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Domtar Corp (UFS) Q2 Earnings Beat Estimates, Stock Up 2.2%

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Paper & paper products manufacturer Domtar Corporation (UFS - Free Report) reported second-quarter 2017 adjusted earnings of $38 million or 61 cents per share, flat year over year. Earnings beat the Zacks Consensus Estimate of 53 cents. Strong productivity that resulted in solid cost performance helped the company to post better-than-expected earnings and evoked positive investor response as shares traded 2.2% higher, to close at $39.33 yesterday.   

Sales in the reported quarter came in at $1,224 million compared with $1,267 million in the year-ago quarter. Revenues, however, missed the Zacks Consensus Estimate of $1,337 million.

Operating income for the reported quarter was $64 million compared with $42 million in the first quarter of 2016. The increase in operating income was driven by a rise in average selling prices for pulp, lower raw material costs, favorable productivity and lower maintenance costs.

Segment Performance

Pulp and Paper: Sales from this segment were $999 million versus $1,054 million in the year-ago period. Operating income came in at $65 million versus $35 million in the year-ago quarter. Paper inventories recorded an increase of 18,000 tons and pulp inventories increased by 33,000 metric tons from the previous quarter.

Personal Care: Sales were $241 million versus $228 million in the year-earlier quarter, while operating income was $13 million versus $15 million in the year-ago quarter.

Domtar is streamlining its cost structure, improving revenue quality and seeking growth through profitable investment opportunities with a commitment to environment and sustainable practices.

Domtar Corporation Price, Consensus and EPS Surprise

Balance Sheet

Cash and cash equivalents totaled $124 million as of Jun 30, 2017. Long-term debt was $1,203 million at quarter end. Cash flow from operating activities totaled $121 million and capital expenditures were $37 million. Domtar’s net debt-to-total capitalization ratio was 28% as of Jun 30, 2017.

The company did not repurchase any share during the quarter. At the end of the quarter, the company had 62.7 million shares outstanding.

A steady dividend payment policy is part of Domtar’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. In addition, the company has historically repurchased shares as part of its balanced approach to deploy capital. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth strategy.  

Outlook

The company expects to invest in innovation, marketing and targeted growth initiatives to capture the opportunities in its segments. The company expects its paper shipments to be in line with the total demand in market. The company expects its pulp shipments to increase due to the ramp-up of the Ashdown fluff pulp line. Investments in advertising and promotion in addition to new customer wins, is expected to boost sales in personal care.

Domtar carries a Zacks Rank #2 (Buy). Some other stocks sharing the same Zacks Rank in the space include Albemarle Corporation (ALB - Free Report) , American Vanguard Corporation (AVD - Free Report) and Axalta Coating Systems Ltd. (AXTA - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle delivered an average positive earnings surprise of 8.97% in the last four quarters.

American Vanguard delivered an average positive earnings surprise of 1.39% in the last four quarters.

Axalta Coating Systems came up with an average positive earnings surprise of 1.22% in the last four quarters.

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