Domtar released its Q1 2021 financial report today, reporting a net loss of $29 million ($0.54 per share) for the first quarter of 2021 compared to a net loss of $59 million ($1.07 per share) for the fourth quarter of 2020 and net earnings of $5 million ($0.09 per share) for the first quarter of 2020. Sales for the first quarter of 2021 were $944 million.
The first quarter 2021 results include an after-tax loss of $22 million ($0.41 per share) from discontinued operations related to the sale of the Personal Care Business, compared to an after-tax loss of $43 million ($0.78 per share) for the fourth quarter of 2020 and an after-tax earnings of $20 million ($0.36 per share) for the first quarter of 2020.
Excluding discontinued operations and the items listed below, the Company had earnings from continuing operations before items* of $5 million ($0.09 per share) for the first quarter of 2021 compared to earnings from continuing operations before items* of $19 million ($0.34 per share) for the fourth quarter of 2020 and a loss from continuing operations before items* of $15 million ($0.27 per share) for the first quarter of 2020.
“While COVID-19 continued to remain the dominant challenge in the first quarter, severe winter weather affected our production and our supply chains across North America, notably at our Ashdown, AR market pulp mill. Nevertheless, we got off to a reasonably good start to the year and we expect strong second half results driven by price momentum and strong volume in paper and pulp,” said John D. Williams, President and Chief Executive Officer. “The Kingsport conversion is progressing well. The project is on schedule, and the crews on site are currently completing demolition and preparing the site for the new buildings and warehouse. We are also making good progress with our commercial strategy and the customer response continues to be extremely positive.”
Mr. Williams added, “During the quarter, we successfully closed the sale of the Personal Care business. The sale is part of our ongoing effort to strategically optimize our portfolio and it allowed us to strengthen our balance sheet, enhance liquidity and repurchase shares.”
Operating income was $2 million in the first quarter of 2021 compared to an operating loss of $20 million in the fourth quarter of 2020. Depreciation and amortization totaled $54 million in the first quarter of 2021.
Operating income before items* was $19 million in the first quarter of 2021 compared to operating income before items* of $35 million in the fourth quarter of 2020.
The increase in operating income in the first quarter of 2021, compared to the prior quarter, was the result of lower long-lived asset impairment and closure and restructuring charges related to the cost savings program, higher average selling prices in pulp, lower maintenance costs and favorable exchange rates. These factors were partially offset by higher raw material and freight costs, asset conversion costs, unfavorable productivity, higher selling, general and administrative expenses and higher fixed costs.
When compared to the fourth quarter of 2020, manufactured paper shipments were up 1% and pulp shipments were flat. The shipment-to-production ratio for paper was 102% in the first quarter of 2021, compared to 98% in the fourth quarter of 2020. Paper inventories decreased by 13,000 tons, and pulp inventories decreased by 38,000 metric tons when compared to the fourth quarter of 2020.
Liquidity and Capital Resources
Cash flow from operating activities was $33 million and capital expenditures were $51 million, resulting in a negative free cash flow of $18 million for the first quarter of 2021. Domtar’s net debt-to-total capitalization ratio stood at 6% at March 31, 2021 compared to 26% at December 31, 2020.
Paper demand will remain dependent upon recovery from COVID-19, but demand is expected to continue to rebound through the year as people return to schools and offices. Near-term pulp markets should remain balanced due to steady demand growth and limited new supply. Recently announced price increases in both pulp and paper will positively impact our results. The second quarter will be affected by seasonally higher maintenance costs in our Pulp and Paper business as we move into the planned outages at some of our major facilities.
* Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures on www.domtar.com.
All information from the Domtar Q1 2021 financial report is in U.S. dollars, and all earnings-per-share results are diluted, unless otherwise noted.
Press release: Domtar Corporation Reports Preliminary First Quarter 2021 Financial Results