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Domtar’s (UFS) Q3 Earnings Beat, Revenues Miss Estimates

Domtar Corporation UFS delivered third-quarter 2018 adjusted earnings of $1.46 per share surpassing the Zacks Consensus Estimate of $1.14 by a margin of 28%. Earnings also improved 42% on a year-over-year basis.
Including one-time items, Domtar reported earnings per share of $1.57 cents in the quarter compared with $1.11 reported in the year-ago quarter.
Consolidated sales inched up 1% year over year $1,367 million but fell short of the Zacks Consensus Estimate of $1,433 million.
Consolidated adjusted operating income came in at $114 million, up 93% from the year-ago quarter’s figure of $59 million. Higher average selling prices for pulp and paper, and favorable productivity led to year-over-year improvement. However, the benefits from lower raw material costs, maintenance costs and selling, general and administrative expenses were offset by higher freight costs. Lower volumes were also a deterrent.
Domtar Corporation Price, Consensus and EPS Surprise
Quarterly revenues of the Pulp and Paper segment came in at $1,146 million, up 9% year over year. The segment reported operating profit of $135 million compared with $89 million in the prior-year quarter.
Sales from the Personal Care segment declined 6% year over year to $237 million. The segment reported an operating loss of $3 million compared with $8 million in the prior-year quarter.
Balance Sheet & Cash Flow
At the end of the quarter under review, the company had cash and cash equivalents of $256 million, up from $139 million at the end of 2017. Long-term debt was $1,103 million as of Sep 30, 2018, compared with $1,129 million as of Dec 31, 2017.
Domtar generated $337 million of cash from operating activities during the nine-month period ended Sep 30, 2018, compared with $324 million reported in the comparable period last year.
Moving Forward
For the fourth quarter of 2018, the company expects lower maintenance costs and recently announced price increases to aid the Pulp and Paper segment’s results. Despite commodity cost inflation, the Personal Care segment will benefit from higher volume and its margin improvement efforts.
Escalating raw material costs are affecting margins in adult incontinence and baby diapers. Consequently, Domtar is accelerating the pace of actions to improve margins and EBITDA, by reducing its cost base. This plan includes headcount reductions, permanent closure of the Waco, TX facility, and commercial and operational initiatives. The company expects annual benefit of approximately $25 to 30 million.
Share Price Performance
Shares of Domtar have gained around 8% over the past year, against the industry’s decline of 4%.
Zacks Rank & Other Stocks to Consider
Domtar currently flaunts a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the basic materials space are CF Industries Holdings, Inc. CF, KMG Chemicals, Inc. KMG and The Mosaic Company MOS.
CF Industries has an expected long-term earnings growth rate of 6% and a Zacks Rank #1. The company’s shares have gained 45% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
KMG Chemicals has an expected long-term earnings growth rate of 28.5% and a Zacks Rank #2 (Buy). Its shares have risen 45% in the past year.
Mosaic has an expected long-term earnings growth rate of 7% and a Zacks Rank #2. The company’s shares have rallied 64% over a year’s time.
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