Domtar Corporation Reports Preliminary Third Quarter 2019 Financial Results

October 28, 2019

By: The Working Forest Staff

FORT MILL, S.C. — Domtar Corporation has announced net earnings of $20 million ($0.32 per share) for the third quarter of 2019 compared to net earnings of $18 million ($0.28 per share) for the second quarter of 2019 and net earnings of $99 million ($1.57 per share) for the third quarter of 2018. Sales for the third quarter of 2019 were $1.3 billion.

Excluding items listed below, the Company had earnings before items1 of $55 million ($0.89 per share) for the third quarter of 2019 compared to earnings before items1 of $36 million ($0.57 per share) for the second quarter of 2019 and earnings before items1 of $92 million ($1.46 per share) for the third quarter of 2018.

ITEMS

Description Segment Line item Amount After tax effect EPS impact (per share)
      (in millions)  
Third quarter 2019          
           
·         Paper machine closures Pulp and Paper Impairment of long-lived assets $32 $25 $0.40
           
·         Paper machine closures Pulp and Paper Closure and restructuring costs $5 $4 $0.07
           
·         Margin improvement plan Personal Care Impairment of long-lived assets $1 $1 $0.02
           
·         Margin improvement plan Personal Care Closure and restructuring costs $6 $5 $0.08
           
Second quarter 2019          
           
·         Margin improvement plan Personal Care Impairment of long-lived assets $15 $12 $0.19
           
·         Margin improvement plan Personal Care Closure and restructuring costs $8 $6 $0.10
           
Third quarter 2018          
           
·         U.S. Tax Reform Corporate Income tax benefit $7 $7 $0.11

QUARTERLY REVIEW

“Our results in Paper improved with lower maintenance and raw material costs offsetting market related downtime costs. Our paper machines ran well and cost performance was strong, resulting in a 300 basis point margin expansion for this business,” said John D. Williams, President and Chief Executive Officer. “In Pulp, downward price adjustments continued in most regions but we are seeing increasing signs of improvement in supply and demand fundamentals.”

Mr. Williams added, “In Personal Care, EBITDA and margin performance were one of the best in several quarters as we continue to make excellent progress in executing our business plan, with a strong focus on commercial initiatives, cost performance and delivering on our margin improvement plan.”

Operating income was $29 million in the third quarter of 2019 compared to operating income of $34 million in the second quarter of 2019. Depreciation and amortization totaled $72 million in the third quarter of 2019.

Operating income before items1 was $73 million in the third quarter of 2019 compared to an operating income before items1 of $57 million in the second quarter of 2019.

(In millions of dollars)   3Q 2019     2Q 2019  
                 
Sales   $ 1,283     $ 1,317  
Operating income (loss)                
Pulp and Paper segment     31       62  
Personal Care segment     2       (18 )
Corporate     (4 )     (10 )
Total operating income     29       34  
Operating income before items1     73       57  
Depreciation and amortization     72       74  

The decrease in operating income in the third quarter of 2019 was the result of lower selling prices in pulp, market-related downtime costs and the Espanola outage. These factors were partially offset by lower maintenance and raw material costs, lower selling, general and administrative expenses and lower freight, fixed and other costs.

When compared to the second quarter of 2019, manufactured paper shipments were down 1% and pulp shipments increased 12%. The shipment-to-production ratio for paper was 103% in the third quarter of 2019, compared to 98% in the second quarter of 2019. Paper inventories decreased by 19,000 tons, and pulp inventories decreased by 9,000 metric tons when compared to the second quarter of 2019.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $108 million and capital expenditures were $56 million, resulting in free cash flow1 of $52 million for the third quarter of 2019. Domtar’s net debt-to-total capitalization ratio1 stood at 26% at September 30, 2019 compared to 22% at June 30, 2019.

OUTLOOK

For the fourth quarter, maintenance is expected to be higher while Paper is expected to be negatively impacted in part by a seasonally unfavorable mix. We anticipate some volatility in softwood and fluff pulp markets while Personal Care is expected to benefit from our margin improvement plan and increased sales driven by a stronger order book.

 

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