Domtar Corporation Reports Preliminary First Quarter 2019 Financial Results

Price and volume momentum in Paper drive strong results
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted).

• First quarter 2019 net earnings of $1.27 per share; earnings before items¹ of $1.44 per share
• Paper prices $30 per ton higher quarter-over-quarter
• Paper shipments increased 2% quarter-over-quarter

FORT MILL, S.C.–(BUSINESS WIRE)–May 1, 2019– Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $80 million ($1.27 per share) for the first quarter of 2019 compared to net earnings of $87 million ($1.38 per share) for the fourth quarter of 2018 and net earnings of $54 million ($0.86 per share) for the first quarter of 2018. Sales for the first quarter of 2019 were $1.4 billion.

Excluding items listed below, the Company had earnings before items¹ of $91 million ($1.44 per share) for the first quarter of 2019 compared to earnings before items¹ of $103 million ($1.63 per share) for the fourth quarter of 2018 and earnings before items¹ of $55 million ($0.87 per share) for the first quarter of 2018.

ITEMS

QUARTERLY REVIEW

“We had a solid performance from Pulp and Paper despite a wood fiber shortage that negatively impacted costs and output,” said John D. Williams, President and Chief Executive Officer. “Price and volume momentum in paper continued in a favorable market environment, which led to strong productivity and a good cost performance. The pulp business was impacted by lower prices while higher internal pulp shipments due to wood fiber constraints negatively impacted our volumes. Nevertheless, we continued to improve and increase overall productivity and manage costs through saving initiatives.

Mr. Williams added, “In Personal Care, our margins improved driven by better productivity and operational efficiencies as our new customer ramp-up accelerates. We also successfully implemented price increases in both North America and Europe helping to partially offset raw material cost headwinds. Our teams continue to deliver on our margin improvement plan which is expected to progress throughout the year.”

Operating income was $115 million in the first quarter of 2019 compared to operating income of $133 million in the fourth quarter of 2018. Depreciation and amortization totaled $73 million in the first quarter of 2019.

Operating income before items¹ was $129 million in the first quarter of 2019 compared to an operating income before items¹ of $148 million in the fourth quarter of 2018.

The decrease in operating income in the first quarter of 2019 was the result of higher selling, general and administrative expenses, higher raw material costs and lower volume in pulp. These factors were partially offset by higher average selling prices for paper, lower fixed and other costs and favorable exchange rates.

When compared to the fourth quarter of 2018, manufactured paper shipments were up 2% and pulp shipments decreased 12%. The shipments-to-production ratio for paper was 97% in the first quarter of 2019, compared to 95% in the fourth quarter of 2018. Paper inventories increased by 22,000 tons, and pulp inventories increased by 24,000 metric tons when compared to the fourth quarter of 2018.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $55 million and capital expenditures were $46 million, resulting in free cash flow¹ of $9 million for the first quarter of 2019. Domtar’s net debt-to-total capitalization ratio¹ stood at 23% at March 31, 2019 and at December 31, 2018.

OUTLOOK

Our paper shipments should benefit from higher demand from our customers following the industry capacity closures while our paper prices will further improve as we continue to implement our recently announced price increases. The second quarter will be adversely affected by seasonally higher maintenance activity in our Pulp and Paper business as we move into the annual shutdowns at some of our major facilities. Personal Care is expected to benefit from our margin improvement plan and the ramp-up of a new customer, partially offset by further raw material cost inflation.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2019 financial results. Financial analysts are invited to participate in the call by dialing 1 (888) 394-8218 (toll free – North America) or 1 (323) 701-0225 (International) at least 10 minutes before start time, 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 second quarter 2019 earnings results on August 1, 2019 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.

^{1 Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.}

About Domtar

Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. With approximately 10,000 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day. Domtar’s annual sales are approximately $5.5 billion, and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina. To learn more, visit www.domtar.com.

Forward-Looking Statements

Statements in this release about our plans, expectations and future performance, including the statements by Mr. Williams and those contained under “Outlook,” are “forward-looking statements.” Actual results may differ materially from those suggested by these statements for a number of reasons, including changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under “Risk Factors” in our Form 10-K for 2018 as filed with the SEC and as updated by subsequently filed Form 10-Qs. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise.

Domtar Corporation
Highlights
(In millions of dollars, unless otherwise noted)

Domtar Corporation
Consolidated Statements of Earnings
(In millions of dollars, unless otherwise noted)

Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)

Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-to-total capitalization”. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates “Earnings before items” and “EBITDA before items” by excluding the after-tax (pre-tax) effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

“Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-to-total capitalization” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Net earnings or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2019
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2018
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Supplemental Segmented Information
(In millions of dollars, unless otherwise noted)

^(a) Figures represent Pulp Shipments to third parties.

^(b) Percentages include Pulp Shipments to our Personal Care segment.

Note: the term “ST” refers to a short ton and the term “ADMT” refers to an air dry metric ton.

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Source: Domtar Corporation

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