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Domtar Corporation Reports Preliminary First Quarter 2019 Financial Results

FORT MILL, S.C.--(BUSINESS WIRE)--

Price and volume momentum in Paper drive strong results
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted).

  • First quarter 2019 net earnings of $1.27 per share; earnings before items1 of $1.44 per share
  • Paper prices $30 per ton higher quarter-over-quarter
  • Paper shipments increased 2% quarter-over-quarter

Domtar Corporation (UFS) (UFS.TO) today reported net earnings of $80 million ($1.27 per share) for the first quarter of 2019 compared to net earnings of $87 million ($1.38 per share) for the fourth quarter of 2018 and net earnings of $54 million ($0.86 per share) for the first quarter of 2018. Sales for the first quarter of 2019 were $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $91 million ($1.44 per share) for the first quarter of 2019 compared to earnings before items1 of $103 million ($1.63 per share) for the fourth quarter of 2018 and earnings before items1 of $55 million ($0.87 per share) for the first quarter of 2018.

ITEMS

Description   Segment   Line item   Amount   After tax

effect

  EPS impact

(per share)

      (in millions)  
First quarter 2019  
 
● Margin improvement

plan

Personal Care Impairment of property, plant

and equipment

$10 $8 $0.12
 
● Margin improvement

plan

Personal Care Closure and

restructuring costs

$4 $3 $0.05
 
Fourth quarter 2018
 
● Margin improvement

plan

Personal Care Impairment of property, plant

and equipment

$7 $5 $0.08
 
● Margin improvement

plan

Personal Care Closure and

restructuring costs

$8 $6 $0.09
 
● U.S. Tax Reform Corporate Income tax expense $5 $5 $0.08
 
First quarter 2018
 
● Litigation settlement Corporate Other operating loss, net $2 $2 $0.03
 
● Gain on disposal

of property, plant

and equipment

Pulp and Paper Other operating income, net $1 $1 $0.02

QUARTERLY REVIEW

“We had a solid performance from Pulp and Paper despite a wood fiber shortage that negatively impacted costs and output,” said John D. Williams, President and Chief Executive Officer. “Price and volume momentum in paper continued in a favorable market environment, which led to strong productivity and a good cost performance. The pulp business was impacted by lower prices while higher internal pulp shipments due to wood fiber constraints negatively impacted our volumes. Nevertheless, we continued to improve and increase overall productivity and manage costs through saving initiatives.

Mr. Williams added, “In Personal Care, our margins improved driven by better productivity and operational efficiencies as our new customer ramp-up accelerates. We also successfully implemented price increases in both North America and Europe helping to partially offset raw material cost headwinds. Our teams continue to deliver on our margin improvement plan which is expected to progress throughout the year.”

Operating income was $115 million in the first quarter of 2019 compared to operating income of $133 million in the fourth quarter of 2018. Depreciation and amortization totaled $73 million in the first quarter of 2019.

Operating income before items1 was $129 million in the first quarter of 2019 compared to an operating income before items1 of $148 million in the fourth quarter of 2018.

           
(In millions of dollars)         1Q 2019 4Q 2018
 
Sales $ 1,376 $ 1,390
Operating income (loss)
Pulp and Paper segment 144 148
Personal Care segment (8 ) (12 )
Corporate   (21 )   (3 )
Total operating income 115 133
Operating income before items1 129 148
Depreciation and amortization 73 75

The decrease in operating income in the first quarter of 2019 was the result of higher selling, general and administrative expenses, higher raw material costs and lower volume in pulp. These factors were partially offset by higher average selling prices for paper, lower fixed and other costs and favorable exchange rates.

When compared to the fourth quarter of 2018, manufactured paper shipments were up 2% and pulp shipments decreased 12%. The shipments-to-production ratio for paper was 97% in the first quarter of 2019, compared to 95% in the fourth quarter of 2018. Paper inventories increased by 22,000 tons, and pulp inventories increased by 24,000 metric tons when compared to the fourth quarter of 2018.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $55 million and capital expenditures were $46 million, resulting in free cash flow1 of $9 million for the first quarter of 2019. Domtar’s net debt-to-total capitalization ratio1 stood at 23% at March 31, 2019 and at December 31, 2018.

