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Domtar reports weaker performance than expected in Q2 2019

August 1, 2019 – Domtar Corporation has reported weaker performance in its pulp and paper division than expected in Q2 2019.

The company cites net earnings of $18 million ($0.28 per share) for the second quarter of 2019 compared to net earnings of $80 million ($1.27 per share) for the first quarter of 2019 and net earnings of $43 million ($0.68 per share) for the second quarter of 2018.

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

Excluding special items, the Company had earnings before items of $36 million ($0.57 per share) for the second quarter of 2019 compared to earnings before items of $91 million ($1.44 per share) for the first quarter of 2019 and earnings before items of $41 million ($0.65 per share) for the second quarter of 2018.

“Our results in the paper business fell short of our expectations. This was primarily due to higher imports and customer destocking following a build-up of inventory ahead of the announced industry capacity closures, leading to lower volume and market-related downtime in our system,” says John D. Williams, president and chief executive officer of Domtar in a release. “In pulp, the current cycle in global markets led to downward price adjustments in most regions. The second quarter was also our peak outage quarter this year, with planned maintenance spending $44 million higher versus the first quarter. The elevated level of outages impacted productivity in pulp and paper.”

Williams adds, “In personal care, we had a good performance with favourable input costs, and margin improvement initiatives coming in as planned. Our results were negatively impacted by the permanent closure of the Waco, Texas facility, resulting in lower overall production volumes and unfavorable absorption of fixed costs, but we do expect the full benefits of the closure to flow through in the second half of the year.”

Operating income was $34 million in the second quarter of 2019 compared to operating income of $115 million in the first quarter of 2019. Depreciation and amortization totaled $74 million in the second quarter of 2019.

Operating income before items was $57 million in the second quarter of 2019 compared to an operating income before items of $129 million in the first quarter of 2019. The decrease in operating income in the second quarter of 2019 was the result of higher maintenance costs, unfavorable productivity, higher fixed and other costs, lower volume in paper and higher raw material and freight costs. These factors were partially offset by lower selling, general and administrative expenses.

When compared to the first quarter of 2019, manufactured paper shipments were down seven per cent and pulp shipments increased six per cent. The shipment-to-production ratio for paper was 98 per cent in the second quarter of 2019, compared to 97 per cent in the first quarter of 2019. Paper inventories increased by 15,000 tons, and pulp inventories decreased by 2,000 metric tons when compared to the first quarter of 2019.

Cash flow from operating activities amounted to $119 million and capital expenditures were $55 million, resulting in free cash flow of $64 million for the second quarter of 2019.

Domtar’s net debt-to-total capitalization ratio stood at 22 per cent at June 30, 2019 compared to 23 per cent at March 31, 2019.

For the remainder of the year, Domtar says it expects paper volumes to improve and trend in line with the market while paper prices should remain relatively stable. The company anticipates some volatility in softwood and fluff pulp markets but should recover cyclically and seasonally in the back end of 2019. Personal care is expected to benefit from the company’s margin improvement plan and increased sales driven by a stronger order book. 

Read the full Q2 2019 Domtar financial report.