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Domtar reports shares up over second quarter in Q3 2019 results

Domtar Corporation has reported better-than-expected results for its Q3 2019 period, citing net earnings of $20 million ($0.32 per share) compared to net earnings of $18 million ($0.28 per share) for the second quarter of 2019 and net earnings of $99 million ($1.57 per share) for the third quarter of 2018.

Sales for the third quarter of 2019 were $1.3 billion.

Excluding special items, the company had earnings of $55 million ($0.89 per share) for the third quarter of 2019 compared to earnings before items of $36 million ($0.57 per share) for the second quarter of 2019 and earnings before items of $92 million ($1.46 per share) for the third quarter of 2018.

“Our results in Paper improved with lower maintenance and raw material costs offsetting market-related downtime costs. Our paper machines ran well and cost performance was strong, resulting in a 300 basis point margin expansion for this business,” says John D. Williams, president and chief executive officer of Domtar, in a release. “In Pulp, downward price adjustments continued in most regions but we are seeing increasing signs of improvement in supply and demand fundamentals.”

Williams adds, “In Personal Care, EBITDA and margin performance were one of the best in several quarters as we continue to make excellent progress in executing our business plan, with a strong focus on commercial initiatives, cost performance and delivering on our margin improvement plan.”

Operating income was $29 million in the third quarter of 2019 compared to operating income of $34 million in the second quarter of 2019. Depreciation and amortization totalled $72 million in the third quarter of 2019.

Operating income before items was $73 million in the third quarter of 2019 compared to an operating income before items of $57 million in the second quarter of 2019.

The decrease in operating income in the third quarter of 2019 was the result of lower selling prices in pulp, market-related downtime costs and the Espanola outage. These factors were partially offset by lower maintenance and raw material costs, lower selling, general and administrative expenses and lower freight, fixed and other costs.

When compared to the second quarter of 2019, manufactured paper shipments were down one per cent and pulp shipments increased 12 per cent. The shipment-to-production ratio for paper was 103 per cent in the third quarter of 2019, compared to 98 per cent in the second quarter of 2019. Paper inventories decreased by 19,000 tons, and pulp inventories decreased by 9,000 metric tons when compared to the second quarter of 2019.

Cash flow from operating activities amounted to $108 million and capital expenditures were $56 million, resulting in free cash flow of $52 million for the third quarter of 2019. Domtar’s net debt-to-total capitalization ratio1 stood at 26 per cent at September 30, 2019 compared to 22 per cent at June 30, 2019.

For the fourth quarter, maintenance is expected to be higher while Paper is expected to be negatively impacted in part by a seasonally unfavourable mix. Domtar anticipates some volatility in softwood and fluff pulp markets, while Personal Care is expected to benefit from the company’s margin improvement plan and increased sales driven by a stronger order book.

Read the Domtar Q3 2019 financial report.