OUTLOOK

Our paper shipments should benefit from higher demand from our customers following the industry capacity closures while our paper prices will further improve as we continue to implement our recently announced price increases. The second quarter will be adversely affected by seasonally higher maintenance activity in our Pulp and Paper business as we move into the annual shutdowns at some of our major facilities. Personal Care is expected to benefit from our margin improvement plan and the ramp-up of a new customer, partially offset by further raw material cost inflation.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2019 financial results. Financial analysts are invited to participate in the call by dialing 1 (888) 394-8218 (toll free - North America) or 1 (323) 701-0225 (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 second quarter 2019 earnings results on August 1, 2019 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.

1 Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.

About Domtar

Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. With approximately 10,000 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day. Domtar’s annual sales are approximately $5.5 billion, and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina. 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 2018 as filed with the SEC and as updated by subsequently filed Form 10-Qs. 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.

Domtar Corporation
Highlights
(In millions of dollars, unless otherwise noted)

  Three months ended   Three months ended
March 31, March 31,
2019 2018
(Unaudited)
$ $
Selected Segment Information    
Sales
Pulp and Paper 1,147 1,100
Personal Care   247   262
Total for reportable segments 1,394 1,362
Intersegment sales   (18 )   (17 )
Consolidated sales   1,376   1,345
Depreciation and amortization
Pulp and Paper 57 61
Personal Care   16   18
Total for reportable segments 73 79
Impairment of property plant and equipment - Personal Care   10  
Consolidated depreciation and amortization and

impairment of property, plant and equipment

  83   79
Operating income (loss)
Pulp and Paper 144 76
Personal Care (8 ) 8
Corporate   (21 )   (7 )
Consolidated operating income 115 77
Interest expense, net 13 16
Non-service components of net periodic benefit cost   (3 )   (4 )
Earnings before income taxes and equity loss 105 65
Income tax expense 24 11
Equity loss, net of taxes   1  
Net earnings   80   54
Per common share (in dollars)
Net earnings
Basic 1.27 0.86
Diluted 1.27 0.86
Weighted average number of common

shares outstanding (millions)

Basic 63.0 62.7
Diluted   63.2   62.9
Cash flows from operating activities 55 90
Additions to property, plant and equipment   46   25

Domtar Corporation
Consolidated Statements of Earnings
(In millions of dollars, unless otherwise noted)

  Three months ended   Three months ended
March 31, March 31,
2019 2018
(Unaudited)
$ $
   
Sales 1,376 1,345
Operating expenses
Cost of sales, excluding depreciation and amortization 1,052 1,084
Depreciation and amortization 73 79
Selling, general and administrative 123 110
Impairment of property, plant and equipment 10
Closure and restructuring costs 4
Other operating income, net   (1 )   (5 )
  1,261   1,268
Operating income 115 77
Interest expense, net 13 16
Non-service components of net periodic benefit cost   (3 )   (4 )
Earnings before income taxes and equity loss 105 65
Income tax expense 24 11
Equity loss, net of taxes   1    
Net earnings   80   54
Per common share (in dollars)
Net earnings
Basic 1.27 0.86
Diluted 1.27 0.86
Weighted average number of common

shares outstanding (millions)

Basic 63.0 62.7
Diluted 63.2 62.9

Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)

 
March 31,   December 31,
2019 2018
(Unaudited)
$ $
Assets    
Current assets
Cash and cash equivalents 94 111
Receivables, less allowances of $7 and $6 699 670
Inventories 813 762
Prepaid expenses 25 24
Income and other taxes receivable   21     22
Total current assets 1,652 1,589
Property, plant and equipment, net 2,564 2,605
Operating lease right-of-use assets 81
Intangible assets, net 587 597
Other assets   138   134
Total assets   5,022   4,925
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness 3
Trade and other payables 675 757
Income and other taxes payable 49 25
Operating lease liabilities due within one year 25
Long-term debt due within one year   1   1
Total current liabilities 753 783
Long-term debt 853 853
Operating lease liabilities 65
Deferred income taxes and other 477 476
Other liabilities and deferred credits 266 275
Shareholders' equity
Common stock 1 1
Additional paid-in capital 1,982 1,981
Retained earnings 1,075 1,023
Accumulated other comprehensive loss   (450 )   (467 )
Total shareholders' equity   2,608   2,538
Total liabilities and shareholders' equity   5,022   4,925

Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)

  For the three months ended
March 31, 2019   March 31, 2018
(Unaudited)
$ $
Operating activities    
Net earnings 80 54
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization 73 79
Deferred income taxes and tax uncertainties (3 ) (3 )
Impairment of property, plant and equipment 10
Net gains on disposals of property, plant and equipment (1 )
Stock-based compensation expense 2 3
Equity loss, net 1
Other (1 )
Changes in assets and liabilities
Receivables (30 ) (2 )
Inventories (49 ) (13 )
Prepaid expenses (2 )
Trade and other payables (69 ) (37 )
Income and other taxes 26 16
Difference between employer pension and other post-retirement

contributions and pension and other post-retirement expense

1
Other assets and other liabilities   13   (3 )
Cash flows from operating activities   55   90
Investing activities
Additions to property, plant and equipment (46 ) (25 )
Proceeds from disposals of property, plant and equipment 1
Other     (4 )
Cash flows used for investing activities   (46 )   (28 )
Financing activities
Dividend payments (27 ) (26 )
Net change in bank indebtedness 3
Proceeds from receivables securitization facility 20
Repayments of receivables securitization facility (20 ) (25 )
Other   (1 )  
Cash flows used for financing activities   (25 )   (51 )
Net (decrease) increase in cash and cash equivalents (16 ) 11
Impact of foreign exchange on cash (1 ) 2
Cash and cash equivalents at beginning of period   111   139
Cash and cash equivalents at end of period   94   152
Supplemental cash flow information
Net cash payments for:
Interest 16 19
Income taxes   6   4

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures
(In millions of dollars, unless otherwise noted)

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 are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates “Earnings before items” and “EBITDA before items” by excluding the after-tax (pre-tax) effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

null
      2019   2018
Q1 Q1   Q2   Q3   Q4   Year
Reconciliation of "Earnings before items" to Net earnings            
Net earnings ($) 80 54 43 99 87 283
(+) Impairment of property, plant and equipment ($) 8 5 5
(+) Closure and restructuring costs ($) 3 6 6
(+) Litigation settlement ($) 2 2
(-) Net gains on disposals of property, plant and equipment ($) (1 ) (2 ) (3 )
(-) U.S. Tax Reform ($) (7 ) 5 (2 )
(=) Earnings before items ($) 91 55 41 92 103 291
(/) Weighted avg. number of common shares outstanding (diluted) (millions) 63.2 62.9 63.2 63.2 63.0 63.1
(=) Earnings before items per diluted share ($) 1.44 0.87 0.65 1.46 1.63 4.61
 
Reconciliation of "EBITDA" and "EBITDA before items" to

Net earnings

Net earnings ($) 80 54 43 99 87 283
(+) Equity loss, net of taxes ($) 1 1 1 2
(+) Income tax expense ($) 24 11 8 3 35 57
(+) Interest expense, net ($) 13 16 16 15 15 62
(+) Depreciation and amortization ($) 73 79 79 75 75 308
(+) Impairment of property, plant and equipment ($) 10 7 7
(-) Net gains on disposals of property, plant and equipment ($) (1 ) (3 ) (4 )
(=) EBITDA ($) 201 159 143 193 220 715
(/) Sales ($) 1,376 1,345 1,353 1,367 1,390 5,455
(=) EBITDA margin (%) 15 % 12 % 11 % 14 % 16 % 13 %
EBITDA ($) 201 159 143 193 220 715
(+) Closure and restructuring costs ($) 4 8 8
(+) Litigation settlement ($) 2 2
(=) EBITDA before items ($) 205 161 143 193 228 725
(/) Sales ($) 1,376 1,345 1,353 1,367 1,390 5,455
(=) EBITDA margin before items (%) 15 % 12 % 11 % 14 % 16 % 13 %
 
Reconciliation of "Free cash flow" to Cash flows from operating activities
Cash flows from operating activities ($) 55 90 177