Jul 28, 2017   SOURCE: BusinessWire

Domtar Corporation Reports Preliminary Second Quarter 2017 Financial Results

Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $38 million ($0.61 per share) for the second quarter of 2017 compared to net earnings of $20 million ($0.32 per share) for the first quarter of 2017 and net earnings of $18 million ($0.29 per share) for the second quarter of 2016. Sales for the second quarter of 2017 were $1.2 billion.

Excluding items listed below, the Company had earnings before items1 of $38 million ($0.61 per share) for the second quarter of 2017 compared to earnings before items1 of $20 million ($0.32 per share) for the first quarter of 2017 and earnings before items1 of $38 million ($0.61 per share) for the second quarter of 2016.

Second quarter 2017 items:

  • None.

First quarter 2017 items:

  • None.

Second quarter 2016 items:

  • Litigation settlement of $2 million ($2 million after tax);
  • Impairment of property, plant & equipment of $3 million ($2 million after tax); and
  • Closure and restructuring costs of $21 million ($16 million after tax).

QUARTERLY REVIEW

“Our pulp price momentum continued in the quarter following the implementation of several price increases,” said John D. Williams, President and Chief Executive Officer. “Productivity was strong, resulting in good cost performance despite the high level of scheduled major maintenance outages at several pulp and paper mills. Notably, Ashdown had an excellent operating quarter and continued to make significant strides on increasing production of fluff pulp. Customer qualifications continue to progress well and we are on track to ramp-up to approximately 50% fluff pulp sales by year-end.”

Mr. Williams added, “In spite of competitive market pressures, we delivered a solid performance in Personal Care. We continued to show broad-based, year-over-year volume growth across most of our product channels, while benefits from our cost savings and efficiency improvement projects partially offset price erosion. We expect to continue to invest in innovation, marketing and targeted growth initiatives to capture the opportunities in our categories and geographies.”

Operating income was $64 million in the second quarter of 2017 compared to operating income of $42 million in the first quarter of 2017. Depreciation and amortization totaled $79 million in the second quarter of 2017.

Operating income before items1 was $64 million in the second quarter of 2017 compared to an operating income before items1 of $42 million in the first quarter of 2017.

   
(In millions of dollars) 2Q 2017 1Q 2017
 
Sales $ 1,224 $ 1,304
Operating income (loss)
Pulp and Paper segment 65 34
Personal Care segment 13 16
Corporate   (14 )   (8 )
Total operating income 64 42
Operating income before items1 64 42
Depreciation and amortization 79 80

The increase in operating income in the second quarter of 2017 was the result of higher average selling prices for pulp, lower raw material costs, favorable productivity and lower maintenance costs. These factors were partially offset by lower volume, higher selling, general and administrative expenses, and higher freight costs.

When compared to the first quarter of 2017, manufactured paper shipments were down 6% and pulp shipments decreased 15%. The shipments-to-production ratio for paper was 98% in the second quarter of 2017, compared to 105% in the first quarter of 2017. Paper inventories increased by 18,000 tons and pulp inventories increased by 33,000 metric tons when compared to the first quarter of 2017.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $121 million and capital expenditures were $37 million, resulting in free cash flow1 of $84 million for the second quarter of 2017. Domtar’s net debt-to-total capitalization ratio1 stood at 28% at June 30, 2017 compared to 30% at March 31, 2017.

