Domtar Corporation reports preliminary third quarter 2014 financial results

Strong performance in pulp and paper drive improved earnings

(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

Third quarter 2014 net earnings of $4.33 per share; earnings before items1 of $0.94 per share
Lack-of-order downtime totaling 51 thousand tons of paper, in-line with the second quarter
Share buybacks totaling $19 million

Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $281 million ($4.33 per share) for the third quarter of 2014 compared to net earnings of $40 million ($0.61 per share) for the second quarter of 2014 and net earnings of $27 million ($0.41 per share) for the third quarter of 2013. Sales for the third quarter of 2014 were $1,405 million.

Excluding items listed below, the Company had earnings before items1 of $61 million ($0.94 per share) for the third quarter of 2014 compared to earnings before items1 of $40 million ($0.61 per share) for the second quarter of 2014 and earnings before items1 of $41 million ($0.63 per share) for the third quarter of 2013.

Third quarter 2014 items:

Deferred tax benefit of $204 million for the settlement of IRS audits, primarily related to Alternative Fuel Tax Credits;
Recognition of $18 million of deferred Alternative Fuel Tax Credits ($18 million after tax); and
Closure and restructuring costs of $2 million ($2 million after tax).

Second quarter 2014 items:

None

Third quarter 2013 items:

Loss on sale of business of $19 million ($12 million after tax); and
Negative impact of purchase accounting of $2 million ($2 million after tax).

"Our financial performance improved when compared to the second quarter, resulting in strong free cash flow generation", said John D. Williams, President and Chief Executive Officer. "Our pulp shipments were sequentially higher, raw material and planned maintenance costs were lower and our paper pricing remained firm in a very competitive environment. Given current market conditions, we continue to manage the business prudently, adjusting our production to our customers' demand through market-related downtime."

"In Personal Care, our third quarter results were affected by some seasonality in our European business as well as the effect of a weaker Euro. We continued to execute on our capital expansion plans, further integrating operational and product improvements and we made good progress with the ramp up of five newly installed machines at three of our facilities."

QUARTERLY REVIEW

Operating income before items1 was $104 million in the third quarter of 2014 compared to an operating income before items1 of $79 million in the second quarter of 2014. Depreciation and amortization totaled $96 million in the third quarter of 2014.
The increase in operating income before items1 in the third quarter of 2014 was the result of lower raw material costs, higher average selling prices for paper, lower costs for planned maintenance, higher pulp shipments, lower freight costs and higher productivity for pulp. These factors were partially offset by lower average selling prices for pulp and overall unfavorable exchange rates.

When compared to the second quarter of 2014, manufactured paper shipments were flat and pulp shipments increased 9.2%. The shipments-to-production ratio for paper was 102% in the third quarter of 2014, compared to 99% in the second quarter of 2014. Paper inventories decreased by 18,000 tons while pulp inventories increased by 1,000 metric tons at the end of September when compared to June levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $203 million and capital expenditures were $56 million, resulting in free cash flow1 of $147 million for the third quarter of 2014. Domtar's net debt-to-total capitalization ratio1 stood at 30% at September 30, 2014 compared to 32% at June 30, 2014.

OUTLOOK

Domtar paper shipments are expected to decline in the fourth quarter when compared to the third quarter due to seasonality. Domtar will continue to closely monitor its inventory levels and balance its production with its customers' demand. We remain cautious on the short-term pulp outlook due to the recent strengthening of the U.S. dollar and we expect higher input costs due to increased raw material usage in the winter months. We expect the fourth quarter will benefit from lower maintenance activities in our network.

www.domtar.com

Tweet