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Domtar (UFS) Q4 Earnings & Revenues Miss Estimates, Up Y/Y

Zacks Equity Research

Domtar Corporation UFS reported fourth-quarter 2018 adjusted earnings of $1.63 per share that missed the Zacks Consensus Estimate of $1.69 by a margin of 4%. However, the reported figure marked a significant improvement from fourth-quarter 2017 earnings per share of 64 cents. Strong performance in Pulp and Paper segment on the back of solid business fundamentals, accelerating price realizations and improved productivity led to the improved results despite higher raw material costs.

 

Including one-time items, Domtar reported earnings per share of $1.38 in the quarter against a loss per share of $6.16 reported in the year-ago quarter.

 

Consolidated sales went up 4% year over year $1,390 million but fell short of the Zacks Consensus Estimate of $1,430 million. Quarterly revenues of the Pulp and Paper segment came in at $1,154 million, up 6% year over year. Sales from the Personal Care segment declined 2% year over year to $254 million.

Domtar Corporation Price, Consensus and EPS Surprise


 

Domtar Corporation Price, Consensus and EPS Surprise

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

Consolidated adjusted operating income came in at $148 million, up 30% from the year-ago quarter’s figure of $114 million. Gains from higher average selling prices for pulp and paper, lower fixed costs and favorable productivity, lower maintenance costs, lower selling, general and administrative expenses helped mitigate higher raw material costs.

 

Balance Sheet & Cash Flow

 

At the end of the fiscal 2018, the company had cash and cash equivalents of $111 million, down from $139 million at the end of 2017. Long-term debt was $853 million as of Dec 31, 2018, compared with $1,129 million as of Dec 31, 2017.

 

Domtar generated $554 million of cash from operating activities during 2018, compared with $449 million reported last year.

 

2018 Performance

 

Domtar’s adjusted earnings per share in fiscal 2018 stood at $4.61, which came in line with the Zacks Consensus Estimate. Earnings improved 77% from the prior fiscal. Including one-time items, earnings per share was $4.8 against a loss per share of $4.61 in fiscal 2017. Revenues in fiscal 2018 rose 6% year over year to $5.46 billion but missed the Zacks Consensus Estimate of $5.49 billion.

 

Moving Forward

 

The company expects higher paper shipments in 2019 in response to higher demand. Paper prices will continue to improve in the wake of the recently announced price increases across the majority of the company’s paper grades. Softwood and fluff pulp markets will remain balanced through the year due to sustained demand growth and limited capacity. However, costs, including freight, labor and raw materials, are likely to increase. Personal Care is expected to benefit from the company’s margin improvement plan and new customer wins. However, raw material cost inflation will remain a deterring factor.

 

Share Price Performance

 

 

Shares of Domtar have gained around 2% over the past year, against the industry’s decline of 33%.

 

Zacks Rank & Stocks to Consider

 

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

 

A few better-ranked stocks worth considering in the basic materials space include Israel Chemicals Ltd. ICL, Cameco Corporation CCJ and Sandstorm Gold Ltd SAND. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Israel Chemicals has expected earnings growth rate of 11.1% for the current year. The company’s shares have rallied 43% over the past year.  

 

Cameco Corporation has expected earnings growth rate of 18.5% for the current year. Its shares have gained 40% in the past year.

 

Sandstorm has expected earnings growth rate of 78.6% for the current year. Its shares have gained 10% in the past year.

 

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