OUTLOOK

For the remainder of the year, we expect our paper shipments to be in-line with market demand. Our pulp shipments should be higher due to the ramp-up of the Ashdown fluff pulp line, while mix should continue to improve as we convert more volume to fluff pulp. In Personal Care, investments in advertising and promotion in addition to new customer wins should drive higher sales, while raw material costs are expected to increase marginally.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 11:00 a.m. (ET) to discuss its second quarter 2017 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 third quarter 2017 earnings results on October 27, 2017 before markets open, followed by a conference call at 11:00 a.m. (ET) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

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 $5.1 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 2016 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

 

Six months
ended

 

Six months
ended

June 30, June 30, June 30, June 30,
2017 2016 2017 2016
(Unaudited)
$ $ $ $
       
Selected Segment Information
Sales
Pulp and Paper 999 1,054 2,072 2,139
Personal Care   241   228   490   444
Total for reportable segments 1,240 1,282 2,562 2,583
Intersegment sales   (16 )   (15 )   (34 )   (29 )
Consolidated sales   1,224   1,267   2,528   2,554
Depreciation and amortization

of property, plant and equipment

Pulp and Paper 63 72 127 145
Personal Care   16   15   32   31
Total for reportable segments 79 87 159 176
Impairment of property, plant

and equipment - Pulp and Paper

  —     3     —     24
Consolidated depreciation and amortization and

impairment of property, plant and equipment

  79   90   159   200
 
Operating income (loss)
Pulp and Paper 65 35 99 54
Personal Care 13 15 29 29
Corporate   (14 )   (11 )   (22 )   (26 )
Consolidated operating income 64 39 106 57
Interest expense, net   17   15   34   32
Earnings before income taxes 47 24 72 25
Income tax expense   9   6   14   3
Net earnings   38   18   58   22
Per common share (in dollars)
Net earnings
Basic 0.61 0.29 0.93 0.35
Diluted 0.61 0.29 0.93 0.35
Weighted average number of common

shares outstanding (millions)

Basic 62.6 62.6 62.6 62.7
Diluted   62.7   62.7   62.7   62.8
Cash flows from operating activities 121 118 212 215
Additions to property, plant and equipment   37   119   71   219


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

 

Three months
ended

   

Three months
ended

   

Six months
ended

   

Six months
ended

June 30, June 30, June 30, June 30,
2017 2016 2017 2016
(Unaudited)
$ $ $ $
       
Sales 1,224 1,267 2,528 2,554
Operating expenses
Cost of sales, excluding depreciation and amortization 968 1,013 2,043 2,063
Depreciation and amortization 79 87 159 176
Selling, general and administrative 111 104 219 207
Impairment of property, plant and equipment — 3 — 24
Closure and restructuring costs — 21 — 23
Other operating loss, net   2   —   1   4
  1,160   1,228   2,422   2,497
Operating income 64 39 106 57
Interest expense, net   17   15   34   32
Earnings before income taxes 47 24 72 25
Income tax expense   9     6     14     3
Net earnings   38   18   58   22
Per common share (in dollars)
Net earnings
Basic 0.61 0.29 0.93 0.35
Diluted 0.61 0.29 0.93 0.35
Weighted average number of common

shares outstanding (millions)

Basic 62.6 62.6 62.6 62.7
Diluted 62.7 62.7 62.7 62.8


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

 
June 30,   December 31,
2017 2016
(Unaudited)
$ $
Assets    
Current assets
Cash and cash equivalents 124 125
Receivables, less allowances of $7 and $7 613 613
Inventories 759 759
Prepaid expenses 41 40
Income and other taxes receivable   18     31
Total current assets 1,555 1,568
Property, plant and equipment, net 2,779 2,825
Goodwill 569 550
Intangible assets, net 625 608
Other assets   139   129
Total assets   5,667   5,680
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness — 12
Trade and other payables 627 656
Income and other taxes payable 28 22
Long-term debt due within one year   1   63
Total current liabilities 656 753
Long-term debt 1,203 1,218
Deferred income taxes and other 677 675
Other liabilities and deferred credits 361 358
Shareholders' equity
Common stock 1 1
Additional paid-in capital 1,966 1,963
Retained earnings 1,217 1,211
Accumulated other comprehensive loss   (414 )   (499 )
Total shareholders' equity   2,770   2,676
Total liabilities and shareholders' equity   5,667   5,680


