October 30, 2009 / 12:36 PM / in 8 years

UPDATE 3-Domtar Q3 boosted by pulp prices, shares hit year-high

* Q3 EPS $4.24 vs $1.00 last year

* Q3 adj EPS $1.32 vs est. EPS $0.29

* Q3 sales fall 12 pct

* Sees higher costs in Q4 due to maintenance shutdowns

* Shares up 12 pct to year-high (Recasts; Adds conference call details, updates share movement)

(In U.S. dollars, unless noted)

By Isheeta Sanghi

BANGALORE, Oct 30 (Reuters) - Forestry firm Domtar Corp UFS.TO UFS.N posted a third-quarter profit that handily beat market estimates, helped both by improved pulp prices and lower input costs, sending its shares up 12 percent to a year-high.

“We had lower costs due to better operating performance and our efforts on procurement costs and discretionary spending,” Chief Executive John Williams said on a conference call with analysts.

In pulp, Domtar had lower unit costs due to the restart of two of its market pulp mills, as well as higher shipments and higher selling prices for paper-grade pulp.

In the short term, however, CEO Williams said he expects input costs to be stable. ”

Analysts have raised concerns over the sustainability of both the upward trend in pulp prices and demand from China, but Domtar said it has a more diversified customer base.

“I think the question, going forward, for us is how long can this last. And at the moment it looks more positive, I think, than any of us were expecting it to in terms of Chinese demand,” CEO Williams said.

BLOWOUT QUARTER

Domtar, which operates across papers, paper merchants and wood segments, posted quarterly profit of $183 million, or $4.24 a share, compared with $43 million, or $1 a share, a year ago.

Excluding items, dual-listed Domtar earned $1.32 a share.

Analysts on average expected the company to earn 29 cents a share, on revenue of $1.34 billion, according to Thomson Reuters I/B/E/S.

“All of our businesses posted improved profitability, most notably in pulp which benefited from higher prices, better demand and lower downtime costs due to the restart of our Woodland and Dryden pulp mills,” CEO Williams said in a statement.

Consolidated sales fell to $1.44 billion, from $1.63 billion a year ago.

Domtar’s earnings before interest, tax, depreciation and amortization (EBITDA) rose 74 percent to $396 million.

The EBITDA grew as a result of higher shipments, lower lack-of-order downtime, and pretty good cost control, RBC analyst Quinn said.

“I think the analyst community is going to completely re-look at their model. Consensus EBITDA for next year is still under $600 million, and we’re up in the $700 to $800 million (range), and I think it’s going to be a hell of a lot closer to us than it is to them,” Quinn said.

Domtar’s free cash flow amounted to $220 million in the third quarter. Net debt-to-total capitalization ratio was 38 percent at Sept. 30, compared with 50 percent at Dec. 31, 2008.

The Montreal-based company’s shares, which have doubled in value over the past six months, rose to a new 52-week high of C$47.32, but pared some gains to trade 11 percent up at C$46.56 Friday afternoon on the Toronto Stock Exchange. (Reporting by Isheeta Sanghi in Bangalore; Editing by Ratul Ray Chaudhuri, Himani Sarkar, Unnikrishnan Nair)

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