Domtar Posts Net Earnings Of $29 Million In Q3 2004 Despite Weaker US Dollar
Press release from the issuing company
MONTREAL, Oct. 28 - Domtar Inc. announced today net earnings of $29 million ($0.13 per common share) compared with $3 million ($0.01 per common share) in the third quarter of 2003 and a net loss of $1 million ($0.01 per common share) in the second quarter of 2004. When excluding specified items, net earnings in the third quarter of 2004 were $23 million ($0.10 per common share) compared with nil (nil per common share) in the third quarter of 2003 and $3 million ($0.01 per common share) in the second quarter of 2004.
"Market conditions for Domtar papers and lumber were favorable in Q3 2004. In fact, transaction prices continued to improve when compared to the previous quarter. However, prices for our papers, our most important business, stood at 94% of trend. That being said, the biggest challenge for Domtar remains the continued rapid rise in the value of the Canadian dollar compared to the US dollar, as evidenced by the negative impact of approximately $140 million so far this year on our operating profit," stated Raymond Royer, President and Chief Executive Officer of Domtar Inc.
"During the third quarter, we also continued to implement the restructuring plan for our Canadian pulp and paper operations announced in Q1, which aims at improving their profitability by $50 million by the end of 2005. Furthermore, our employees pursued efforts to improve the position of our company on the sustainability front. For example, our Port Edwards and Nekoosa mills received Forest Stewardship Council Chain of Custody certification during the quarter. In addition, we entered into an agreement with Nature Conservancy Canada by which Domtar transferred 40 km2 of timberland and contributed to the creation of the largest private protected land area east of the Canadian Rockies. Finally, Domtar was selected for the sixth consecutive year for the Dow Jones Sustainability Group Indexes. I want to thank our employees for their efforts on both short-term and long-term initiatives," concluded Mr. Royer.
The $23 million increase in operating profit excluding specified items in the Papers segment was attributable to higher average selling prices for papers and softwood pulp, the realization of savings from restructuring activities and other cost reductions achieved in Q3 2004. These factors were partially offset by the negative impact of a weaker US dollar, lower shipments for pulp and paper, higher wood and freight costs, as well as lower average selling prices for hardwood pulp.
Operating profit in the Paper Merchants segment remained stable. Although shipments were up during the quarter, their benefits were offset by the negative impact of a weaker US dollar.
Operating profit in the Wood segment remained stable. Although average selling prices for lumber were up during the quarter, their benefits were offset by the negative impact of a weaker US dollar and higher stumpage fees and freight costs. Both Q3 2004 and Q2 2004 results included a $21 million expense due to the 27% countervailing and antidumping duties imposed on our softwood lumber exports to the United States. Since May 22, 2002, Domtar has made and expensed cash deposits of $130 million for export duties.
The $8 million increase in operating profit excluding specified items in the Packaging segment (our 50% share of Norampac Inc.) was attributable to higher average selling prices for both containerboard and corrugated boxes, partially offset by the negative impact of a weaker US dollar and higher fiber costs.
Cash flows provided by operating activities in Q3 2004 amounted to $79 million compared to $76 million in Q2 2004. Free cash flow generated in Q3 2004 amounted to $41 million compared to $26 million in Q2 2004. Net capital expenditures amounted to $38 million in Q3 2004, compared to $50 million in Q2 2004. Domtar's net debt-to-total capitalization ratio as at September 30, 2004 was 50% compared to 48% as at December 31, 2003.
While seasonally weaker demand during the last quarter of the year may reduce the likelihood of further price increase announcements, Domtar believes that market conditions for uncoated freesheet should remain favorable given the relative balance between supply and demand. Domtar does not believe, however, that the high prices for lumber experienced during Q3 2004 are sustainable. In addition, Domtar expects that it will continue to experience pressure stemming from a weaker US dollar. Although the implementation of the Company's $50 million restructuring program for its Canadian pulp and paper operations announced in Q1 2004 is currently on track, the remainder of its profitability improvement program has been hampered by rising costs for raw materials, fiber and transportation. As such, Domtar will continue to direct its efforts towards strengthening this program.
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