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Domtar reports net loss of $92M in Q3, sees improvement in paper

Domtar Corporation has reported a net loss of $92 million ($1.67 per share) for the third quarter of 2020 compared to net earnings of $19 million ($0.34 per share) for the second quarter of 2020 and net earnings of $20 million ($0.32 per share) for the third quarter of 2019.

Sales for the third quarter of 2020 were $1.1 billion.

The company had earnings before special items of $18 million ($0.33 per share) for the third quarter of 2020 compared to earnings before items of $20 million ($0.36 per share) for the second quarter of 2020 and earnings before items of $55 million ($0.89 per share) for the third quarter of 2019.

“We performed very well in the quarter in a challenging operating environment,” says John D. Williams, president and chief executive officer of Domtar. “Our teams have demonstrated tremendous resiliency, continuously adapting to changing market conditions, maintaining a keen focus on health and safety and decisively taking actions to serve our customers in the face of unprecedented conditions.

“We benefited from further market recovery and we made good progress with some of our strategic initiatives.

“Our results in paper significantly improved in the third quarter reflecting a strong operational performance and our team’s fast response in implementing cost savings in a better paper demand environment. In pulp, prices remain at cyclically low levels but the supply and demand balance is improving.”

“The Kingsport conversion to recycled linerboard is going according to plan. All efforts are now being put into enabling a start-up by the end of 2022.

“In personal care, we had a strong cost performance in the quarter. We continue to execute well against our objectives, both commercially and operationally, which has contributed to our strong year-to-date performance.”

Operating loss was $136 million in the third quarter of 2020 compared to operating income of $14 million in the second quarter of 2020. Depreciation and amortization totalled $71 million in the third quarter of 2020.

Operating income before items was $43 million in the third quarter of 2020 compared to operating income before items of $15 million in the second quarter of 2020.

The net operating loss in the third quarter of 2020 was the result of the long-lived assets impairment and closure and restructuring charges related to the cost savings program, lower wage subsidies, higher maintenance costs, higher selling, general and administrative expenses and higher freight costs. These factors were partially offset by favourable productivity, higher volume in paper, lower raw material costs, higher average selling prices for paper and favourable exchange rates.

When compared to the second quarter of 2020, manufactured paper shipments were up 20 per cent and pulp shipments decreased seven per cent. The shipment-to-production ratio for paper was 105 per cent in the third and second quarters of 2020. Paper inventories decreased by 20,000 tons, and pulp inventories increased by 38,000 metric tons when compared to the second quarter of 2020.

Outlook

In the fourth quarter, paper volume is expected to be flat quarter-over-quarter while mix should be unfavourable due to the usual seasonality. Domtar expects near-term pulp markets to continue to gradually improve driven by better demand, maintenance outages and restocking in China.

The company expects personal care to continue to benefit from higher usage and the impact from new customer wins. Overall raw material costs are expected to remain stable while planned maintenance costs will be lower.

Read the full Q3 2020 Domtar financial report.