Strong fourth quarter results despite competitive paper market environment
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)
- Fourth quarter 2014 net earnings of $1.10 per share; earnings before items1 of $1.41 per share
- Announced capital project to convert a paper machine to a fluff pulp line at Ashdown mill
- Record sales in European Personal Care business
Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $71 million ($1.10 per share) for the fourth quarter of 2014 compared to net earnings of $281 million ($4.33 per share) for the third quarter of 2014 and net earnings of $65 million ($1.00 per share) for the fourth quarter of 2013. Sales for the fourth quarter of 2014 were $1.4 billion.
Excluding items listed below, the Company had earnings before items1 of $91 million ($1.41 per share) for the fourth quarter of 2014 compared to earnings before items1 of $61 million ($0.94 per share) for the third quarter of 2014 and earnings before items1 of $68 million ($1.05 per share) for the fourth quarter of 2013.
Fourth quarter 2014 items:
Closure and restructuring costs of $25 million ($18 million after tax); and
Impairment of property, plant & equipment of $4 million ($2 million after tax).
Third quarter 2014 items:
Deferred tax benefit of $204 million for the settlement of IRS audit, primarily related to Alternative Fuel Tax Credits;
Recognition of $18 million of Alternative Fuel Tax Credits ($18 million after tax); and
Closure and restructuring costs of $2 million ($2 million after tax).
Fourth quarter 2013 items:
Net gain on sale of property, plant and equipment and business for $5 million ($4 million after tax); and
Charge of $7 million ($7 million after tax) for impairment of property, plant and equipment.
FISCAL YEAR 2014 HIGHLIGHTS
For fiscal year 2014, net earnings amounted to $431 million ($6.64 per share) compared to net earnings of $91 million ($1.36 per share) for fiscal year 2013. The Company had earnings before items1 of $234 million ($3.61 per share) for fiscal 2014 compared to earnings before items1 of $158 million ($2.37 per share) for fiscal 2013. Sales amounted to $5.6 billion for fiscal year 2014.
Commenting on the full-year results, John D. Williams, President and Chief Executive Officer, said, "Looking back at 2014, we delivered a year of strong results with solid free cash flow generation. Overall, we had good operating performance despite lack-of-order downtime in paper and we continued to adjust to rapidly changing market conditions. We also turned an important corner on our journey to build a growing, fiber-based business through acquisitions, strategic investments in manufacturing capacity and the additional repurposing of existing assets. We ended the year with strengthened earnings potential for the long-term."
QUARTERLY REVIEW
Operating income before items1 was $115 million in the fourth quarter of 2014 compared to an operating income before items1 of $104 million in the third quarter of 2014. Depreciation and amortization totaled $93 million in the fourth quarter of 2014.
Commenting on the fourth quarter results, Mr. Williams said, "In the fourth quarter, our results were strong despite a competitive paper market environment while pulp benefitted from good operating performance. During the quarter, we announced a fluff pulp conversion project that will further expand our presence in a growing business and help balance our paper supply with our customers' demand."
Mr. Williams added, "In Personal Care, our European business continued to perform well, posting a record sales performance but we did face some challenges in the U.S. market in addition to an extended ramp-up period. Momentum in the business is growing and we now have a state-of-the-art, low-cost, global manufacturing platform designed to provide our customers with differentiated product solutions to help them win in their markets."
The increase in operating income before items1 in the fourth quarter of 2014 was the result of lower costs for planned maintenance, higher other operating income, better productivity in pulp and paper, a favorable exchange rate and higher shipments in personal care. These factors were partially offset by lower average selling prices for paper and pulp, higher selling, general and administrative costs and higher raw material costs.
When compared to the third quarter of 2014, manufactured paper shipments were up 1.2% and pulp shipments increased 0.8%. The shipments-to-production ratio for paper was 101% in the fourth quarter of 2014, compared to 102% in the third quarter of 2014. Paper inventories decreased by 1,000 tons while pulp inventories increased by 21,000 metric tons at the end of December when compared to September levels.
LIQUIDITY AND CAPITAL
Cash flow provided from operating activities amounted to $186 million and capital expenditures were $79 million, resulting in free cash flow1 of $107 million for the fourth quarter of 2014. Domtar's net debt-to-total capitalization ratio1 stood at 29% at December 31, 2014 compared to 30% at September 30, 2014.
In 2014, cash flow provided from operating activities amounted to $634 million and capital expenditures were $236 million, resulting in free cash flow1 of $398 million.
OUTLOOK
We expect North American demand for uncoated freesheet to decline in 2015 with long-term secular trends. We anticipate some short-term volatility in pulp markets due to the recent strengthening of the U.S. dollar. Our new manufacturing platform is expected to generate revenue and earnings growth in our Personal Care business. A weak Canadian dollar is expected to benefit our pulp and paper mills in Canada while a weak Euro will negatively impact the translation of our Personal Care Euro results. We anticipate that oil-based input costs will be down year-over-year.
