Consumables

Domtar Corporation reports preliminary third quarter 2012 financial results

Friday 26. October 2012 - Good performance in pulp and paper and lower costs for planned maintenance drove results

(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)
Third quarter 2012 net earnings of $1.84 per share, earnings before items1 of $1.87 per share
Paper inventories reduced by 10% compared to June 2012
Continued momentum in Personal Care segment
Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $66 million ($1.84 per share) for the third quarter of 2012 compared to net earnings of $59 million ($1.61 per share) for the second quarter of 2012 and net earnings of $117 million ($2.95 per share) for the third quarter of 2011. Sales for the third quarter of 2012 amounted to $1.4 billion.
Excluding items listed below, the Company had earnings before items1 of $67 million ($1.87 per share) for the third quarter of 2012 compared to earnings before items1 of $59 million ($1.61 per share) for the second quarter of 2012 and earnings before items1 of $123 million ($3.10 per share) for the third quarter of 2011.
Third quarter 2012 items:
Closure and restructuring costs of $2 million ($1 million after tax)
Second quarter 2012 items:
None
Third quarter 2011 items:
Gains on the sale of property, plant and equipment and business of $4 million ($3 million after tax);
Charge of $8 million ($4 million after tax) related to the impairment and write-down of property, plant and equipment;
Premium paid on debt repurchase of $4 million ($3 million after tax);
Closure and restructuring costs of $1 million ($1 million after tax); and
Negative impact of purchase accounting of $1 million ($1 million after tax).
“The third quarter was marked by weak paper demand and by cyclically low pulp prices,” said John Williams, President and CEO. “Nevertheless, shipments for our pulp were sequentially higher, our paper pricing remained firm and paper inventories decreased by 10%. Given the macro environment, we continue to manage the business prudently, adjusting our production to customer demand through market-related downtime. I am pleased with our performance overall despite a sluggish economy and a weak pulp price environment.”
QUARTERLY REVIEW
Operating income before items1 was $111 million in the third quarter of 2012 compared to an operating income before items1 of $106 million in the second quarter of 2012. Depreciation and amortization totaled $96 million in the third quarter of 2012.
(In millions of dollars) 3Q 2012 2Q 2012
Sales $1,389 $1,368
Operating income (loss)
Pulp and Paper segment 103 96
Distribution segment (5) (2)
Personal Care segment 12 12
Corporate (1) –
Total 109 106
Operating income before items1 111 106
Depreciation and amortization 96 96
The increase in operating income before items1 in the third quarter of 2012 was the result of higher shipments for pulp and paper, lower maintenance and raw material costs and lower SG&A costs. These factors were partially offset by lower average selling prices for pulp and paper and higher costs for lack-of-order downtime in papers.
When compared to the second quarter of 2012, paper shipments increased 0.9% and pulp shipments increased 12.8%. Paper deliveries of Ariva decreased 4.6% when compared to the second quarter of 2012. The shipments-to-production ratio for paper was 105% in the third quarter of 2012, compared to 98% in the second quarter of 2012. Lack-of-order downtime and machine slowdowns in papers totaled 38,000 tons. Paper inventories decreased by 38,000 tons while pulp inventories increased by 15,000 metric tons as at the end of September, compared to June levels.
LIQUIDITY AND CAPITAL
Cash flow provided from operating activities amounted to $206 million and capital expenditures amounted to $66 million, resulting in free cash flow1 of $140 million for the three months ended September 2012. Domtar’s net debt-to-total capitalization ratio1 stood at 17% at September 30, 2012 compared to 12% at December 31, 2011.
Under its stock repurchase program, Domtar repurchased, during the quarter, 578,328 shares of common stock at an average price of $75.42 per share. Since the inception of the program, Domtar repurchased 8,135,157 shares of common stock at an average price of $80.53. At the end of the quarter, Domtar had $345 million remaining under this program.
OUTLOOK
Due to seasonal factors, Domtar paper shipments are expected to decline in the fourth quarter when compared to the third quarter. In pulp, we anticipate that prices will begin to gradually increase in the medium term due to favorable market dynamics and low softwood inventory levels. Input costs, notably energy and chemicals are expected to increase slightly in the fourth quarter.