Domtar Reports 2nd Quarter 2011 Earnings

July 28, 2011 - Domtar Corporation today reported net earnings of $54 million ($1.30 per share) for the second quarter of 2011 compared to net earnings of $133 million ($3.14 per share) for the first quarter of 2011 and net earnings of $31 million ($0.71 per share) for the second quarter of 2010. Sales for the second quarter of 2011 amounted to $1.4 billion.

Excluding items listed below, the Company had earnings before items of $98 million ($2.37 per share) for the second quarter of 2011 compared to earnings before items of $138 million ($3.25 per share) for the first quarter of 2011 and earnings before items1 of $116 million ($2.67 per share) for the second quarter of 2010.

Second quarter 2011 items:

  • Charge of $62 million ($38 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Gains and losses on the sale of property, plant and equipment and business resulting in a change of $6 million ($5 million after tax); and
  • Closure and restructuring costs of $2 million ($1 million after tax).

First quarter 2011 items:

  • Closure and restructuring costs of $11 million ($8 million after tax);
  • Gains and losses on the sale of property, plant and equipment and business resulting in a revenue of $7 million ($5 million after tax); and
  • Charge of $3 million ($2 million after tax) related to the impairment and write-down of property, plant and equipment.

Second quarter 2010 items:

  • Loss on sale of the Wood business of $50 million ($50 million after tax);
  • Costs for debt repurchase, including premium paid, of $40 million ($24 million after tax);
  • Charge of $14 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Closure and restructuring costs of $5 million ($4 million after tax); and
  • Gains and losses on sale of property, plant and equipment resulting in a revenue of $2 million ($2 million after tax).

"We had a good sales performance from a price and volumes standpoint. However these benefits were more than offset by a seasonally high level of scheduled maintenance in our mills," said John D. Williams, President and Chief Executive Officer.

On paper demand trends, Williams added, "Domtar paper shipments continue to trend better than forecast with healthy export volumes and good demand in our packaging paper grades. We continue to be successful in servicing our customers while keeping paper inventories tight."

QUARTERLY REVIEW

Operating income before items was $165 million in the second quarter of 2011 compared to an operating income before items of $218 million in the first quarter of 2011. Depreciation and amortization totaled $95 million in the second quarter of 2011. When compared to the first quarter of 2011, paper shipments decreased 1% while pulp shipments decreased 4%. The shipments-to-production ratio for paper was 101% in the second quarter of 2011, compared to 102% in the first quarter of 2011. Paper inventories declined by 11,000 tons while pulp inventories decreased by 8,000 metric tons as at the end of June, compared to March levels. Operating loss before items1 of Ariva™, our Paper Merchants segment, remains under pressure and declined by $2 million when compared to the first quarter of 2011. This is mostly due to lower deliveries resulting from difficult market conditions in the paper merchants channel and to the sale of a business unit at the end of the first quarter of 2011.

The decrease in operating income before items in the second quarter of 2011 was the result of higher maintenance costs, lower pulp and paper shipments, higher freight costs and higher unit costs for wood fiber and chemicals as well as the negative impact of a stronger Canadian dollar. These factors were partially offset by higher average selling prices in pulp and paper.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $306 million including a source of cash resulting from a reduction in working capital of $77 million. Capital expenditures amounted to $20 million resulting in free cash flow of $286 million in the second quarter of 2011.

Domtar returned a total of $175 million to its shareholders through a combination of dividend and stock buyback in the second quarter of 2011. Under its stock repurchase program, Domtar repurchased 1,682,047 shares of common stock during the second quarter and a total of 3,210,051 shares of common stock at an average price of $86.88 per share since the implementation of the program.

On June 23, 2011, the Company entered into a new unsecured $600 million credit agreement maturing in June 2015 to replace the existing secured revolving credit facility of $750 million that was scheduled to mature in March of 2012.

OUTLOOK

Looking into the second half of 2011, the benefits from announced price increases for business papers and lower costs stemming from maintenance in the mills are expected to favorably impact financial results. While selling prices for pulp are likely to decline on average compared to the first half of the year, uncoated freesheet paper shipments for 2011 are expected to remain steady when compared to 2010. Inflation pressures due to recent rises in commodity prices are expected to continue throughout the second half of the year.

Domtar is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity, and is also a manufacturer of papergrade, fluff and specialty pulp. The Company designs, manufactures, markets and distributes a wide range of business, commercial printing and publishing as well as converting and specialty papers. Domtar owns and operates Ariva™, an extensive network of strategically located paper distribution facilities. The company employs approximately 8,500 people.

SOURCE: Domtar Corp.