Why Is Domtar (UFS) Down 20.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Domtar (UFS). Shares have lost about 20.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Domtar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Domtar's Earnings & Revenues Beat Estimates in Q4

Domtar reported fourth-quarter 2019 adjusted earnings of 3 cents per share, faring better than the Zacks Consensus Estimate of a loss of 20 cents. However, the bottom-line figure tanked 98.2% from the prior-year quarter figure of $1.63 per share.

Including one-time items, Domtar reported net loss of 59 cents in the fourth quarter as against the net income of $1.38 per share recorded in the prior-year quarter.

Consolidated sales were down 10.5% year over year to $1,244 million, surpassing the Zacks Consensus Estimate of $1,200 million.

Operational Highlight

Consolidated adjusted operating income came in at $4 million in the December-end quarter compared with the year-ago quarter’s $148 million. The operating income during the quarter declined due to lower average selling prices and unfavorable productivity in pulp and paper, higher selling, general and administrative expenses, and higher maintenance, freight and raw material costs.

Segmental Performance

Quarterly revenues of the Pulp and Paper segment came in at $1,018 million, down 11.7% year over year. Adjusted operating income for the segment was $5 million in the reported quarter, down from the year-earlier reported figure of $148 million.

Sales in the Personal Care segment slid 4.7% year over year to $242 million. The adjusted operating income for the segment came in at $11 million, up from the $3 million reported in the comparable period last year.

Balance Sheet & Cash Flow

At the end of 2019, the company had cash and cash equivalents of $61 million, down from $111 million at the end of 2018. Net debt-to-total capitalization ratio was 27% as of Dec 31, 2019, up from 26% as of Sep 30, 2019.

Domtar generated $442 million of cash from operating activities during 2019 compared with the $554 million reported last year.

2019 Results

Domtar’s adjusted earnings per share in 2019 came in at $3.00, in line with the Zacks Consensus Estimate. Earnings plunged 35% from the prior year. Including one-time items, earnings per share came in at $1.37 in the year compared with the prior-year’s $4.48. Revenues dipped 4.3% year over year to $5.22 billion, as well as missed the Zacks Consensus Estimate of $5.49 billion.

2020 Outlook

In the current year, paper volumes are expected to trend with market demand, while pulp volumes are likely to shoot up owing to higher pulp productivity at the Espanola and Ashdown mills. The Pulp and Paper business will benefit from lower planned maintenance costs. The Personal Care segment is anticipated to benefit from margin-improvement plan and higher sales volume following new customer wins. Overall, freight, labor and raw materials costs are expected to flare up to some extent.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.