Domtar Posts Preliminary Third Quarter 2012 Earnings

Oct. 25, 2012 (Press Release) - Domtar Corporation (UFS) (UFS) today reported net earnings of $66 million ($1.84 per share) for the third quarter of 2012 compared to net earnings of $59 million ($1.61 per share) for the second quarter of 2012 and net earnings of $117 million ($2.95 per share) for the third quarter of 2011. Sales for the third quarter of 2012 amounted to $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $67 million ($1.87 per share) for the third quarter of 2012 compared to earnings before items1 of $59 million ($1.61 per share) for the second quarter of 2012 and earnings before items1 of $123 million ($3.10 per share) for the third quarter of 2011.

Third quarter 2012 items:

  • Closure and restructuring costs of $2 million ($1 million after tax)

Second quarter 2012 items:

  • None

Third quarter 2011 items:

  • Gains on the sale of property, plant and equipment and business of $4 million ($3 million after tax);
  • Charge of $8 million ($4 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Premium paid on debt repurchase of $4 million ($3 million after tax);
  • Closure and restructuring costs of $1 million ($1 million after tax); and
  • Negative impact of purchase accounting of $1 million ($1 million after tax).

"The third quarter was marked by weak paper demand and by cyclically low pulp prices." —John Williams, President and CEO, Domtar.

"The third quarter was marked by weak paper demand and by cyclically low pulp prices," said John Williams, President and CEO.

"Nevertheless, shipments for our pulp were sequentially higher, our paper pricing remained firm and paper inventories decreased by 10%. Given the macro environment, we continue to manage the business prudently, adjusting our production to customer demand through market-related downtime. I am pleased with our performance overall despite a sluggish economy and a weak pulp price environment."

QUARTERLY REVIEW

Operating income before items1 was $111 million in the third quarter of 2012 compared to an operating income before items1 of $106 million in the second quarter of 2012. Depreciation and amortization totaled $96 million in the third quarter of 2012.

The increase in operating income before items1 in the third quarter of 2012 was the result of higher shipments for pulp and paper, lower maintenance and raw material costs and lower SG&A costs. These factors were partially offset by lower average selling prices for pulp and paper and higher costs for lack-of-order downtime in papers.

When compared to the second quarter of 2012, paper shipments increased 0.9% and pulp shipments increased 12.8%. Paper deliveries of Ariva® decreased 4.6% when compared to the second quarter of 2012. The shipments-to-production ratio for paper was 105% in the third quarter of 2012, compared to 98% in the second quarter of 2012. Lack-of-order downtime and machine slowdowns in papers totaled 38,000 tons. Paper inventories decreased by 38,000 tons while pulp inventories increased by 15,000 metric tons as at the end of September, compared to June levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $206 million and capital expenditures amounted to $66 million, resulting in free cash flow1 of $140 million for the three months ended September 2012. Domtar's net debt-to-total capitalization ratio1 stood at 17% at September 30, 2012 compared to 12% at December 31, 2011.

Under its stock repurchase program, Domtar repurchased, during the quarter, 578,328 shares of common stock at an average price of $75.42 per share. Since the inception of the program, Domtar repurchased 8,135,157 shares of common stock at an average price of $80.53. At the end of the quarter, Domtar had $345 million remaining under this program.

OUTLOOK

Due to seasonal factors, Domtar paper shipments are expected to decline in the fourth quarter when compared to the third quarter. In pulp, we anticipate that prices will begin to gradually increase in the medium term due to favorable market dynamics and low softwood inventory levels. Input costs, notably energy and chemicals are expected to increase slightly in the fourth quarter.

Domtar Corporation (UFS) (UFS) designs, manufactures, markets and distributes a wide variety of fiber-based products including communication papers, specialty and packaging papers and adult incontinence products. The foundation of its business is a network of world class wood fiber converting assets that produce papergrade, fluff and specialty pulps. The majority of its pulp production is consumed internally to manufacture paper and consumer products. Domtar is the largest integrated marketer of uncoated freesheet paper in North America with recognized brands such as Cougar®, Lynx® Opaque Ultra, Husky® Opaque Offset, First Choice® and Domtar EarthChoice®. Domtar is also a leading marketer and producer of a complete line of incontinence care products marketed primarily under the Attends® brand name. Domtar owns and operates Ariva®, an extensive network of strategically located paper and printing supplies distribution facilities. In 2011, Domtar had sales of US$5.6 billion from nearly 50 countries. The Company employs approximately 9,300 people. To learn more, visit www.domtar.com.

1 Non-GAAP financial measure.

SOURCE: Domtar Corp.