Domtar shares fall on warning of US$30M-$35M second-quarter operating loss

Domtar President and CEO John Williams in Montreal May 1, 2013. THE CANADIAN PRESS/Graham Hughes

July 12, 2013 - 7:59 AM

MONTREAL - Domtar's shares took a hit Friday after the pulp and paper producer warned that it expects to post an operating loss of between US$30 million and US$35 million when it reports its second-quarter results later this month.

The company's stock was down $3.79, or almost five per cent, at C$72.46 in morning trading on the Toronto Stock Exchange.

Domtar (TSX:UFS) said that among things contributing to the loss was a litigation settlement charge of US$49 million, closure and restructuring costs of US$18 million and a charge of $5 million related to the impairment and writedown of property, plant and equipment.

The Montreal-based producer of pulp and fibre-based products, including various papers and adult incontinence products, also faces depreciation and amortization charges of $93 million.

"We had sub-optimal pulp productivity and unusually high costs due to significant planned maintenance and delayed restarts in our pulp mills," president and CEO John Williams said in a statement.

However, he said that by the end of the quarter the company had made "very good progress on addressing production issues" in the pulp and paper business.

"We remain confident that we will return to more normalized productivity levels across the business by the end of the third quarter," he said.

The company said it expects sales will be US$1.312 billion, down four per cent from last year and below analyst forecasts.

It shipped 801,000 tons of paper and 344,000 metric tonnes of pulp during the quarter.

Prior to the warning, Domtar had been expected to earn 89 cents per share in adjusted profits, down from $1.61 per share a year earlier.

Domtar said adjusted EBIDTA (earnings before interest, depreciation, taxes and amortization) would be between US$130 million and US$135 million. That's down more than one-third from the US$202 million recorded a year ago and off the US$158.5 million predicted by analysts, according to those polled by Thomson Reuters.

Stephen Atkinson of BMO Capital Markets labelled the operating loss "a one-time event" caused by non-recurring charges and startup delays at some pulp mills following major maintenance.

Domtar will release its second-quarter financial results before markets open on July 25.