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Domtar (UFS) Earnings and Revenues Miss Estimates in Q2
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Domtar Corporation’s second-quarter 2021 adjusted earnings of $1.22 per share missed the Zacks Consensus Estimate of $1.26. Including one-time items, the company reported earnings per share of 75 cents against the prior-year quarter’s loss of 5 cents. Increased shipments of paper and higher net average selling prices for pulp and paper aided results in the quarter. The company noted an increase in demand for paper through the second quarter amid the ongoing economic recovery from the effects of the COVID-19 pandemic.
Consolidated sales increased 26% year over year to $1,010 million. The top line, however, lagged the Zacks Consensus Estimate of $1,041 million. Net average selling prices for pulp and paper were up from prior-year quarter. On a year-over-year basis, manufacturing paper volumes were up, while pulp volumes were slightly down.
Consolidated adjusted operating income amounted to $99 million during the quarter under review against the year-ago quarter’s operating loss of $3 million.
Domtar Corporation Price, Consensus and EPS Surprise
Following the sale of its Personal Care business on Mar 1, 2021, the company has only one operating segment — Pulp and Paper, which comprises design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, hardwood and fluff pulp, and high quality airlaid ultrathin laminated cores.
Quarterly revenues of the Pulp and Paper segment totaled $1010 million, up 26% year over year. Revenues from Communication Papers were up 29% year over year to $498 million. While Specialty and Packaging paper’s revenues improved 14% to $145 million, the same from Market Pulp surged 28% to $357 million. Revenues from absorbent core materials were down 17% to $10 million.
Adjusted operating income for the segment was $109 million in the second quarter, substantially up from the year-earlier reported figure of $4 million.
Balance Sheet & Cash Flow
The company had cash and cash equivalents of $346 million at the end of second-quarter 2021, up from the $309 million held at end of 2020. Net debt-to-total capitalization ratio was 7% as of Jun 30, 2021, down from 26% as of Dec 31, 2020.
Domtar generated $90 million of cash from operating activities during the first six-month period of 2021 compared with the $155 million reported in the year-earlier comparable period.
Update on Merger With Paper Excellence
On May 10, 2021, Domtar and Paper Excellence together announced that they have entered into a business combination agreement under which the latter will acquire all of the issued and outstanding shares of Domtar common stock for $55.50 per share, in cash. The all-cash transaction represents an enterprise value of approximately $3 billion. Subsequently, on Jul 29, Domtar announced that the deal has been approved by Domtar’s shareholders.
The company added that clearances have been obtained under the antitrust laws of Spain and the People’s Republic of China, following previous clearances obtained in the United States and Turkey — representing another step toward the closing of the announced merger. The merger is expected to be completed before the end of this year, subject to receiving clearance under Canada’s Competition Act and other customary closing conditions. Outlook
While the uncertainty regarding the pandemic remains, Domtar believes paper demand will continue to pick up pace as people return to schools and offices. It expects to sell all paper production for the balance of the year. The pulp market is likely to gradually improve on steady demand growth and supply constraint. Paper prices are expected to continue to increase, while pulp prices are expected to witness some seasonal volatility. While raw material costs are expected to remain stable, freight costs are likely to be higher this year.
Price Performance
Image Source: Zacks Investment Research
The stock has soared 95% in the past year, compared with the industry’s rally of 52.6%.
Some other top-ranked stocks in the basic materials space include Commercial Metals Company (CMC - Free Report) , Nucor Corporation (NUE - Free Report) and The Mosaic Company (MOS - Free Report) . All of these stocks flaunt a Zacks Rank #1 currently. .
Commercial Metals has a projected earnings growth rate of 32.8% for the current fiscal year. The company’s shares have gained nearly 41% in the past year.
Nucor has an expected earnings growth rate of 455% for the current fiscal year. The company’s shares have rallied around 126% over the past year.
Mosaic Company has a projected earnings growth rate of 412% for the current fiscal year. The company’s shares have gained roughly 71% in a year’s time.