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

  For the six months ended
June 30, 2017   June 30, 2016
(Unaudited)
$ $
Operating activities    
Net earnings 58 22
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization 159 176
Deferred income taxes and tax uncertainties (12 ) (5 )
Impairment of property, plant and equipment — 24
Stock-based compensation expense 3 3
Other — (4 )
Changes in assets and liabilities, excluding the effect of acquisition of business
Receivables 11 25
Inventories 10 18
Prepaid expenses (4 ) (13 )
Trade and other payables (35 ) (8 )
Income and other taxes 21 (16 )
Difference between employer pension and other post-retirement

contributions and pension and other post-retirement expense

— (3 )
Other assets and other liabilities   1   (4 )
Cash flows from operating activities   212   215
Investing activities
Additions to property, plant and equipment (71 ) (219 )
Acquisition of business, net of cash acquired   —   (1 )
Cash flows used for investing activities   (71 )   (220 )
Financing activities
Dividend payments (52 ) (50 )
Stock repurchase — (10 )
Net change in bank indebtedness (12 ) 1
Change in revolving credit facility (30 ) (50 )
Proceeds from receivables securitization facility 25 120
Repayments of receivables securitization facility (15 ) (20 )
Repayments of long-term debt (63 ) (1 )
Other   (1 )   (1 )
Cash flows used for financing activities   (148 )   (11 )
Net decrease in cash and cash equivalents (7 ) (16 )
Impact of foreign exchange on cash 6 1
Cash and cash equivalents at beginning of period   125   126
Cash and cash equivalents at end of period   124   111
Supplemental cash flow information
Net cash payments for:
Interest 31 32
Income taxes   15   27


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.

      2017   2016
Q1   Q2   YTD Q1   Q2   Q3   Q4   Year
Reconciliation of "Earnings before items" to Net earnings                  
Net earnings ($) 20 38 58 4 18 59 47 128
(+) Impairment of property, plant and equipment ($) — — — 16 2 4 — 22
(+) Closure and restructuring costs ($) — — — 2 16 8 (1 ) 25
(+) Litigation settlement ($) — — — — 2 — — 2
(+) Impact of purchase accounting ($) — — — — — — 1 1
(=) Earnings before items ($) 20 38 58 22 38 71 47 178
(/) Weighted avg. number of common shares outstanding (diluted) (millions) 62.8 62.7 62.7 62.8 62.7 62.7 62.7 62.7
(=) Earnings before items per diluted share ($) 0.32 0.61 0.93 0.35 0.61 1.13 0.75 2.84
 
Reconciliation of "EBITDA" and "EBITDA before items" to Net earnings
Net earnings ($) 20 38 58 4 18 59 47 128
(+) Income tax expense (benefit) ($) 5 9 14 (3 ) 6 16 10 29
(+) Interest expense, net ($) 17 17 34 17 15 17 17 66
(=) Operating income ($) 42 64 106 18 39 92 74 223
(+) Depreciation and amortization ($) 80 79 159 89 87 87 85 348
(+) Impairment of property, plant and equipment ($) — — — 21 3 5 — 29
(=) EBITDA ($) 122 143 265 128 129 184 159 600
(/) Sales ($) 1,304 1,224 2,528 1,287 1,267 1,270 1,274 5,098
(=) EBITDA margin (%) 9 % 12 % 10 % 10 % 10 % 14 % 12 % 12 %
EBITDA ($) 122 143 265 128 129 184 159 600
(+) Closure and restructuring costs ($) — — — 2 21 10 (1 ) 32
(+) Litigation settlement ($) — — — — 2 — — 2
(+) Impact of purchase accounting ($) — — — — — — 1 1
(=) EBITDA before items ($) 122 143 265 130 152 194 159 635
(/) Sales ($) 1,304 1,224 2,528 1,287 1,267 1,270 1,274 5,098
(=) EBITDA margin before items (%) 9 % 12 % 10 % 10 % 12 % 15 % 12 % 12 %
 
