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Domtar (UFS) Down 5.5% Since Earnings Report: Can It Rebound?

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ServiceNow (NOW) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

A month has gone by since the last earnings report for Domtar Corporation UFS. Shares have lost about 5.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is UFS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Domtar's Q4 Earnings Miss Estimates as Costs Flare Up

Domtar reported mixed fourth-quarter 2017 results.

Earnings/Revenues

Quarterly adjusted earnings came in at 64 cents per share, missing the Zacks Consensus Estimate of 69 cents. The bottom line also came in lower than the year-ago tally of 75 cents per share.

Adjusted earnings for 2017 came in at $2.60 per share, missing the Zacks Consensus Estimate of $2.67. In addition, the figure also came in lower than the earnings of $2.84 per share recorded in the year-ago period.

Quarterly sales totaled $1,337 million, comfortably outpacing the Zacks Consensus Estimate of $1,288 million. The top line also came in 4.9% higher than the year-ago figure.

Segmental Break-Up

Quarterly revenues of the Pulp and Paper segment came in at $1,090 million, up 4.2% year over year. Also, sales from the Personal Care segment improved 8.3% year over year to $262 million.

Aggregate sales for 2017 came in at $5.2 billion, beating the Zacks Consensus Estimate of $5.1 billion. The top line also improved 1.2% year over year.

Other Financial Fundamentals

Cost of sales during the reported quarter was $1,076 million, up 7.3% year over year. Selling, general and administrative expenses went up 5.3% to $119 million.

In the fourth quarter, the company reported operating loss of $512 million, as against the operating income of $74 million recorded in the year-ago period. Goodwill impairment charge, input-cost inflation, lower productivity and elevated maintenance expenses were the primal causal factors behind the reported loss figure.

For 2017, the company reported an operating loss of $317 million, as against the operating income of $223 million reported for 2016.

Exiting 2017, the company had cash and cash equivalents of $139 million, higher than $125 million recorded on Dec 31, 2016. Long-term debt came in at $1,129 million, lower than $1,218 million recorded at the end of 2016.

At the end of 2017, Domtar Corporation generated $449 million from operating activities, as against $465 million cash generated in year-earlier period. Capital expenditure came in at $182 million compared $347 million recorded in the comparable period last year.

Outlook

Domtar noted that heightening competitive pressure will hurt its Personal Case business. The company believes extensive business rivalry might also weigh over its aggregate revenues in the quarters ahead. However, Domtar Corporation believes improved absorbent hygiene business will prove beneficial in the near future.

Moreover, the company expects that elevated costs will continue to hurt its near-term operating margins.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimate. There has been one revision higher for the current quarter. In the past month, the consensus estimate has shifted by 65.5 % due to these changes.

Domtar Corporation Price and Consensus

 

Domtar Corporation Price and Consensus | Domtar Corporation Quote

VGM Scores

At this time, UFS has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of this revision looks promising. Notably, UFS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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