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Domtar's (UFS) Earnings & Revenues Beat Estimates in Q4

Domtar Corporation UFS reported fourth-quarter 2019 adjusted earnings of 3 cents per share, faring better than the Zacks Consensus Estimate of a loss of 20 cents. However, the bottom-line figure tanked 98.2% from the prior-year quarter figure of $1.63 per share.

Including one-time items, Domtar reported net loss of 59 cents in the fourth quarter as against the net income of $1.38 per share recorded in the prior-year quarter.

Consolidated sales were down 10.5% year over year to $1,244 million, surpassing the Zacks Consensus Estimate of $1,200 million.

Operational Highlight

Consolidated adjusted operating income came in at $4 million in the December-end quarter compared with the year-ago quarter’s $148 million. The operating income during the quarter declined due to lower average selling prices and unfavorable productivity in pulp and paper, higher selling, general and administrative expenses, and higher maintenance, freight and raw material costs. 

Domtar Corporation Price, Consensus and EPS Surprise

Segmental Performance

Quarterly revenues of the Pulp and Paper segment came in at $1,018 million, down 11.7% year over year. Adjusted operating income for the segment was $5 million in the reported quarter, down from the year-earlier reported figure of $148 million.

Sales in the Personal Care segment slid 4.7% year over year to $242 million. The adjusted operating income for the segment came in at $11 million, up from the $3 million reported in the comparable period last year.

Balance Sheet & Cash Flow

At the end of 2019, the company had cash and cash equivalents of $61 million, down from $111 million at the end of 2018. Net debt-to-total capitalization ratio was 27% as of Dec 31, 2019, up from 26% as of Sep 30, 2019.

Domtar generated $442 million of cash from operating activities during 2019 compared with the $554 million reported last year.

2019 Results
 
Domtar’s adjusted earnings per share in 2019 came in at $3.00, in line with the Zacks Consensus Estimate. Earnings plunged 35% from the prior year. Including one-time items, earnings per share came in at $1.37 in the year compared with the prior-year’s $4.48. Revenues dipped 4.3% year over year to $5.22 billion, as well as missed the Zacks Consensus Estimate of $5.49 billion.

2020 Outlook

In the current year, paper volumes are expected to trend with market demand, while pulp volumes are likely to shoot up owing to higher pulp productivity at the Espanola and Ashdown mills. The Pulp and Paper business will benefit from lower planned maintenance costs. The Personal Care segment is anticipated to benefit from margin-improvement plan and higher sales volume following new customer wins. Overall, freight, labor and raw materials costs are expected to flare up to some extent.

Price Performance

The stock has depreciated 33% in the past year compared with the industry’s 21.6% decline.



Zacks Rank & Key Picks

Domtar currently carries a Zacks Rank #4 (Sell).

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

Daqo New Energy has a projected earnings growth rate of 326.3% for the current year. The company’s shares have surged 93.2% over the past year.

Royal Gold has an estimated earnings growth rate of 83.5% for fiscal 2020. Its shares have rallied 27.5% in the past year.
   
Impala Platinum has an expected earnings growth rate of 465.5% for fiscal 2020. The company’s shares have soared 205.1% in a year’s time.

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