Reconciliation of "Free cash flow" to Cash flows from operating activities
Cash flows from operating activities ($) 91 121 212 97 118 95 155 465
(-) Additions to property, plant and equipment ($) (34 ) (37 ) (71 ) (100 ) (119 ) (83 ) (45 ) (347 )
(=) Free cash flow ($) 57 84 141 (3 ) (1 ) 12 110 118
 
"Net debt-to-total capitalization" computation
Bank indebtedness ($) 2 — 6 1 — 12
(+) Long-term debt due within one year ($) 64 1 41 64 63 63
(+) Long-term debt ($) 1,188 1,203 1,211 1,237 1,309 1,218
(=) Debt ($) 1,254 1,204 1,258 1,302 1,372 1,293
(-) Cash and cash equivalents ($) (111 ) (124 ) (97 ) (111 ) (168 ) (125 )
(=) Net debt ($) 1,143 1,080 1,161 1,191 1,204 1,168
(+) Shareholders' equity ($) 2,685 2,770 2,736 2,716 2,754 2,676
(=) Total capitalization ($) 3,828 3,850 3,897 3,907 3,958 3,844
Net debt ($) 1,143 1,080 1,161 1,191 1,204 1,168
(/) Total capitalization ($) 3,828 3,850 3,897 3,907 3,958 3,844
(=) Net debt-to-total capitalization (%) 30 % 28 % 30 % 30 % 30 % 30 %

“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.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2017
(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 “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the 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.

      Pulp and Paper   Personal Care   Corporate   Total
Q1'17   Q2'17   Q3'17   Q4'17   YTD Q1'17   Q2'17   Q3'17   Q4'17   YTD Q1'17   Q2'17   Q3'17   Q4'17   YTD Q1'17   Q2'17   Q3'17   Q4'17   YTD

Reconciliation of Operating income (loss) to "Operating income (loss) before items"

Operating income (loss) ($) 34 65 — — 99 16 13 — — 29 (8) (14) — — (22) 42 64 — — 106
(+) Impairment of property, plant and equipment ($) — — — — — — — — — — — — — — — — — — — —
(+) Impact of purchase accounting ($) — — — — — — — — — — — — — — — — — — — —
(+) Closure and restructuring costs ($) — — — — — — — — — — — — — — — — — — — —
(+) Litigation settlement ($) — — — — — — — — — — — — — — — — — — — —
(=) Operating income (loss) before items ($) 34 65 — — 99 16 13 — — 29 (8) (14) — — (22) 42 64 — — 106
 

Reconciliation of "Operating income (loss) before items" to "EBITDA before items"

Operating income (loss) before items ($) 34 65 — — 99 16 13 — — 29 (8) (14) — — (22) 42 64 — — 106
(+) Depreciation and amortization ($) 64 63 — — 127 16 16 — — 32 — — — — — 80 79 — — 159
 
(=) EBITDA before items ($) 98 128 — — 226 32 29 — — 61 (8) (14) — — (22) 122 143 — — 265
(/) Sales ($) 1,073 999 — — 2,072 249 241 — — 490 — — — — — 1,322 1,240 — — 2,562
(=) EBITDA margin before items (%) 9% 13% — — 11% 13% 12% — — 12% — — — — — 9% 12% — — 10%

“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.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2016
(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 “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the 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.

