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Domtar's (UFS) Earnings & Revenues Beat Estimates in Q1

Zacks Equity Research

Domtar Corporation UFS reported first-quarter 2020 adjusted earnings of 9 cents per share, faring better than the Zacks Consensus Estimate of a loss of 26 cents. However, the bottom-line figure tanked 93.7% from the prior-year quarter figure of $1.44 per share.

Including one-time items, Domtar reported net earnings per share of 9 cents in the first quarter compared with the $1.27 per share recorded in the prior-year quarter.

Consolidated sales were down 7% year over year to $1,278 million, surpassing the Zacks Consensus Estimate of $1,240 million.

Operational Highlight

Consolidated adjusted operating income came in at $19 million in the March-end quarter compared with the year-ago quarter’s $129 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

Segmental Performance

Quarterly revenues of the Pulp and Paper segment came in at $1,031 million, down 10.9% year over year. Adjusted operating income for the segment was $4 million in the reported quarter, down from the year-earlier reported figure of $144 million.

Sales in the Personal Care segment was up 11.3% year over year to $266 million. The adjusted operating income for the segment came in at $20 million, up from the $6 million reported in the comparable period last year.

Balance Sheet & Cash Flow

The company had cash and cash equivalents of $152 million as of Mar 31, 2020, up from $61 million as of Dec 31, 2019. Net debt-to-total capitalization ratio was 30% as of Mar 31, 2020, up from 27% as of Dec 31, 2019.

Domtar generated $88 million of cash from operating activities in the first quarter compared with the $55 million reported last year.

The company is implementing actions to strengthen its cash flow and improve liquidity. Given the uncertainty of the impact of the COVID-19 outbreak, Domtar has suspended the payment of its regular quarterly dividend and share-repurchase program in order to preserve cash and provide additional flexibility in the current environment.

2020 Outlook

The impact of the coronavirus pandemic on the company’s business operations remains uncertain. Domtar expects lower paper demand in second-quarter 2020. Demand for softwood and fluff pulp will remain strong in the near term on solid growth in tissue and towel, while containment measures to curb the spread of the virus across Europe and North America are expected to hurt certain end-use markets. Personal Care will continue to benefit from higher usage and the impact from new customer wins. Moreover, raw-material costs are expected to be stable. Domtar’s recently-announced capacity-reduction plan will improve its inventory-levels in the near term.

Price Performance

The stock has depreciated 47.2% in the past year compared with the industry’s 27.7% decline.

Zacks Rank & Key Picks

Domtar currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Newmont Corporation NEM, Barrick Gold Corporation GOLD and Franco-Nevada Corporation FNV, each currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Newmont has an expected earnings growth rate of 90.2% for 2020. The company’s shares have surged 103.6% in the past year.

Barrick Gold has an estimated earnings growth rate of 60.8% for the ongoing year. Its shares have soared 112.7% over the past year.

Franco-Nevada has a projected earnings growth rate of 19.2% for the current year. The company’s shares have appreciated 92.5% in a year’s time.

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