Domtar Corporation Reports Preliminary Fourth Quarter and Fiscal Year 2017 Financial Results

Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported a net loss of $340 million ($5.42 per share) for the fourth quarter of 2017 compared to net earnings of $70 million ($1.11 per share) for the third quarter of 2017 and net earnings of $47 million ($0.75 per share) for the fourth quarter of 2016. Sales for the fourth quarter of 2017 were $1.3 billion.

Excluding items listed below, the Company had earnings before items1 of $40 million ($0.64 per share) for the fourth quarter of 2017 compared to earnings before items1 of $65 million ($1.03 per share) for the third quarter of 2017 and earnings before items1 of $47 million ($0.75 per share) for the fourth quarter of 2016.

Fourth quarter 2017 items:
• Non-cash goodwill impairment charge associated with Personal Care of $578 million ($573 million after tax);
• Closure and restructuring costs of $2 million ($1 million after tax);
• Deferred tax benefit of $186 million related to the U.S. Tax Cuts and Jobs Act of 2017 (U.S. Tax Reform); and
• Net gain on disposal of property, plant & equipment of $9 million ($8 million after tax).

Third quarter 2017 items:
• Gain on disposal of property, plant & equipment of $4 million ($3 million after tax); and
• Partial reversal of contingent consideration related to an acquisition of $2 million ($2 million after tax).

Fourth quarter 2016 items:
• Closure and restructuring impact of $(1) million ($(1) million after tax); and
• Negative impact of purchase accounting of $1 million ($1 million after tax).

FISCAL YEAR 2017 HIGHLIGHTS
As a result of its annual goodwill and indefinite life intangible assets impairment tests, the Company recorded a non-cash goodwill impairment charge of $578 million associated with Personal Care. Growing competitive market pressures in the healthcare and retail markets over the last year, including the entry of new competitors in the private label category, excess industry capacity and the decline of healthcare spending by governmental agencies, are expected to result in lower than previously anticipated sales and operating margins. In light of this weakened market outlook, our current business forecast was not sufficient to support the carrying value of the goodwill associated with Personal Care, leading to the impairment.

Commenting on the full-year results, John D. Williams, President and Chief Executive Officer said, “We generated nearly $450 million of operating cash flow and continued our solid track record of rewarding shareholders with a high payout ratio while maintaining financial flexibility. Our performance, combined with our confidence in our cash flow generating capabilities, enable us to announce a 4.8% dividend increase. Looking ahead, we remain focused on maximizing long-term profitability and value creation.”

QUARTERLY REVIEW
“As expected, higher maintenance and seasonally higher operating costs impacted our fourth quarter Pulp and Paper results,” said John D. Williams, President and Chief Executive Officer. “Nevertheless, pulp price realizations were higher and we shipped record volumes of tissue grade and fluff pulp. Recently announced price increases across a number of pulp and paper grades are expected to drive continued momentum into 2018.”

Commenting on Personal Care, Mr. Williams added, “While we had good results in 2017, we have concluded that the performance of our Personal Care business will continue to be impacted by an increasingly competitive market. We remain optimistic about the long-term growth trajectory of the absorbent hygiene market; however, this increasingly competitive market will negatively impact our sales, and we expect the environment to remain challenging for the foreseeable future. Importantly, the goodwill impairment charge is non-cash. It does not alter our current financial flexibility, and our overall cash generating capabilities remains strong.”

Operating loss was $512 million in the fourth quarter of 2017 compared to operating income of $89 million in the third quarter of 2017. Depreciation and amortization totaled $82 million in the fourth quarter of 2017.

The operating loss in the fourth quarter of 2017 was a result of the goodwill impairment charge, higher maintenance and raw material costs, lower productivity and higher costs, when compared to the operating income in the third quarter of 2017. These factors were partially offset by higher selling prices and volume and favorable exchange rates.

When compared to the third quarter of 2017, manufactured paper shipments were up 1% and pulp shipments increased 9%. The shipments-to-production ratio for paper was 100% in the fourth quarter of 2017, compared to 97% in the third quarter of 2017. Paper inventories increased by 1,000 tons and pulp inventories decreased by 50,000 metric tons when compared to the third quarter of 2017.
more detail at:  http://www.domtar.com/en/investors/pressreleases/index.asp

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