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Domtar (UFS) Earnings and Revenues Miss Estimates in Q2
Domtar Corporation’s second-quarter 2021 adjusted earnings of $1.22 per share missed the Zacks Consensus Estimate of $1.26. Including one-time items, the company reported earnings per share of 75 cents against the prior-year quarter’s loss of 5 cents. Increased shipments of paper and higher net average selling prices for pulp and paper aided results in the quarter. The company noted an increase in demand for paper through the second quarter amid the ongoing economic recovery from the effects of the COVID-19 pandemic.
Consolidated sales increased 26% year over year to $1,010 million. The top line, however, lagged the Zacks Consensus Estimate of $1,041 million. Net average selling prices for pulp and paper were up from prior-year quarter. On a year-over-year basis, manufacturing paper volumes were up, while pulp volumes were slightly down.
Consolidated adjusted operating income amounted to $99 million during the quarter under review against the year-ago quarter’s operating loss of $3 million.
Domtar Corporation Price, Consensus and EPS Surprise
Domtar Corporation price-consensus-eps-surprise-chart | Domtar Corporation Quote
Segmental Performance
Following the sale of its Personal Care business on Mar 1, 2021, the company has only one operating segment — Pulp and Paper, which comprises design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, hardwood and fluff pulp, and high quality airlaid ultrathin laminated cores.
Quarterly revenues of the Pulp and Paper segment totaled $1010 million, up 26% year over year. Revenues from Communication Papers were up 29% year over year to $498 million. While Specialty and Packaging paper’s revenues improved 14% to $145 million, the same from Market Pulp surged 28% to $357 million. Revenues from absorbent core materials were down 17% to $10 million.
Adjusted operating income for the segment was $109 million in the second quarter, substantially up from the year-earlier reported figure of $4 million.
Balance Sheet & Cash Flow
The company had cash and cash equivalents of $346 million at the end of second-quarter 2021, up from the $309 million held at end of 2020. Net debt-to-total capitalization ratio was 7% as of Jun 30, 2021, down from 26% as of Dec 31, 2020.
Domtar generated $90 million of cash from operating activities during the first six-month period of 2021 compared with the $155 million reported in the year-earlier comparable period.
Update on Merger With Paper Excellence
On May 10, 2021, Domtar and Paper Excellence together announced that they have entered into a business combination agreement under which the latter will acquire all of the issued and outstanding shares of Domtar common stock for $55.50 per share, in cash. The all-cash transaction represents an enterprise value of approximately $3 billion. Subsequently, on Jul 29, Domtar announced that the deal has been approved by Domtar’s shareholders.
The company added that clearances have been obtained under the antitrust laws of Spain and the People’s Republic of China, following previous clearances obtained in the United States and Turkey — representing another step toward the closing of the announced merger. The merger is expected to be completed before the end of this year, subject to receiving clearance under Canada’s Competition Act and other customary closing conditions.
Outlook
While the uncertainty regarding the pandemic remains, Domtar believes paper demand will continue to pick up pace as people return to schools and offices. It expects to sell all paper production for the balance of the year. The pulp market is likely to gradually improve on steady demand growth and supply constraint. Paper prices are expected to continue to increase, while pulp prices are expected to witness some seasonal volatility. While raw material costs are expected to remain stable, freight costs are likely to be higher this year.
Price Performance
Image Source: Zacks Investment Research
The stock has soared 95% in the past year, compared with the industry’s rally of 52.6%.
Zacks Rank & Other Key Picks
Domtar currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the basic materials space include Commercial Metals Company (CMC - Free Report) , Nucor Corporation (NUE - Free Report) and The Mosaic Company (MOS - Free Report) . All of these stocks flaunt a Zacks Rank #1 currently. .
Commercial Metals has a projected earnings growth rate of 32.8% for the current fiscal year. The company’s shares have gained nearly 41% in the past year.
Nucor has an expected earnings growth rate of 455% for the current fiscal year. The company’s shares have rallied around 126% over the past year.
Mosaic Company has a projected earnings growth rate of 412% for the current fiscal year. The company’s shares have gained roughly 71% in a year’s time.