Domtar Corporation UFS reported third-quarter 2015 adjusted earnings (excluding one-time items) of 54 million or 86 cents per share versus 61 million or 94 cents per share in the year-ago quarter. Although the adjusted earnings decreased year over year, it comfortably beat the Zacks Consensus Estimate of 55 cents. Consequently, share prices increased to $41.24 from $40.35 post earnings release.
Net income for the quarter came in at $11 million or 17 cents per share versus $281 million or $4.33 per share in the year-ago quarter. The year-over-year decrease in earnings was primarily driven by lower revenues and higher interest expenses.
Third-quarter consolidated sales for the Canadian paper company came in at $1,292 million versus $1,405 million in the year-ago quarter and lagged the Zacks Consensus Estimate of $1,325 million. The company saw weak revenue growth across both its segments.
Segment Performance
Pulp and Paper: Sales from this segment stood at $1,092 million versus $1,186 million in the year-ago period. Operating income came in at $54 million versus $101 million in the year-ago quarter. Paper inventories increased by 14,000 tons and pulp inventories increased by 36,000 metric tons in the reported quarter on a sequential basis.
Personal Care: Sales stood at $214 million versus $231 million in the year-earlier quarter, while operating income was $18 million versus $12 million in the year-ago quarter.
Balance Sheet
Cash and cash equivalents aggregated $128 million at quarter-end, compared to $174 million as of Dec 31, 2014. Cash flow from operating activities for nine months ended Sep 30, 2015 came in at $316 million, compared with $448 million in the year-ago period. For the quarter, free cash flow stood at $1 million. Long-term debt stood at $1,245 million at quarter-end, compared with $1,181 million as of Dec 31, 2014. At quarter end, Domtar's net debt-to-total capitalization ratio stood at 30%, compared with 29% at Jun 30, 2015.
During the quarter, Domtar repurchased $20 million of shares under its stock repurchase program. Since 2011, the company has returned 72% of free cash flow to shareholders through dividends and stock buybacks
Outlook
In fourth quarter, 2015, Paper is expected to be impacted by seasonality and prices for pulp are expected to remain under pressure. The upcoming quarter should benefit from lower maintenance activities in network and higher input costs. The company remains cautious on the short-term pulp outlook and Personal Care results are expected to benefit from market growth and cost savings from its new manufacturing platform.
Domtar is taking adequate measures to improve manufacturing processes and operate more efficiently resulting in stronger productivity and lower costs in the near future.
Domtar currently has a Zacks Rank # 3 (Hold). Stocks that look promising in the industry include Sappi Limited SPPJY, LogMeIn, Inc SVCBY and UPM-Kymmene Oyj. UPMKY, all carrying a Zacks Rank #1 (Strong Buy).
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