Domtar Posts Third Quarter Profit on Pulp and Personal Care Business

Oct. 24, 2013 - Domtar Corporation today reported net earnings of $27 million ($0.82 per share) for the third quarter of 2013 compared to a net loss of $46 million ($1.38 per share) for the second quarter of 2013 and net earnings of $66 million ($1.84 per share) for the third quarter of 2012. Sales for the third quarter of 2013 were $1,375 million.

"Our third quarter results were driven by improved productivity in our pulp business and continued growth in our personal care business."
— John D. Williams, President and CEO, Domtar.

Excluding items listed below, the Company had earnings before items1 of $41 million ($1.25 per share) for the third quarter of 2013 compared to earnings before items1 of $16 million ($0.48 per share) for the second quarter of 2013 and earnings before items1 of $67 million ($1.87 per share) for the third quarter of 2012.

Third quarter 2013 items:

  • Loss on sale of business of $19 million ($12 million after tax); and
  • Negative impact of purchase accounting of $2 million ($2 million after tax).
Second quarter 2013 items:
  • Litigation settlement of $49 million ($46 million after tax);
  • Closure and restructuring charges of $18 million ($13 million after tax); and
  • Charge of $5 million ($3 million after tax) related to the impairment and write-down of property, plant and equipment.
Third quarter 2012 items:
  • Closure and restructuring costs of $2 million ($1 million after tax).

"Our third quarter results were driven by improved productivity in our pulp business and continued growth in our personal care business," said John D. Williams, President and Chief Executive Officer. "Pulp and paper plays a vital role as the cash-generation platform in our journey to expand into higher-growth opportunities, and we are focused on running the business as efficiently as possible to ensure that we continue to extract maximum value from our assets. During the quarter, we finished the reconfiguration of our Kamloops pulp mill following the closure of a pulp line and a recovery boiler, and we continue to look for opportunities to further improve our output. Additionally, closing the sale of the Ariva U.S. business marked further progress in our transformation as we work to drive enhanced value for our shareholders.

Mr. Williams added, "Our personal care business continues its earnings progression with the ongoing integration of the recent AHP acquisition. While third quarter results were negatively impacted by an inventory adjustment at a large retail customer, we are enthusiastic about the long-term prospects for personal care and remain on track to deliver more than $200 million of EBITDA by 2017 with our existing platform."

QUARTERLY REVIEW

Operating income before items1 was $70 million in the third quarter of 2013 compared to an operating income before items1 of $42 million in the second quarter of 2013. Depreciation and amortization totaled $93 million in the third quarter of 2013.

The increase in operating income before items1 in the third quarter of 2013 was the result of lower costs for maintenance, higher productivity in pulp, the inclusion of Associated Hygienic Products since July 1 and the exclusion of Ariva U.S. since July 31st, lower raw material costs, higher average selling prices for pulp and favorable exchange rates. These factors were partially offset by higher fixed costs and lower average selling prices for paper.

When compared to the second quarter of 2013, paper shipments increased 1.6% and pulp shipments increased 2.3%. The shipments-to-production ratio for paper was 98% in the third quarter of 2013, compared to 96% in the second quarter of 2013. Lack-of-order downtime and machine slowdowns in pulp and paper totaled 18,000 short tons in the third quarter of 2013. Paper inventories increased by 5,000 tons while pulp inventories increased by 3,000 metric tons at the end of September, compared to June levels.

On July 31st, Domtar sold the Ariva U.S. business and the results of the former Distribution segment have been reclassified under the Pulp and Paper segment.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $287 million and capital expenditures were $180 million, resulting in free cash flow1 of $107 million for the first nine months of 2013. Domtar's net debt-to-total capitalization ratio1 stood at 26% at September 30, 2013 compared to 16% at December 31, 2012.

Domtar returned a total of $233 million to its shareholders through a combination of dividends and share buybacks in the first nine months of 2013. Under its stock repurchase program, Domtar repurchased a total of 533,327 shares of common stock at an average price of $68.85 in the third quarter of 2013, and a total of 11,170,506 shares of common stock at an average price of $78.48 since the implementation of the program in May 2010. At the end of the third quarter of 2013, Domtar had $121 million remaining under this program.

OUTLOOK

Our pulp business should benefit from accelerating momentum in global demand, notably in China. The recently announced price increases for several paper grades are expected to positively impact results towards the end of the quarter. We expect higher input costs due to higher usage in the winter months and we should see lower paper sales volumes in the fourth quarter due to seasonality.

Looking out to 2014, we should continue to benefit from the recently announced paper price increases and our personal care business will continue to see earnings growth.

Domtar's full preliminary third quarter 2013 financial report can be found at: www.domtar.com.

SOURCE: Domtar