PaperAge Magazine

Domtar Reports Preliminary First Quarter 2017 Financial Results

Seasonally high level of scheduled maintenance; Good momentum in pulp markets

John Williams, President and CEO, Domtar "Our pulp business is growing and becoming more meaningful. We've shipped nearly 25% more tons when compared to the same quarter last year, and current initiatives will support continued profitable growth." – John Williams, President and CEO, Domtar.

Note: All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.

April 27, 2017 - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $20 million ($0.32 per share) for the first quarter of 2017 compared to net earnings of $47 million ($0.75 per share) for the fourth quarter of 2016 and net earnings of $4 million ($0.06 per share) for the first quarter of 2016. Sales for the first quarter of 2017 were $1.3 billion.

Excluding items listed below, the Company had earnings before items1 of $20 million ($0.32 per share) for the first quarter of 2017 compared to earnings before items1 of $47 million ($0.75 per share) for the fourth quarter of 2016 and earnings before items1 of $22 million ($0.35 per share) for the first quarter of 2016.

First quarter 2017 items:

  • None.

Fourth quarter 2016 items:

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

First quarter 2016 items:

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

QUARTERLY REVIEW

“The Ashdown mill continued to focus its efforts on the production and quality of fluff pulp; we shipped primarily softwood bales in the quarter, but we are making good progress with the qualification of our grades and we're receiving positive feedback from our customers,” said John D. Williams, President and Chief Executive Officer.

“Our pulp business is growing and becoming more meaningful. We've shipped nearly 25% more tons when compared to the same quarter last year, and current initiatives will support continued profitable growth. Our nearly 2 million tons of high-quality softwood, fluff and specialty market pulp capacity provides us with a scale business that will add momentum to our growth strategy for years to come.”

Mr. Williams added, “In Personal Care, strong sales growth and operational improvements in the first quarter continue to offset currency, price and cost headwinds. We are focusing our efforts on rolling out our growth plans, capturing the benefits of our cost savings program and building value for our customers to effectively compete in this competitive environment. Our sales pipeline remains active with numerous opportunities to grow in both North America and Europe.”

Operating income was $42 million in the first quarter of 2017 compared to an operating income of $74 million in the fourth quarter of 2016. Depreciation and amortization totaled $80 million in the first quarter of 2017.

Operating income before items1 was $42 million in the first quarter of 2017 compared to an operating income before items1 of $74 million in the fourth quarter of 2016.

The decrease in operating income in the first quarter of 2017 was the result of higher maintenance costs, lower productivity, lower average selling prices and higher raw material and other costs. These factors were partially offset by higher volume, lower selling, general and administrative expenses and favorable exchange rates.

When compared to the fourth quarter of 2016, manufactured paper shipments were up 1% and pulp shipments increased 9%. The shipments-to-production ratio for paper was 105% in the first quarter of 2017, compared to 104% in the fourth quarter of 2016. Paper inventories decreased by 36,000 tons and pulp inventories decreased by 61,000 metric tons when compared to the fourth quarter of 2016.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $91 million and capital expenditures were $34 million, resulting in free cash flow1 of $57 million for the first quarter of 2017. Domtar's net debt-to-total capitalization ratio1 stood at 30% at March 31, 2017 and at December 31, 2016.

OUTLOOK

For the remainder of the year, we anticipate paper shipments to be in-line with market demand. We expect to benefit from recently announced pulp price increases, while mix should continue to improve as we convert to more fluff pulp sales at our Ashdown mill. Costs, including freight, labor and chemicals are expected to marginally increase. In Personal Care, market growth, investments in advertising and promotion in addition to new customer wins should drive higher sales, while raw material costs are expected to marginally increase.

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.