PaperAge Magazine

Domtar Reports Preliminary Second Quarter 2017 Financial Results

Jonh D. Williams - Domtar "Our pulp price momentum continued in the quarter following the implementation of several price increases. "Productivity was strong, resulting in good cost performance . . ." – John D. Williams, President and CEO, Domtar Corp.

July 28, 2017 (Press Release) - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $38 million ($0.61 per share) for the second quarter of 2017 compared to net earnings of $20 million ($0.32 per share) for the first quarter of 2017 and net earnings of $18 million ($0.29 per share) for the second quarter of 2016. Sales for the second quarter of 2017 were $1.2 billion.

Excluding items listed below, the Company had earnings before items1 of $38 million ($0.61 per share) for the second quarter of 2017 compared to earnings before items1 of $20 million ($0.32 per share) for the first quarter of 2017 and earnings before items1 of $38 million ($0.61 per share) for the second quarter of 2016.

Second quarter 2017 items:

  • None.

First quarter 2017 items:

  • None.

Second quarter 2016 items:

  • Litigation settlement of $2 million ($2 million after tax);
  • Impairment of property, plant & equipment of $3 million ($2 million after tax); and
  • Closure and restructuring costs of $21 million ($16 million after tax).

QUARTERLY REVIEW

“Our pulp price momentum continued in the quarter following the implementation of several price increases,” said John D. Williams, President and Chief Executive Officer. “Productivity was strong, resulting in good cost performance despite the high level of scheduled major maintenance outages at several pulp and paper mills. Notably, Ashdown had an excellent operating quarter and continued to make significant strides on increasing production of fluff pulp. Customer qualifications continue to progress well and we are on track to ramp-up to approximately 50% fluff pulp sales by year-end.”

Mr. Williams added, “In spite of competitive market pressures, we delivered a solid performance in Personal Care. We continued to show broad-based, year-over-year volume growth across most of our product channels, while benefits from our cost savings and efficiency improvement projects partially offset price erosion. We expect to continue to invest in innovation, marketing and targeted growth initiatives to capture the opportunities in our categories and geographies.”

Operating income was $64 million in the second quarter of 2017 compared to operating income of $42 million in the first quarter of 2017. Depreciation and amortization totaled $79 million in the second quarter of 2017.

Operating income before items1 was $64 million in the second quarter of 2017 compared to an operating income before items1 of $42 million in the first quarter of 2017.

The increase in operating income in the second quarter of 2017 was the result of higher average selling prices for pulp, lower raw material costs, favorable productivity and lower maintenance costs. These factors were partially offset by lower volume, higher selling, general and administrative expenses, and higher freight costs.

When compared to the first quarter of 2017, manufactured paper shipments were down 6% and pulp shipments decreased 15%. The shipments-to-production ratio for paper was 98% in the second quarter of 2017, compared to 105% in the first quarter of 2017. Paper inventories increased by 18,000 tons and pulp inventories increased by 33,000 metric tons when compared to the first quarter of 2017.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $121 million and capital expenditures were $37 million, resulting in free cash flow1 of $84 million for the second quarter of 2017. Domtar's net debt-to-total capitalization ratio1 stood at 28% at June 30, 2017 compared to 30% at March 31, 2017.

OUTLOOK

For the remainder of the year, we expect our paper shipments to be in-line with market demand. Our pulp shipments should be higher due to the ramp-up of the Ashdown fluff pulp line, while mix should continue to improve as we convert more volume to fluff pulp. In Personal Care, investments in advertising and promotion in addition to new customer wins should drive higher sales, while raw material costs are expected to increase marginally.

1 Non-GAAP financial measure.

Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. To learn more, please visit: www.domtar.com.

SOURCE: Domtar Corp.