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Domtar Corp Announces 2nd-Quarter Results

On Aug. 7 before the market opened, Domtar Corp. (NYSE:UFS) released its second-quarter 2020 financial results.

The Fort Mill, California-based company posted second-quarter net income of $19 million, translating to earnings per share of 34 cents. That compares with net income of $5 million, or EPS of 9 cents, in the same quarter last year. Adjusted earnings stood at 36 cents per share. Analysts had predicted an adjusted loss of 42 cents per share. Revenue of $1 billion was down from the $1.3 billion reported last year.

Operating income for the quarter totalled $14 billion vs. $19 billion reported in the prior-year quarter thanks to lower volume and unfavourable productivity. Depreciation and amortization was a combined $71 million in the reported quarter.

In the Pulp and Paper segment, the company reported operating income of $3 million, down $1 million from last year. CEO John D. Williams commented:

“Despite the significant challenges we faced in Pulp and Paper markets, we have been able to manage costs while initiating cash and cost conservation initiatives across the network.”

Operating income in the Personal Care division amounted to $18 million. This was less than the $20 million reported in the year-ago quarter. By contrast, the segment’s Ebitda margin improved 10 basis points as compared to the first quarter to 14.4% due to better cost control as well as improved functional efficiencies.

At the end of the quarter, the company’s balance of cash on hand and available undrawn debt stood at a combined $906 million. The company generated cash flow of $67 million from operating activities, while capital spending for the quarter was $40 million.

As part of the cost-saving initiative, the paper and packaging maker is aiming to realize cost savings of $200 million by the end of 2021. The cost reduction program will include capacity reduction and asset closures, mill-level cost savings and optimizing support functions. Williams commented:

“We remain disciplined in our efforts to manage our costs to improve profitability and further strengthen our balance sheet. In line with these goals and current market conditions, we are implementing a significant cost savings program to streamline operations, maximize productivity and improve margins. This program will create a stronger, leaner organization aligned to meet the needs of the business and our customers in a post COVID-19 era.”

Having witnessed feeble demand so far, the paper market is expected to see incremental recovery in the coming quarter and towards the end of the year. The pulp segment is anticipated to be adversely impacted by seasonal softness as well as higher global inventories. In the personal care segment, the company expects to continue experiencing productivity gains.

Disclosure: I do not hold any positions in the stocks mentioned.

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