PaperAge Magazine

Domtar Corporation Reports Preliminary Second Quarter 2018 Financial Results

Jonh D. Williams - Domtar "We had a solid performance in pulp and paper given the extensive scheduled maintenance outages at several facilities. Both businesses are providing us with good sales and cash flow and we are building on several important initiatives" – John D. Williams, President and CEO, Domtar Corp.

Aug. 1, 2018 - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $43 million ($0.68 per share) for the second quarter of 2018 compared to net earnings of $54 million ($0.86 per share) for the first quarter of 2018 and net earnings of $38 million ($0.61 per share) for the second quarter of 2017. Sales for the second quarter of 2018 were $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $41 million ($0.65 per share) for the second quarter of 2018 compared to earnings before items1 of $55 million ($0.87 per share) for the first quarter of 2018 and earnings before items1 of $38 million ($0.61 per share) for the second quarter of 2017.

Second quarter 2018 items:

  • Gain on disposal of property, plant & equipment of $3 million ($2 million after tax).

First quarter 2018 items:

  • Litigation settlement of $2 million ($2 million after tax); and
  • Gain on disposal of property, plant & equipment of $1 million ($1 million after tax).

Second quarter 2017 items:

  • None.

QUARTERLY REVIEW

“We had a solid performance in pulp and paper given the extensive scheduled maintenance outages at several facilities. Both businesses are providing us with good sales and cash flow and we are building on several important initiatives,” said John D. Williams, President and Chief Executive Officer. “We continued to implement our announced price increases throughout the quarter with higher price realizations in both pulp and paper, which helped offset higher maintenance and inflation on some raw material and freight costs.”

Commenting on Personal Care, Mr. Williams added, “As expected, Personal Care results were impacted by anticipated volume reduction and continued commodity inflation. This was partially offset by strong cost savings and reduced overhead spending. We expect to improve margins towards the end of the year as the benefits of the new customer wins flow through.”

Operating income was $62 million in the second quarter of 2018 compared to operating income of $77 million in the first quarter of 2018. Depreciation and amortization totaled $79 million in the second quarter of 2018.

Operating income before items1 was $59 million in the second quarter of 2018 compared to an operating income before items1 of $78 million in the first quarter of 2018.

The decrease in operating income in the second quarter of 2018 was the result of higher maintenance costs, higher selling, general and administrative expenses, lower volume and unfavorable productivity. These factors were partially offset by higher average selling prices for pulp and paper and lower energy costs.

When compared to the first quarter of 2018, manufactured paper shipments were down 2% and pulp shipments increased 1%. The shipments-to-production ratio for paper was 102% in the second quarter of 2018, compared to 104% in the first quarter of 2018. Paper inventories decreased by 15,000 tons, and pulp inventories decreased by 26,000 metric tons when compared to the first quarter of 2018.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $177 million and capital expenditures were $37 million, resulting in free cash flow1 of $140 million for the second quarter of 2018. Domtar's net debt-to-total capitalization ratio1 stood at 25% at June 30, 2018 compared to 28% at March 31, 2018.

OUTLOOK

For the remainder of the year, we expect our paper shipments to trend better than market given the announced industry capacity closures. The announced price increases in paper are expected to continue to positively impact results in the second half of 2018. Pulp will benefit from lower planned maintenance costs and we expect prices will continue to trend positively. Personal Care results should improve towards the end of the year as the benefits of the new customer wins flow through. We expect moderate inflation in our costs for the second half of the year.

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.