Domtar Corporation reports preliminary third quarter 2015 financial results

TICKER SYMBOL
(NYSE: UFS) (TSX: UFS)

Good productivity and lower costs drive solid results
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted).

• Third quarter 2015 net earnings of $0.17 per share; earnings before items¹ of $0.86 per share
• Year-to-date same currency EBITDA in Personal Care 16% higher when compared to 2014
• Completed debt refinancing including a 10-year term loan

FORT MILL, SC, Oct. 30, 2015 /CNW Telbec/ - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $11 million ($0.17 per share) for the third quarter of 2015 compared to net earnings of $38 million ($0.60 per share) for the second quarter of 2015 and net earnings of $281 million ($4.33 per share) for the third quarter of 2014. Sales for the third quarter of 2015 were $1.3 billion.

Excluding items listed below, the Company had earnings before items¹ of $54 million ($0.86 per share) for the third quarter of 2015 compared to earnings before items¹ of $39 million ($0.61 per share) for the second quarter of 2015 and earnings before items¹ of $61 million ($0.94 per share) for the third quarter of 2014.

Third quarter 2015 items:

• Closure and restructuring costs of $1 million ($1 million after tax);
• Impairment of property, plant & equipment of $20 million ($12 million after tax); and
• Debt refinancing costs of $42 million ($30 million after tax).

Second quarter 2015 items:

• Closure and restructuring costs of $1 million ($1 million after tax);
• Gain on disposal of property, plant and equipment of $14 million ($11 million after tax); and
• Impairment of property, plant & equipment of $18 million ($11 million after tax).

Third quarter 2014 items:

• Deferred tax benefit of $204 million for the settlement of IRS audits, primarily related to Alternative Fuel Tax Credits;
• Recognitions 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).

"We delivered a solid quarter in a steady market environment. We had a good operating performance in Pulp and Paper, particularly during our annual maintenance outages, resulting in strong productivity and lower costs. Our paper shipments are also trending better than forecast due to better demand and lower imports and we continue to position the company to capitalize on opportunities in our key markets," said John D. Williams, President and Chief Executive Officer. "We remain focused on solid execution in areas such as operational excellence, continuous improvement, and innovation to ensure that we extract maximum value from our assets."

Mr. Williams added, "In Personal Care, the business continues its earnings progression. Our near-term priority remains on achieving our growth plans, continuing to capture the benefits of our cost savings program, and building out our core capabilities to support and sustain our unique business model. We have plenty yet to do and our focus on execution will continue to be vital."

QUARTERLY REVIEW

Operating income before items¹ was $82 million in the third quarter of 2015 compared to an operating income before items¹ of $67 million in the second quarter of 2015. Depreciation and amortization totaled $89  million in the third quarter of 2015.

The increase in operating income before items¹ in the third quarter of 2015 was the result of lower raw material costs, a favorable exchange rate, lower freight costs, lower costs for planned maintenance and lower selling, general and administrative expense. These factors were partially offset by lower average selling prices, higher other costs, lower volume in pulp and paper and lower productivity.

When compared to the second quarter of 2015, manufactured paper shipments were down 0.5% and pulp shipments decreased 3.5%. The shipments-to-production ratio for paper was 98% in the third quarter of 2015, compared to 97% in the second quarter of 2015. Paper inventories increased by 14,000 tons and pulp inventories increased by 36,000 metric tons in September when compared to June levels.

INCOME TAXES

The third quarter 2015 income tax benefit includes a benefit of $4 million related to enacted tax rate changes as well as the impact of the recognition of $5 million of additional tax benefits related to the finalization of certain estimates in connection with the filing of our 2014 tax returns. 

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $67 million and capital expenditures were $66 million, resulting in free cash flow¹ of $1 million for the third quarter of 2015. Domtar's net debt-to-total capitalization ratio¹ stood at 30% at September 30, 2015 compared to 29% at June 30, 2015.

During the quarter, Domtar repurchased $20 million of common stock under its stock repurchase program.

OUTLOOK

Paper should be impacted by seasonality and mix in the fourth quarter while prices for pulp are still expected to remain under pressure. We remain cautious on the short-term pulp outlook due to the strong U.S. dollar. The fourth quarter should benefit from lower maintenance activities in our network while we expect higher input costs due to increased raw material and energy usage due to colder weather. Personal Care results are expected to continue to benefit from market growth and cost savings from its new manufacturing platform.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its third quarter 2015 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 499-4035 (toll free - North America) or 1 (416) 204-9269 (International) at least 10 minutes before start time, while media and other interested individuals are invited to listen to the live webcast on the Domtar Corporation website at www.domtar.com.

