Our preliminary financial report for fourth-quarter and fiscal year 2017 is in. Highlights from this Domtar financial report include:
- Fourth quarter 2017 net loss of $5.42 per share; earnings before items listed below of $0.64 per share
- Price increases announced for pulp and several uncoated freesheet grades
- A 4.8 percent dividend increase
Domtar 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, Domtar reported earnings of $40 million ($0.64 per share) for the fourth quarter of 2017 compared to net earnings of $65 million ($1.03 per share) for the third quarter of 2017 and net earnings of $47 million ($0.75 per share) for the fourth quarter of 2016.
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.
Excluding items listed below, operating income was $59 million in the fourth quarter of 2017 compared to a net operating income of $83 million in the third quarter of 2017.
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)
- Net gain on disposal of property, plant and equipment of $9 million ($8 million after tax)
“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, 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.”
Fiscal Year 2017 Highlights
As a result of its annual goodwill and indefinite life intangible assets impairment tests, Domtar 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 fiscal year 2017, 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 fiscal year 2017 results, Williams 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, enables us to announce a 4.8 percent dividend increase. Looking ahead, we remain focused on maximizing long-term profitability and value creation.”
In 2018, costs, including freight, labor and raw materials, are expected to marginally increase. Our paper shipments should benefit from expected industry capacity closures, while paper prices should improve following the recently announced price increases and pulp will benefit from volume growth in fluff. Personal Care is expected to be negatively impacted by an unfavorable tender balance, resulting in lower volume and operating margins.
For more information about the Domtar Q4 and fiscal year 2017 report, please read the full press release.
All information from this Domtar financial report is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.