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Domtar (UFS) Q1 Earnings Surpass Estimates, Improve Y/Y

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Domtar Corporation delivered first-quarter 2019 adjusted earnings of $1.44 per share beating the Zacks Consensus Estimate of $1.34 by a margin of 7%. The bottom line also marked a significant improvement from the prior-year quarter’s earnings of 87 cents. Price and volume momentum in paper drove the results.

Including one-time items, Domtar reported earnings per share of $1.27 in the quarter, up 48% from 86 cents per share reported in the year-ago quarter.
 
Consolidated sales went up 2.3% year over year $1,376 million but fell short of the Zacks Consensus Estimate of $1,441 million. Quarterly revenues of the Pulp and Paper segment came in at $1,147 million, up 4% year over year. Sales from the Personal Care segment declined 6% year over year to $247 million.

Domtar Corporation Price, Consensus and EPS Surprise

Consolidated adjusted operating income came in at $129 million, up 65% from the year-ago quarter’s figure of $78 million. Adjusted operating income for the Pulp and Paper segment was $144 million in the reported quarter, up from $75 million in the prior-year quarter. The adjusted operating income for the Personal Care segment declined 25% year over year to $6 million.
 
Balance Sheet & Cash Flow
 
At the end of the fiscal first quarter 2019, the company had cash and cash equivalents of $94 million, down from $111 million at the end of 2018. Long-term debt was $853 million as of Mar 31, 2019 flat compared with Dec 31, 2017.
 
Domtar generated $55 million of cash from operating activities during the first quarter of 2019, compared with $90 million reported in the prior-year quarter.
 
Moving Forward
 
The company anticipates seasonally higher maintenance activity owing to annual shutdowns at some of its major facilities to negatively impact Pulp and Paper business’ results in the second quarter of 2019. However, Domtar expects paper shipments to benefit from higher demand from customers following the industry capacity closures. Paper prices will continue to improve in the wake of the recently announced price increases. Personal Care is anticipated to benefit from the company’s margin improvement plan and the ramp-up of a new customer. However, raw material cost inflation will remain a hindrance.
 
Share Price Performance

Shares of Domtar have gained around 3% over the past year against the industry’s decline of 30%.
 
Zacks Rank & Stocks to Consider
 

Domtar currently carries a Zacks Rank #3 (Hold).
 
A few better-ranked stocks worth considering in the Basic Materials space include Materion Corporation (MTRN - Free Report) , Air Products and Chemicals, Inc. (APD - Free Report) and Arconic Inc. . While Materion Corporation sports a Zacks Rank #1 (strong Buy), while Air Products and Chemicals and Arconic carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Materion Corporation has expected earnings growth rate of 16.4% for the current year. The company’s shares have rallied 32% over the past year.  
 
Air Products and Chemicals, Inc. (APD - Free Report) has expected earnings growth rate of 10.3% for the current year. Its shares have gained 28% in the past year.
 
Arconichas expected earnings growth rate of 28.1% for the current year. Its shares have gained 28% in the past year.

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