News Column

Domtar shares fall as it misses forecasts despite swinging to US$40M Q2 profit

July 24, 2014

Ross Marowits, The Canadian Press

MONTREAL - Domtar shares plummeted in early Thursday trading after the pulp and paper producer widely missed analyst expectations as it swung to a US$40-million profit despite higher costs.

Shares lost 8.3 per cent, or $3.72, at C$41.22 in morning trading on the Toronto Stock Exchange.

The Montreal-based company, which reports in U.S. dollars, earned 61 cents per share for the period ended June 30, compared with a loss of 69 cents per share or $46 million in the second quarter of 2013.

Excluding one-time litigation, closure and impairment charges, Domtar's (TSX:UFS) adjusted earnings in the same quarter last year were $16 million or 24 cents per share. There were no one-time costs in the second quarter of 2014.

Sales increased 5.3 per cent to $1.38 billion, compared with $1.31 billion as personal care revenues more than doubled to $234 million. Pulp and paper sales were down four per cent to $1.16 billion.

Domtar was expected to post 82 cents per share in adjusted earnings and 86 cents per share in net earnings on $1.43 billion of revenues in the quarter, according to analysts polled by Thomson Reuters.

Chief executive John Williams said its paper segment was negatively affected by 51,000 tonnes of lack-of-order down time, which resulted in higher costs, and higher raw material costs at its personal care segment, which includes adult diapers.

"Our pulp business benefited from good price momentum and we shipped over 10,000 tonnes from inventory. However, these benefits were more than offset by seasonally higher maintenance activity in our pulp mills," he said in a news release.

The pulp and paper segment's operating income increased to $69 million from $16 million a year ago, while personal care profit was $14 million, up from $10 million in the prior year.

Williams said the integration of Spain's adult diaper maker Indas, acquired last year for about $565 million including debt, is progressing well and in line with expectations. He said Domtar's capacity expansion plan for the segment continues to ramp up while new products are in the process of being launched.

Domtar expects paper volumes will decline with market demand, while global softwood pulp market are expected to remain balanced.

"The ramp-up of the new production lines are expected to positively impact the personal care business results towards the end of the year. Input costs are expected to stay relatively stable for the second half of 2014."

Paul Quinn of RBC Capital Markets said the results were negative, as adjusted pre-tax operating income (EBITDA) was $175 million, compared to $195 million forecast by analysts.

At the end of the quarter, Domtar had $1.347 billion of net debt, while free cash flow in the quarter was $80 million.

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Source: Canadian Press DataFile

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