PaperAge Magazine

Domtar Reports Preliminary Third Quarter 2018 Financial Results

Jonh D. Williams - Domtar "Our strong performance was driven by accelerating price realizations and margin expansion, particularly, within our Pulp and Paper businesses. Our operations also ran exceptionally well, despite some weather-related outages, with productivity gains across the mill system." – John D. Williams, President and CEO, Domtar Corp.

Nov. 2, 2018 - Domtar Corporation [on Nov. 1] reported net earnings of $99 million ($1.57 per share) for the third quarter of 2018 compared to net earnings of $43 million ($0.68 per share) for the second quarter of 2018 and net earnings of $70 million ($1.11 per share) for the third quarter of 2017. Sales for the third quarter of 2018 were $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $92 million ($1.46 per share) for the third quarter of 2018 compared to earnings before items1 of $41 million ($0.65 per share) for the second quarter of 2018 and earnings before items1 of $65 million ($1.03 per share) for the third quarter of 2017.

QUARTERLY REVIEW

“Our strong performance was driven by accelerating price realizations and margin expansion, particularly, within our Pulp and Paper businesses. Our operations also ran exceptionally well, despite some weather-related outages, with productivity gains across the mill system,” said John D. Williams, President and Chief Executive Officer. “We have strong momentum to close the year on a high note, and the confidence that our Pulp and Paper businesses will enter 2019 in the best position in recent years.”

Commenting on Personal Care, Mr. Williams added, “Escalating raw material costs continue to compress our margins in adult incontinence and baby diapers. As a result, we are accelerating the pace of actions that will improve margins and EBITDA, with a plan that is expected to generate annual benefits of approximately $25 to 30 million, with full effect by the end of 2020. This will include headcount reductions, the permanent closure of our Waco, Texas facility, and commercial and operational initiatives. The sum of these actions will reduce our cost base and strengthen our long-term competitive position.”

Operating income was $114 million in the third quarter of 2018 compared to operating income of $62 million in the second quarter of 2018. Depreciation and amortization totaled $75 million in the third quarter of 2018.

Operating income before items1 was $114 million in the third quarter of 2018 compared to an operating income before items1 of $59 million in the second quarter of 2018.

The increase in operating income in the third quarter of 2018 was the result of higher average selling prices for pulp and paper, lower maintenance costs, favorable productivity, lower raw material costs and selling, general and administrative expenses. These factors were partially offset by lower volume, higher freight and other costs.

When compared to the second quarter of 2018, manufactured paper shipments were down 4% and pulp shipments increased 3%. The shipments-to-production ratio for paper was 98% in the third quarter of 2018, compared to 102% in the second quarter of 2018. Paper inventories increased by 17,000 tons, and pulp inventories increased by 17,000 metric tons when compared to the second quarter of 2018.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $70 million and capital expenditures were $49 million, resulting in free cash flow1 of $21 million for the third quarter of 2018. Domtar's net debt-to-total capitalization ratio1 stood at 25% at September 30, 2018 and at June 30, 2018.

OUTLOOK

In the fourth quarter, we expect lower maintenance costs in Pulp and Paper. Paper and Pulp should continue to realize higher prices following recently announced price increases. Personal Care should benefit from higher volume and our margin improvement efforts while commodity cost inflation is expected to remain at elevated levels.

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.