Domtar Corporation (UFS)

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Domtar (UFS)

Q3 2013 Earnings Call

October 24, 2013 10:00 am ET


Pascal Bossé - Vice President of Corporate Communications and Investor Relations

John D. Williams - Chief Executive Officer, President and Director

Daniel Buron - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


George L. Staphos - BofA Merrill Lynch, Research Division

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Phil M. Gresh - JP Morgan Chase & Co, Research Division

James Armstrong - Vertical Research Partners, LLC

Mark W. Connelly - CLSA Limited, Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Benoit Laprade - Scotiabank Global Banking and Markets, Research Division

Bill Hoffman - RBC Capital Markets, LLC, Research Division

Stephen Atkinson - BMO Capital Markets Canada

Sean Steuart - TD Securities Equity Research

Paul C. Quinn - RBC Capital Markets, LLC, Research Division



Good day, ladies and gentlemen. Welcome to the Domtar Corporation Third Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Today is October 24. I would now like to turn the meeting over to Pascal Bossé. Please go ahead.

Pascal Bossé

Great. Thank you, Naomi. Good morning. Welcome to our third quarter 2013 earnings call. Our speakers for today will be John Williams, President and CEO; and Daniel Buron, Chief Financial Officer. John and Daniel will begin with prepared remarks, after which we will take questions.

During the call, references will be made to supporting slides, and you can find this presentation in the Investors section of our website. As a reminder, all statements made during the call that are not based on historical facts are forward-looking statements subject to a number of risks and uncertainties, many of which are outside of our control. I invite you to review Domtar's filings with the Securities Commissions for a listing of those. And finally, certain non-U.S. GAAP financial measures will be presented and discussed, and you can find the reconciliation to the closest GAAP measures in the appendix of this morning's release, as well as on our website.

So with that, I'll turn the call over to John.

John D. Williams

Thank you, Pascal. This morning, we reported third quarter earnings before items of $1.25 per share and EBITDA before items of $163 million. Our improved results compared to the second quarter came from better profitability in pulp and paper and continued growth in Personal Care earnings. Specifically in pulp, we had a lower level of maintenance downtime, resulting in better productivity and lower unit costs. We also benefited from higher shipments and higher average selling prices, and we are witnessing continued momentum in global softwood pulp markets.

In paper, we had slightly lower pricing, but a better mix. This resulted from the incremental Xerox volume and fact that export volume was down from quarter 2. We announced price increases covering a number of paper grades. And finally, we closed the acquisition of the baby diaper manufacturer Associated Hygienic Products earlier in the quarter. This acquisition not only adds a key product range to our portfolio, but also provides a wider geographic coverage and meaningful market expansion opportunities for our AI business. We are fast redeploying our new adult incontinence line to our Waco, Texas facility, and this will bring us closer to our West Coast customers. I'm pleased with the progress we're making on integrating AHP into our Personal Care Personal business.

Finally, before turning over to Daniel, I'd like to say a few words on capital allocation. We repurchased over 0.5 million shares of common stock for $36 million in the third quarter. Combined with our dividend, total capital return to shareholders amounted to $55 million. At the end of the quarter, we had $121 million left on the $1 billion authorization, and we will be engaging with our board in the coming months. We remain committed to returning the majority of free cash flow to shareholders and to use our financial flexibility to further expand our business.

With these brief remarks, I'll turn the call over to Daniel for the financial review, and I'll come back with our outlook. Daniel?

Daniel Buron

Thank you, John, and good morning, everyone. Let's start by going over the financial highlights on the quarter on Slide 4. We reported this morning net earnings of $0.82 per share for the third quarter compared to a net loss of $1.38 per share for the second quarter of 2013. Adjusting for items, our earnings were $1.25 per share in the third quarter compared to earnings of $0.48 per share for the second quarter. EBITDA before items amounted to $163 million compared to $135 million in the second quarter. Free cash flow totaled $42 million compared to $58 million in the second quarter.

Turning to the sequential valuation in earnings on Slide 5. Consolidated sales were $63 million higher than the second quarter, primarily driven by the addition of the sales of AHP acquired on July 1. SG&A was 5 million -- $95 million, in line with the second quarter. During the quarter, we recorded a charge of $19 million on the sales of our U.S. Distribution business. This charge was presented under other operating loss in our consolidated statement of earnings.

In the third quarter, we recorded a tax expense of $1 million. This low effective tax rate for the quarter is due to $3 million positive impact of newly reduced enacted tax rate in some jurisdictions, the reporting of $2 million from the reevaluation of certain tax benefit and a slightly favorable geographical mix of taxable income in the quarter. Excluding those items, our tax rate would have been approximately 28%.

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