Domtar Corporation Reports Preliminary Third Quarter 2016 Financial Results

FORT MILL, SC, Oct. 27, 2016 -- Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $59 million ($0.94 per share) for the third quarter of 2016 compared to net earnings of $18 million ($0.29 per share) for the second quarter of 2016 and net earnings of $11 million ($0.17 per share) for the third quarter of 2015. Sales for the third quarter of 2016 were $1.3 billion. Lack-of-order downtime totaling 39 thousand tons in paper. Personal Care sales growth of 8% year-over-year.

Excluding items listed below, the Company had earnings before items1 of $71 million ($1.13 per share) for the third quarter of 2016 compared to earnings before items1 of $38 million ($0.61 per share) for the second quarter of 2016 and earnings before items1 of $54 million ($0.86 per share) for the third quarter of 2015.

Third quarter 2016 items:

Impairment of property, plant & equipment of $5 million ($4 million after tax); and
Closure and restructuring costs of $10 million ($8 million after tax).

Second quarter 2016 items:

Litigation settlement of $2 million ($2 million after tax); Impairment of property, plant & equipment of $3 million ($2 million after tax); and
Closure and restructuring costs of $21 million ($16 million after tax).

Third quarter 2015 items:

Closure and restructuring costs of $1 million ($1 million after tax);
Impairment of property, plant & equipment of $20 million ($12 million after tax); and
Debt refinancing costs of $42 million ($30 million after tax).

\"We had a solid operating performance despite the market related downtime in paper. Productivity improved due to lower planned maintenance outages, and we further benefited from our continuous improvement program efforts resulting in lower costs,\" said John D. Williams, President and Chief Executive Officer. \"We are making meaningful progress with the ramp-up of the Ashdown fluff pulp machine with milestones achieved throughout the quarter. Production of bale softwood pulp is underway with the fluff qualification period set to begin in the fourth quarter.\"

Mr. Williams added, \"Strong sales momentum continued in Personal Care; our topline is growing faster than market with year-over-year growth of 8%. The recent acquisition of Home Delivery Incontinent Supplies Co., a leading national direct-to-consumer provider of incontinence products, will support our Personal Care growth strategy going forward.\"

QUARTERLY REVIEW

Operating income was $92 million in the third quarter of 2016 compared to operating income of $39 million in the second quarter of 2016. Depreciation and amortization totaled $87 million in the third quarter of 2016.

Operating income before items1 was $107 million in the third quarter of 2016 compared to an operating income before items1 of $65 million in the second quarter of 2016.

The increase in operating income in the third quarter of 2016 was mostly due to lower maintenance costs, lower raw material costs, lower closure and restructuring costs and favorable exchange rates. These factors were partially offset by higher selling, general and administrative expenses, lower average selling prices, a decrease in our paper sales volume and higher freight and other costs.

When compared to the second quarter of 2016, manufactured paper shipments were down 1% and pulp shipments increased by 3%. The shipments-to-production ratio for paper was 102% in the third quarter of 2016, compared to 105% in the second quarter of 2016. Paper inventories decreased by 17,000 tons and pulp inventories increased by 52,000 metric tons when compared to the second quarter of 2016.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $95 million and capital expenditures were $83 million, resulting in a free cash flow1 of $12 million for the third quarter of 2016. Domtar\'s net debt-to-total capitalization ratio1 stood at 30% at September 30, 2016 and at June 30, 2016.

OUTLOOK

The fourth quarter will be negatively impacted by seasonality and mix in paper. We expect some short-term pricing volatility in pulp, while raw material unit costs are expected to increase, notably for wood, energy and chemicals. Our Personal Care results are expected to continue to benefit from the new customer wins, market growth and cost savings from the new manufacturing platform.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 11:00 a.m. (ET) to discuss its third quarter 2016 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 499-4035 (toll free - North America) or 1 (416) 204-9269 (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 fourth quarter 2016 earnings results on February 9, 2017 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.

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 $5.3 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.

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