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Domtar warns of operating loss, shares drop

A pulp machine at a Domtar operation.

Handout

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

The company's stock was down $3.79, or almost 5 per cent, at $72.46 (Canadian) in morning trading on the Toronto Stock Exchange.

Domtar said that among things contributing to the loss was a litigation settlement charge of $49-million (U.S.), closing and restructuring costs of $18-million and a charge of $5-million related to the impairment and writedown of property, plant and equipment.

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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 $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.

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

Stephen Atkinson of BMO Nesbitt Burns 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.

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