      Pulp and Paper   Personal Care (1)   Corporate   Total
Q1'16   Q2'16   Q3'16   Q4'16   Year Q1'16   Q2'16   Q3'16   Q4'16   Year Q1'16   Q2'16   Q3'16   Q4'16   Year Q1'16   Q2'16   Q3'16   Q4'16   Year

Reconciliation of Operating income (loss) to "Operating income (loss) before items"

Operating income (loss) ($) 19 35 89 74 217 14 15 15 13 57 (15) (11) (12) (13) (51) 18 39 92 74 223
(+) Impairment of property, plant and equipment ($) 21 3 5 — 29 — — — — — — — — — — 21 3 5 — 29
(+) Impact of purchase accounting ($) — — — — — — — — 1 1 — — — — — — — — 1 1
(+) Closure and restructuring costs ($) 2 21 10 (2) 31 — — — 1 1 — — — — — 2 21 10 (1) 32
(+) Litigation settlement ($) — — — — — — — — — — — 2 — — 2 — 2 — — 2
(=) Operating income (loss) before items ($) 42 59 104 72 277 14 15 15 15 59 (15) (9) (12) (13) (49) 41 65 107 74 287
 

Reconciliation of "Operating income (loss) before items" to "EBITDA before items"

Operating income (loss) before items ($) 42 59 104 72 277 14 15 15 15 59 (15) (9) (12) (13) (49) 41 65 107 74 287
(+) Depreciation and amortization ($) 73 72 71 68 284 16 15 16 17 64 — — — — — 89 87 87 85 348
 
(=) EBITDA before items ($) 115 131 175 140 561 30 30 31 32 123 (15) (9) (12) (13) (49) 130 152 194 159 635
(/) Sales ($) 1,085 1,054 1,054 1,046 4,239 216 228 231 242 917 — — — — — 1,301 1,282 1,285 1,288 5,156
(=) EBITDA margin before items (%) 11% 12% 17% 13% 13% 14% 13% 13% 13% 13% — — — — — 10% 12% 15% 12% 12%

“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 October 1, 2016, the Company acquired 100% of the shares of Home Delivery Incontinent Supplies Co. in the United States.

Domtar Corporation
Supplemental Segmented Information
(In millions of dollars, unless otherwise noted)

    2017   2016
Q1   Q2   YTD Q1   Q2   Q3   Q4   Year
Pulp and Paper Segment                  
Sales ($) 1,073 999 2,072 1,085 1,054 1,054 1,046 4,239
Operating income ($) 34 65 99 19 35 89 74 217
Depreciation and amortization ($) 64 63 127 73 72 71 68 284
Impairment of property, plant and

equipment

($) — — — 21 3 5 — 29
 
Paper
Paper Production ('000 ST) 709 715 1,424 785 715 726 714 2,940
Paper Shipments - Manufactured ('000 ST) 745 698 1,443 786 752 744 739 3,021
Communication Papers ('000 ST) 622 582 1,204 657 627 620 618 2,522
Specialty and Packaging ('000 ST) 123 116 239 129 125 124 121 499

Paper Shipments - Sourced from
3rd parties

('000 ST) 29 26 55 32 29 35 27 123
Paper Shipments - Total ('000 ST) 774 724 1,498 818 781 779 766 3,144
Pulp

Pulp Shipments(a)

('000 ADMT) 453 383 836 369 360 369 415 1,513

Pulp Shipments mix(b):

Hardwood Kraft Pulp (%) 4 % 3 % 4 % 5 % 4 % 4 % 8 % 5 %
Softwood Kraft Pulp (%) 67 % 62 % 64 % 66 % 61 % 63 % 63 % 63 %
Fluff Pulp (%) 29 % 35 % 32 % 29 % 35 % 33 % 29 % 32 %
 
Personal Care Segment
Sales ($) 249 241 490 216 228 231 242 917
Operating income ($) 16 13 29 14 15 15 13 57
Depreciation and amortization ($) 16 16 32 16 15 16 17 64
 
Average Exchange Rates $US / $CAN 1.323 1.344 1.334 1.375 1.289 1.305 1.333 1.325
$CAN / $US 0.756 0.744 0.750 0.727 0.776 0.766 0.750 0.755
€ / $US 1.066 1.100 1.083 1.103 1.130 1.116 1.078 1.107

(a) Figures represent Pulp Shipments to third parties.

(b) Percentages include Pulp Shipments to our Personal Care segment.

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

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