% for the ongoing year. Its shares have appreciated 134% in the past year.

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