Domtar's First Quarter 2014 Net Earnings Dip on Increased Costs

"Severe winter weather across much of the eastern part of North America negatively impacted some of our pulp and paper operations." – John D. Williams, President and CEO, Domtar.

April 24, 2014 - Domtar Corporation (UFS) (UFS.TO) today reported net earnings of $39 million ( $1.20 per share) for the first quarter of 2014 compared to net earnings of $65 million ( $2.00 per share) for the fourth quarter of 2013 and net earnings of $45 million ( $1.29 per share) for the first quarter of 2013. Sales for the first quarter of 2014 were $1,394 million.

Excluding items listed below, the Company had earnings before items1 of $42 million ( $1.29 per share) for the first quarter of 2014 compared to earnings before items1 of $68 million ( $2.09 per share) for the fourth quarter of 2013 and earnings before items1 of $33 million ( $0.95 per share) for the first quarter of 2013.

First quarter 2014 items:

  • Closure and restructuring costs of $1 million ($1 million after tax); and
  • Negative impact of purchase accounting of $3 million ($2 million after tax).

Fourth quarter 2013 items:

  • Net gain on sale of property, plant and equipment and business of $5 million ($4 million after tax); and
  • Charge of $7 million ($7 million after tax) for impairment of property, plant and equipment.

First quarter 2013 items:

  • Conversion of $26 million ($18 million after tax) of alternative fuel tax credits into cellulosic biofuel producer income tax credits of $55 million ($33 million after tax) resulting in a net gain after tax of $15 million;
  • Charge of $10 million ($7 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Gain on the sale of property, plant and equipment of $10 million ($6 million after tax); and
  • Premium paid and costs related to the debt repurchase of $3 million ($2 million after tax).

Commenting on the first quarter results, John D. Williams , President and Chief Executive Officer, said, "Severe winter weather across much of the eastern part of North America negatively impacted some of our pulp and paper operations. In particular, our mills experienced greater than normal energy and fiber costs and reduced productivity. Nonetheless, we benefited from higher pulp and paper prices with the successful implementation of price increases."

Mr. Williams added, "The integration of Indas is progressing well and the business performed in line with our expectations in the first quarter. I am pleased with the progress made so far in our Personal Care division, despite some erosion of sales in our baby diaper business. We are well underway with our adult incontinence organic growth plan and our teams are moving fast in the deployment of new machinery to begin manufacturing product-for-sale by the end of the fourth quarter. We are bringing new production online to provide the capacity and the product mix required to better serve our targeted customers."

QUARTERLY REVIEW

Operating income before items1 was $83 million in the first quarter of 2014 compared to an operating income before items1 of $95 million in the fourth quarter of 2013. Depreciation and amortization totaled $99 million in the first quarter of 2014.

The decrease in operating income before items1 in the first quarter of 2014 was the result of higher fiber, energy and other costs, lower volumes for pulp and paper and higher selling, general and administrative expenses. These factors were partially offset by higher average selling prices for paper and pulp, the addition of Indas and a favorable exchange rate.

When compared to the fourth quarter of 2013, manufactured paper shipments decreased 1.6% and pulp shipments decreased 15.6%. The shipments-to-production ratio for paper was 100% in the first quarter of 2014, compared to 100% in the fourth quarter of 2013. Paper inventories decreased by 4,000 tons while pulp inventories increased by 13,000 metric tons at the end of March compared to December levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $141 million and capital expenditures were $45 million , resulting in free cash flow1 of $96 million for the first quarter of 2014. Following the completion of our acquisition of Indas on January 2, 2014 , Domtar's net debt-to-total capitalization ratio1 stood at 33% at March 31, 2014 compared to 24% at December 31, 2013.

OUTLOOK

Price realizations in paper are expected to further improve from the first quarter as a result of recently announced price increases while our volumes are expected to remain relatively stable and input costs are expected to return to more normal levels for the remainder of the year. The second quarter is expected to be affected by seasonally higher maintenance activity. Personal Care will continue to benefit from the recent acquisition of Indas and the addition of the new production lines towards the end of the year.

Domtar Corporation designs, manufactures, markets and distributes a wide variety of fiber-based products including communication papers, specialty and packaging papers and absorbent hygiene products. Domtar is the largest integrated marketer of uncoated freesheet paper in North America. Domtar is also a leading marketer and producer of a complete line of incontinence care products marketed primarily under the AttendsŪ brand name as well as baby diapers. To learn more, visit www.domtar.com.

SOURCE: Domtar Corp.