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Domtar (UFS) Focuses on Holistic Growth to Improve Margins

IP UFS FBR KS

Trades from $3

Domtar Corporation (UFS - Free Report) , a leading paper and paper products manufacturer, is currently focusing on improving its profitability through a combination of activities in order to spur its organic and inorganic growth. The strategic actions are aimed at thwarting intense competitive pressure from local as well as global producers, who often have relatively greater financial resources and lower production costs.

The company recently announced plans to optimize its operations related to fluff pulp production at its Plymouth mill in North Carolina. Fluff pulp is bleached softwood cellulose fiber and is primarily used across the globe for absorbent applications in baby diapers, feminine hygiene and adult incontinence products.

The restructuring process includes the permanent closure of the small pulp dryer facility and phasing out of the related assets. Simultaneously, Domtar intends to reduce the excess workforce by about 100 positions to right-size the employee count for optimum utilization of resources. The company has set an annualized production target of approximately 380,000 metric tons of fluff pulp for the Plymouth mill, including the manufacture of Lighthouse Fluff – the benchmark grade for high-quality fluff pulp. Domtar expects the entire restructuring process to be completed by mid-2017.

At the same time, Domtar is expanding its Personal Care segment through the acquisition of privately-held firms with complementary products. The company recently completed the purchase of Home Delivery Incontinent Supplies Co., a premier U.S.-based direct-to-consumer provider of adult incontinence and related products. Headquartered in Olivette, MO, it operates through a 200,000 square foot distribution center and two retail locations in Texarkana, AR and Daytona Beach, FL. The company has approximately 240 employees and recorded $65 million in revenues in 2015.

In June, Domtar also acquired a similar company to augment its Personal Care segment with the acquisition of Butterfly Health Inc. for an undisclosed amount. Headquartered in Los Gatos, CA, Butterfly Health is a small consumer packaged goods company that is focused on health and wellness. The company offers body liners for accidental bowel leakage which is common in many heath conditions. The company provides discreet personal hygiene products for both women and men.

Such opportune acquisitions will enable Domtar to expand its geographical footprint, while strengthening its top-line growth.

Domtar operates in the Paper and related products industry. Other players in the industry include Fibria Celulose S.A. (FBR - Free Report) , International Paper Company (IP - Free Report) and KapStone Paper and Packaging Corporation (KS - Free Report) .

Fibria has an average positive earnings surprise of 24.6% in the trailing four quarters, beating estimates on three occasions.

International Paper has a long-term earnings growth expectation of 9.5%. International Paper has a positive earnings surprise history with an average of 8.9% in the trailing four quarters, comprehensively beating estimates in each quarter.

KapStone has a long-term earnings growth expectation of 6.1%.

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