Domtar Corp.'s cleanup of its balance sheet will continue to pay off as the pulp and paper company looks to reward shareholders with a stock buyback and sets its sights on acquisition targets, says chief executive officer John Williams.
"This has been a monumental year for Domtar," Mr. Williams said Friday on a conference call for analysts after the company posted net profit of $325-million (U.S.) or $7.59 per share in the fourth quarter, compared with profit of $124-million or $2.86 a share one year earlier.
Revenue was $1.37-billion, down slightly from $1.4-billion.
Montreal-based Domtar benefited in 2010 from the rebound in pulp shipments as well as biofuel tax credits. But Mr. Williams also warned that North American demand for its core office-paper product will continue to decline in the long term and that efforts to diversify into areas such as fluff for diapers will continue apace.
"We have to broaden the product offering," he said.
At the same time, Domtar plans to repurchase $100-million worth of shares and is examining further buybacks, he said.
As to acquisitions, the company is on the lookout for opportunities but "we're not going to bet the store." About $1-billion is the maximum Domtar is prepared to spend on purchases, he said.
After a five-year hiatus, Domtar reinstated a dividend last year - 25 cents on a quarterly basis - and launched a $150-million share buyback program.
The company pumped out about $1-billion of cash last year and slashed its long-term debt to $825-million from $1.7-billion.
Wayne Cooperman, president of New York City-based Cobalt Capital Management, says he's reassured by Mr. Williams' comment on the call that he's "not going to throw money way on wild adventures" on the acquisition front.
"As a shareholder, we want to make sure they use their free cash flow wisely for investors' benefit," he said.
Raymond James Ltd. analyst Daryl Swetlishoff said in a research note that Domtar's $2.41-per-share profit in the fourth quarter - which excludes extraordinary items - actually missed his own target of $3.05 as well as the consensus estimate of $3.02.
But he said the miss was the result of one-time factors - including higher-than-expected maintenance costs - and that the fundamentals of the company remain strong.
"With the impressive de-leveraging program complete, we continue to expect increased cash returns to shareholders (in the form of additional share buybacks/dividends) and a potential diversification acquisition into a product with a positive secular demand profile [such as something in the tissue sector]" he wrote.
Domtar (UFS)
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