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Domtar says quarter not up to ‘usual standards’ and expects better results

‘Our results in the pulp and paper business fell meaningfully short of our expectations in the quarter that had the busiest maintenance on record with 10 out of our 12 pulp mills taking shutdowns,’ Domtar CEO John Williams said Thursday.

DOMTAR

The head of Domtar Corp. says the company wasn't operating to its "usual standards" in the second quarter, resulting in a $46-million (U.S.) net loss due to lower productivity and higher maintenance costs at its pulp mills.

"Our results in the pulp and paper business fell meaningfully short of our expectations in the quarter that had the busiest maintenance on record with 10 out of our 12 pulp mills taking shutdowns," chief executive officer John Williams told analysts on a conference call Thursday.

Montreal-based Domtar, which reports in U.S. currency, had a net loss of $1.38 per share in the second quarter, compared with net earnings of $59-million or $1.61 per share for the second quarter of 2012.

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"We didn't operate up to our usual standards, particularly around the start-up phase following the planned outages at several of our facilities resulting in lower pulp productivity," he said.

But Mr. Williams added that pulp productivity has improved and he believes operational issues are behind the company, which manufactures and sells fibre-based products including communication papers, specialty and packaging papers and absorbent hygiene products such as infant and adult diapers.

"We're looking at a stronger third quarter," he said. "Earnings from pulp are expected to benefit from lower planned maintenance costs, higher productivity and higher sales volumes."

The company said its sales were down $56-million in the quarter to $1.312-billion versus $1.368-billion in the second quarter last year.

Domtar's operating loss was $30-million – at the low end of a warning issued by the company on July 12, when it estimated an operating loss of between $30-million and $35-million. That compares with an operating profit of $49-million in the first quarter of 2013.

Excluding a litigation settlement of $49-million, closure and restructuring charges of $18-million and a $5-million item related to the impairment and writedown of property, plant and equipment, Domtar said it had earnings of $16-million, or 48 cents per share, for the second quarter.

Mr. Williams said he expects the recent $272-million acquisition of Associated Hygienic Products to give Domtar more retail opportunities to expand its personal care segment. Associated Hygienic Products is the largest maker of store-brand infant diapers in the United States.

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He also said that Domtar will continue looking for possible acquisitions and remains committed to returning the majority of its free cash flow to shareholders. Mr. Williams noted that Domtar announced a 22-per-cent dividend increase in May.

RBC Dominion Securities analyst Paul Quinn said Domtar's results didn't contain any surprises and were in line with "reduced expectations" after announcing an expected operating loss.

"In its pre-release, Domtar noted sub-optimal pulp productivity, high costs due to planned maintenance and delayed restarts," Quinn said in a research note. "Management is guiding for normalized productivity levels by the end of Q3 (third quarter)."

Earlier this week, Domtar announced it was selling its Ariva paper business in the United States to a private company that plans to resell some of the assets to another company.

Kentucky-based Ariva employs about 400 people and operates 15 paper and printing supplies distribution facilities in the U.S. Northeast and U.S. Midwest regions.

Ariva's Canadian operations will be integrated into Domtar's pulp and paper division.

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