MONTREAL, Nov. 5 - Domtar Corporation today reported net earnings of $43 million ($0.08 per diluted share) for the third quarter of 2008 compared to net earnings of $24 million ($0.05 per diluted share) for the second quarter of 2008 and $36 million ($0.07 per diluted share) for the third quarter of 2007. Sales for the third quarter amounted to $1.6 billion. Excluding the items listed below, the Company earned $51 million ($0.10 per diluted share) for the third quarter of 2008 compared to $32 million ($0.06 per diluted share) for the second quarter of 2008 and $44 million ($0.09 per diluted share) for the third quarter of 2007.
"I am encouraged by the results, which we achieved despite high input costs, weak fine paper demand and a worsening economic environment. Our earnings increased from last year's third quarter, our free cash flow is strong, our balance sheet is sound with no upcoming debt maturities and we were recently upgraded by credit agencies in tough credit market conditions," said Raymond Royer, President and Chief Executive Officer. "Our team is executing well and our prudent approach to managing the business provides us with a measure of stability. I am pleased with the support we are getting from customers as we position ourselves as an efficient, stable, financially strong supplier of choice," added Mr. Royer.
Operating income before items(2) was $131 million in the third quarter of 2008 compared to operating income before items(2) of $106 million in the second quarter of 2008. Depreciation and amortization totaled $111 million in the third quarter. When compared to the second quarter, paper and pulp shipments decreased 5.1% and 6.3%, respectively. The shipments-to-production ratio for papers was 97% in the third quarter, compared to 99% in the second quarter. Paper inventories were 24,000 tons higher at the end of September when compared to end of June levels.
The increase in operating income before items(2) in the third quarter was the result of higher average selling prices for paper, lower usage for energy and chemicals, lower costs related to planned maintenance shutdowns, a favorable exchange rate and lower other costs. These factors were partially mitigated by higher costs related to chemicals, freight, fiber and energy, and lower paper and pulp shipments.
Operating income was $1 million in the third quarter of 2008 compared to operating income of $2 million in the second quarter of 2008. Depreciation and amortization was $1 million in the third quarter. Deliveries increased 5.3% when compared to the second quarter.
The decrease in operating income in the third quarter was the result of higher costs stemming from higher paper prices and an increase in allowance for doubtful accounts. These factors were partially mitigated by higher paper deliveries and higher average selling prices.
Operating loss was $11 million in the third quarter of 2008, compared to operating loss of $12 million in the second quarter of 2008. Depreciation and amortization totaled $7 million in the third quarter. When compared to the second quarter, lumber shipments decreased 1.7% and the shipments-to-production ratio was 109% in the third quarter compared to 117% in the second quarter.
The decrease in operating loss in the third quarter was the result of higher average selling prices, lower costs and a favorable exchange rate. These factors were partially mitigated by lower shipments.
For the remainder of the year, we expect paper prices to remain flat and pulp and lumber prices to decrease. Volumes should be down from the third quarter across all businesses due to the weaker economy and typical seasonality of our business. However, we expect a favorable foreign exchange rate, savings from our synergy program and lower energy prices to benefit Domtar's profitability in the fourth quarter.
On the outlook for 2009, Mr. Royer said, "the depth and duration of the economic slowdown and the impact this may have on office employment and demand for our products are uncertain. Still, Domtar will continue to track its order books and balance supply with its customer demand in uncoated freesheet papers."
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