The Company will release its fourth quarter 2015 earnings results on February 5, 2016 before markets open, followed by a conference call at 10:00 a.m. (ET) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

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About Domtar 
Domtar Corporation (NYSE: UFS) (TSX: UFS) designs, manufactures, markets and distributes a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of our business is a network of world-class wood fiber-converting assets that produce papergrade, fluff and specialty pulp. The majority of our pulp production is consumed internally to manufacture paper and consumer products. Domtar is the largest integrated marketer and manufacturer of uncoated freesheet paper in North America with recognized brands such as Cougar^®, Lynx^® Opaque Ultra, Husky^® Opaque Offset, First Choice^®, EarthChoice^® and Xerox^® Paper and Specialty Media. Domtar is also a marketer and producer of a broad line of absorbent hygiene products marketed primarily under the Attends^®, IncoPack^® and Indasec^® brand names. In 2014, Domtar had sales of $5.6 billion from some 50 countries. The Company employs approximately 9,800 people. To learn more, visit www.domtar.com.

Forward-Looking Statements
Statements in this release about our plans, expectations and future performance, including the statements by Mr. Williams and those contained under "Outlook," are "forward-looking statements." Actual results may differ materially from those suggested by these statements for a number of reasons, including changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under "Risk Factors" in our Form 10-K for 2014 as filed with the SEC and as updated by subsequently filed Form 10-Q's. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise.

¹ As a result of changes in the Company's organization structure, we have changed the way we allocate certain Corporate general and administrative costs to the segments. Further, certain Corporate costs not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, will be presented on the Corporate line. As a result, we have revised our 2014 segment disclosures to conform to our 2015 presentation. (Previously reported numbers for Operating income (loss) for the three and nine months ended September 30, 2014 are as follows; Pulp and Paper: $109M and $247M, respectively, Personal Care: $13M and $42M, respectively, Corporate: $(2)M and $(11)M, respectively).

The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP") financial metrics identified in bold as "Earnings before items", "Earnings before items per diluted share", "EBITDA", "EBITDA margin", "EBITDA before items", "EBITDA margin before items", "Free cash flow", "Net debt" and "Net debt-to-total capitalization." Management believes that the financial metrics presented are frequently used by investors and are useful to evaluate our ability to service debt and our overall credit profile. Management believes these metrics are also useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

The Company calculates "Earnings before items" and "EBITDA before items" by excluding the after-tax (pre-tax) effect of items considered by management as not reflecting our current operations. Management uses these measures, as well as EBITDA and Free cash flow, to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Net earnings provides for a more complete analysis of the results of operations. Net earnings and Cash flow provided from operating activities are the most directly comparable GAAP measures.

"Earnings before items", "Earnings before items per diluted share", "EBITDA", "EBITDA margin", "EBITDA before items", "EBITDA margin before items", "Free cash flow", "Net debt" and "Net debt-to-total capitalization" have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Net earnings, Operating income or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies.

The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP"), financial metrics identified in bold as "Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" by reportable segment. Management believes that the financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

The Company calculates the segmented "Operating income (loss) before items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations. Management uses these measures to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most directly comparable GAAP measure.

"Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies.

⁽¹⁾ As a result of changes in the Company's organization structure, we have changed the way we allocate certain Corporate general and administrative costs to the segments. Further, certain Corporate costs not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, will be presented on the Corporate line. As a result, we have revised our 2014 segment disclosures to conform to our 2015 presentation.

The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP"), financial metrics identified in bold as "Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" by reportable segment. Management believes that the financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

The Company calculates the segmented "Operating income (loss) before items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations. Management uses these measures to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most directly comparable GAAP measure.

"Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies.

⁽¹⁾ On January 2, 2014, the Company acquired 100% of the shares of Laboratorios Indas, S.A.U. in Spain.
⁽²⁾ As a result of changes in the Company's organization structure, we have changed the way we allocate certain Corporate general and administrative costs to the segments. Further, certain Corporate costs not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, will be presented on the Corporate line. As a result, we have revised our 2014 segment disclosures to conform to our 2015 presentation.

^(a) As a result of changes in the Company's organization structure, we have changed the way we allocate certain Corporate general and administrative costs to the segments. Further, certain Corporate costs not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, will be presented on the Corporate line. As a result, we have revised our 2014 segment disclosures to conform to our 2015 presentation.

^(b) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp Shipments represent the amount of pulp produced in excess of our internal requirement.

Note: the term "ST" refers to a short ton and the term "ADMT" refers to an air dry metric ton.

 

SOURCE Domtar Corporation

Related Links

http://www.domtar.com