Domtar Reports Preliminary Fourth Quarter and Fiscal Year 2018 Financial Results

"The fourth quarter was one of our best in several years. Our results reflect a strong performance in Pulp and Paper as we benefited from solid business fundamentals, accelerating price realizations and improved productivity." – John Williams, President and CEO, Domtar.

Feb. 5, 2019 - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $87 million ($1.38 per share) for the fourth quarter of 2018 compared to net earnings of $99 million ($1.57 per share) for the third quarter of 2018 and a net loss of $386 million ($6.16 per share) for the fourth quarter of 2017. Sales for the fourth quarter of 2018 were $1.4 billion.

Excluding items listed here, the Company had earnings before items¹ of $103 million ($1.63 per share) for the fourth quarter of 2018 compared to earnings before items¹ of $92 million ($1.46 per share) for the third quarter of 2018 and earnings before items¹ of $40 million ($0.64 per share) for the fourth quarter of 2017.

For fiscal year 2018, net earnings amounted to $283 million ($4.48 per share) compared to a net loss of $258 million ($4.11 per share) for fiscal year 2017. The Company had earnings before items¹ of $291 million ($4.61 per share) for fiscal year 2018 compared to earnings before items¹ of $163 million ($2.60 per share) for fiscal year 2017. Sales amounted to $5.5 billion for fiscal year 2018.

Commenting on the full-year results, John D. Williams, President and Chief Executive Officer said, “We had a strong finish to a great year where we significantly improved EBITDA and cash flow. Our solid performance enabled us to return cash to shareholders, manage our balance sheet to preserve financial flexibility and better position Domtar for sustainable, long-term growth”.

“The fourth quarter was one of our best in several years,” said John D. Williams, President and Chief Executive Officer. “Our results reflect a strong performance in Pulp and Paper as we benefited from solid business fundamentals, accelerating price realizations and improved productivity. I'm especially pleased with our cost performance in the quarter despite fiber availability issues at several of our facilities.”

Commenting on Personal Care, Mr. Williams added, “Results improved from the third quarter led by seasonally stronger sales in Europe while new customer volume began to ramp up in North America. Higher volume and cost improvements also drove operational efficiencies and resulted in lower overall unit cost. Although markets remain challenged with raw material cost inflation, we do see some of the underlying fundamentals beginning to improve.”

Operating income was $133 million in the fourth quarter of 2018 compared to operating income of $114 million in the third quarter of 2018. Depreciation and amortization totaled $75 million in the fourth quarter of 2018.

Operating income before items¹ was $148 million in the fourth quarter of 2018 compared to an operating income before items¹ of $114 million in the third quarter of 2018.

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

When compared to the third quarter of 2018, manufactured paper shipments were down 1% and pulp shipments increased 1%. The shipments-to-production ratio for paper was 95% in the fourth quarter of 2018, compared to 98% in the third quarter of 2018. Paper inventories increased by 34,000 tons, and pulp inventories decreased by 7,000 metric tons when compared to the third quarter of 2018.

Cash flow from operating activities amounted to $217 million and capital expenditures were $84 million, resulting in free cash flow¹ of $133 million for the fourth quarter of 2018. Domtar's net debt-to-total capitalization ratio¹ stood at 23% at December 31, 2018 compared to 25% at September 30, 2018.

In 2018, cash flow from operating activities amounted to $554 million and capital expenditures were $195 million, resulting in free cash flow¹ of $359 million.

In 2019, our paper shipments will increase as we respond to increased demand from our customers following the announced capacity closures while paper prices will continue to improve in the wake of the recently announced price increases across the majority of our paper grades.

Softwood and fluff pulp markets will remain balanced through the year due to continued steady demand growth and limited announced new capacity.

We anticipate costs, including freight, labor and raw materials, to marginally increase.

Personal Care is expected to benefit from our margin improvement plan and new customer wins, partially offset by further raw material cost inflation.

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.