Domtar reports preliminary Q3 net income down 38.8% year-over-year to US$117M, sales down 4.1% to US$1.41B, citing lower pulp selling prices, high input costs, says Attends acquisition offers organic growth prospects

MONTREAL , October 27, 2011 (press release) – Good results with lower maintenance costs and higher prices for paper offsetting weakness in pulp prices (All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

  • Third quarter net earnings of $2.95 per share, earnings before items1 of $3.10 per share
  • Operating income of $187 million, EBITDA before items1 of $286 million in the third quarter
  • Acquisition of Attends Healthcare, Inc. completed on September 1, 2011

TICKER SYMBOL (NYSE: UFS) (TSX: UFS)

Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $117million ($2.95 per share) for the third quarter of 2011 compared to net earnings of $54million ($1.30 per share) for the second quarter of 2011 and net earnings of $191million ($4.44per share) for the third quarter of 2010. Sales for the third quarter of 2011 amounted to $1.4billion. Excluding items listed below, the Company had earnings before items1 of $123 million ($3.10 per share) for the third quarter of 2011 compared to earnings before items1 of $98 million ($2.37 per share) for the second quarter of 2011 and earnings before items1 of $183million ($4.26 per share) for the third quarter of 2010.

Third quarter 2011 items:
  • Gains on the sale of property, plant and equipment and business of $4 million ($3 million after tax);
  • Charge of $8 million ($4 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Premium paid on debt repurchase of $4 million ($3 million after tax);
  • Closure and restructuring costs of $1 million ($1 million after tax); and
  • Negative impact of purchase accounting of $1 million ($1 million after tax).
Second quarter 2011 items:
  • Charge of $62 million ($38 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Net losses on the sale of property, plant and equipment and business of $6 million ($5 million after tax); and
  • Closure and restructuring costs of $2 million ($1 million after tax).
Third quarter 2010 items:
  • Gain on sale of property, plant and equipment, and business of $14 million ($18 million after tax);
  • Charge of $14 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment; and
  • Closure and restructuring costs of $1 million ($1 million after tax).
"Our performance remains strong. Our financial results improved when compared to the second quarter despite the decline in average selling prices for pulp and high input costs," said John D. Williams, President and Chief Executive Officer. "While our domestic commodity uncoated paper volumes are in line with market demand, we have developed some business in new markets and geographies which has allowed our volumes to remain steady. The recent acquisition of Attends offers us organic growth prospects and the economic uncertainty provides a backdrop to seize other opportunities and to continue to buy back stock," added Mr. Williams.

Domtar completed the acquisition of privately-held Attends Healthcare, Inc. ("Attends") on September 1, 2011. The results reported for the third quarter of 2011 include the financial results of Attends for the period from September 1, 2011 to September 30, 2011. The segment results are reported under "Personal Care" segment.

QUARTERLY REVIEW

Operating income before items1 was $193million in the third quarter of 2011 compared to an operating income before items1 of $165million in the second quarter of 2011. Depreciation and amortization totaled $93 million in the third quarter of 2011.

(In millions of dollars)   3Q 2011   2Q 2011
Sales   $1,417   $1,403
Operating income (loss)        
  Pulp and Paper segment   189   91
  Distribution segment   (1)   (2)
  Personal Care segment   -   -
  Corporate   (1)   6
  Total   187   95
Operating income before items1   193   165
Depreciation and amortization   93   95

The increase in operating income before items1 in the third quarter of 2011 was the result of lower maintenance costs and variable compensation, higher average selling prices for paper and the positive impact of a weaker Canadian dollar. These factors were partially offset by lower average selling prices for pulp and lower shipments for paper and pulp. When compared to the second quarter of 2011, paper shipments decreased 1% and pulp shipments decreased 1%. Paper deliveries of ArivaTM increased 5% when compared to the second quarter of 2011. The shipments-to-production ratio for paper was 102% in the third quarter of 2011, compared to 101% in the second quarter of 2011. Paper inventories declined by 16,000 tons while pulp inventories increased by 21,000 metric tons as at the end of September, compared to June levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $257 million and capital expenditures amounted to $31 million resulting in free cash flow1 of $226 million in the third quarter of 2011.

Under its stock repurchase program, Domtar repurchased 2,515,791 shares of common stock during the third quarter and a total of 5,725,841 shares of common stock at an average price of $82.16 since the implementation of the program in May 2010. Domtar currently has $130 million remaining availability under its Program.

OUTLOOK

Domtar paper shipments are expected to decline in the fourth quarter when compared to the third quarter due to seasonal factors while the cyclical downturn in global pulp markets is expected to lead to further declines in average selling prices for market pulp. Domtar's fourth quarter results will benefit from the inclusion of Attends' financial results for a full quarter.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its third quarter 2011 financial results. Financial analysts are invited to participate in the call by dialing at least 10 minutes before start time 1-866-321-8231 (toll free - North America) or 1-416-642-5213 (International), 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 fourth quarter 2011 earnings on February 2, 2012 before markets open, followed by a conference call at 10:00 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 Corporation (NYSE: UFS) (TSX: UFS) is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity, and is also a manufacturer of papergrade, fluff and specialty pulp. TheCompany designs, manufactures, markets and distributes a wide range of business, commercial printing and publishing as well as converting and specialty papers including recognized brands such as Cougar®, Lynx® Opaque Ultra, Husky® Opaque Offset, First Choice® and DomtarEarthChoice® Office Paper, part of a family of environmentally and socially responsible papers. Domtar also produces a complete line of incontinence care products and distributes washcloths marketed primarily under the Attends® brand name. Domtar owns and operates ArivaTM, an extensive network of strategically located paper distribution facilities. The Company employs approximately 8,800people. To learn more, visit www.domtar.com.

Industry Intelligence Editor's Note: In an omitted table, Domtar reported Q3 2010 net sales of US$1.47 billion.

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