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Domtar Misses Q1 Expectations

Friday, April 26, 2013

Press release from the issuing company

MONTREAL - Domtar Corporation today reported net earnings of $45 million ($1.29 per share) for the first quarter of 2013 compared to net earnings of $19 million ($0.54 per share) for the fourth quarter of 2012 and net earnings of $28 million ($0.76 per share) for the first quarter of 2012. Sales for the first quarter of 2013 amounted to $1,345 million.

Excluding items listed below, the Company had earnings before items1 of $33 million ($0.95 per share) for the first quarter of 2013 compared to earnings before items1 of $46 million ($1.31 per share) for the fourth quarter of 2012 and earnings before items1 of $61 million ($1.65 per share) for the first quarter of 2012.

First quarter 2013 items:

  • Conversion of $26 million ($18 million after tax) of alternative fuel tax credits into cellulosic biofuel producer income tax credits of $55 million ($33 million after tax) resulting in a net gain after tax of $15 million;
  • Charge of $10 million ($7 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Gain on the sale of property, plant and equipment of $10 million ($6 million after tax); and
  • Premium paid and costs related to the debt repurchase of $3 million ($2 million after tax), included in interest expense.

Fourth quarter 2012 items:

  • Closure and restructuring costs of $27 million ($18 million after tax);
  • Charge of $12 million ($8 million after tax) related to the impairment and write-down of property, plant and equipment and intangible assets; and
  • Net losses on the sale of property, plant and equipment of $2 million ($1 million after tax).

 

First quarter 2012 items:

  • Premium paid and costs related to the debt repurchase of $50 million ($30 million after tax), included in interest expense;
  • Closure and restructuring costs, including write-down of property, plant and equipment, of $3 million ($2 million after tax); and
  • Negative impact of purchase accounting of $1 million ($1 million after tax).

"The first quarter results in our paper business were disappointing and this is due to low productivity, resulting in high costs," said John D. Williams, President and Chief Executive Officer. "While we benefited from better paper pricing than we expected, the reconfiguration of our Marlboro, South Carolina operations resulted in multiple paper grade transfers, upsetting productivity at several of our paper mills. We anticipate a return to a more normalized productivity in the quarters to come." John D. Williams added, "Our personal care business remains on track and the capital investments should start to deliver the expected benefits towards the end of 2013."

QUARTERLY REVIEW

Operating income before items1 was $75 million in the first quarter of 2013 compared to an operating income before items1 of $84 million in the fourth quarter of 2012. Depreciation and amortization totaled $95 million in the first quarter of 2013. 

(In millions of dollars)

 

1Q 2013

 

4Q 2012

Sales

 

$1,345

 

$1,327

Operating income (loss)

 

 

 

 

 

Pulp and Paper segment

 

39

 

40

 

Distribution segment

 

(1)

 

(8)

 

Personal Care segment

 

13

 

13

 

Corporate

 

(2)

 

(2)

 

Total

 

49

 

43

Operating income before items1

 

75

 

84

Depreciation and amortization

 

95

 

96

The decrease in operating income before items1 in the first quarter of 2013 was the result of higher usage for energy and chemicals, higher unit costs for fiber, lower average selling prices for paper, higher general production costs and higher selling, general and administrative and other expenses. These factors were partially offset by higher volumes for paper, lower costs for planned maintenance, higher average selling prices for pulp and a favorable exchange rate.

When compared to the fourth quarter of 2012, paper shipments increased 2.9% and pulp shipments decreased 3.4%. Paper deliveries of Ariva® increased 9.8% when compared to the fourth quarter of 2012. The shipments-to-production ratio for paper was 104% in the first quarter of 2013, compared to 97% in the fourth quarter of 2012. Lack-of-order downtime and machine slowdowns in papers totaled 8,000 short tons in the first quarter of 2013. Paper inventories decreased by 34,000 tons while pulp inventories increased by 16,000 metric tons at the end of March, compared to December levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $63 million and capital expenditures amounted to $56 million, resulting in free cash flow1 of $7 million for the first quarter of 2013. Domtar's net debt-to-total capitalization ratio1 stood at 18% at March 31, 2013 compared to 16% at December 31, 2012.

Domtar returned a total of $63 million to its shareholders through a combination of dividend and share buybacks in the first quarter of 2013. Under its stock repurchase program, Domtar repurchased a total of 9,266,503 shares of common stock at an average price of $79.87 since the implementation of the program in May 2010. At the end of the first quarter of 2013, Domtar had $258 million remaining under this program.

OUTLOOK

We expect continued momentum in pulp markets with moderate improvement in pricing and steady shipments. In papers, our volumes are expected to stay relatively similar to the first quarter in the near term. The second quarter will be affected by the usual seasonal higher maintenance activity in pulp, while input costs are expected to decline slightly, notably due to lower usage of energy.

 

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