Our preliminary Q3 2020 financial report is here. Highlights include:
- Third quarter 2020 net loss of $1.67 per share; earnings before items¹ of $0.33 per share
- $121 million of cash flow from operations
- 20% increase in paper volumes vs Q2’20
Domtar today reported a net loss of $92 million ($1.67 per share) for the third quarter of 2020 compared to net earnings of $19 million ($0.34 per share) for the second quarter of 2020 and net earnings of $20 million ($0.32 per share) for the third quarter of 2019. Sales for the third quarter of 2020 were $1.1 billion.
Excluding items listed on the full press release, the Company had earnings before items of $18 million ($0.33 per share) for the third quarter of 2020 compared to earnings before items¹ of $20 million ($0.36 per share) for the second quarter of 2020 and earnings before items¹ of $55 million ($0.89 per share) for the third quarter of 2019.
“We performed very well in the quarter in a challenging operating environment. Our teams have demonstrated tremendous resiliency, continuously adapting to changing market conditions, maintaining a keen focus on health and safety and decisively taking actions to serve our customers in the face of unprecedented conditions,” said John D. Williams, President and Chief Executive Officer. “We benefited from further market recovery and we made good progress with some of our strategic initiatives.”
“Our results in Paper significantly improved in the third quarter reflecting a strong operational performance and our team’s fast response in implementing cost savings in a better paper demand environment. In Pulp, prices remain at cyclically low levels but the supply and demand balance is improving.”
“The Kingsport conversion to recycled linerboard is going according to plan. All efforts are now being put into enabling a start-up by the end of 2022. We have signed an agreement with Voith to provide equipment and technical services to help build one of the most modern recycled containerboard machines in the world. We expect to receive our first equipment deliveries in the next few months with construction set to begin in the second quarter of 2021. We are also focusing on implementing our commercial strategy while building our various teams that will help lead the business.”
Mr. Williams added, “In Personal Care, we had a strong cost performance in the quarter. We continue to execute well against our objectives, both commercially and operationally, which has contributed to our strong year-to-date performance.”
Operating loss was $136 million in the third quarter of 2020 compared to operating income of $14 million in the second quarter of 2020. Depreciation and amortization totaled $71 million in the third quarter of 2020.
Operating income before items¹ (list in full press release) was $43 million in the third quarter of 2020 compared to operating income before items¹ of $15 million in the second quarter of 2020.
The net operating loss in the third quarter of 2020 was the result of the long-lived assets impairment and closure and restructuring charges related to the cost savings program, lower wage subsidies, higher maintenance costs, higher selling, general and administrative expenses and higher freight costs. These factors were partially offset by favorable productivity, higher volume in paper, lower raw material costs, higher average selling prices for paper and favorable exchange rates.
When compared to the second quarter of 2020, manufactured paper shipments were up 20% and pulp shipments decreased 7%. The shipment-to-production ratio for paper was 105% in the third and second quarters of 2020. Paper inventories decreased by 20,000 tons, and pulp inventories increased by 38,000 metric tons when compared to the second quarter of 2020.
In the fourth quarter, paper volume is expected to be flat quarter-over-quarter while mix should be unfavorable due to the usual seasonality. We expect near-term pulp markets to continue to gradually improve driven by better demand, maintenance outages and restocking in China. We expect Personal Care to continue to benefit from higher usage and the impact from new customer wins. Overall raw material costs are expected to remain stable while planned maintenance costs will be lower.
1 Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.
All information from the Domtar Q3 2020 financial report is in U.S. dollars, and all earnings-per-share results are diluted, unless otherwise noted.