Sales for the first quarter amounted to $1.7 billion. Excluding the items listed below, the Company earned $25 million ($0.05 per diluted share) in the first quarter of 2008 compared to $29 million ($0.06 per diluted share) in the fourth quarter of 2007. The inflation on fiber, chemical, energy and freight costs reduced earnings by approximately $0.05 per diluted share in the first quarter of 2008 compared to the fourth quarter of 2007.
First quarter 2008:
- Reversal of a $23 million provision ($17 million after tax) due to the early termination of an unfavorable contract;
- Costs of $8 million ($5 million after tax) related to synergies and integration; and
- Closure and restructuring costs of $1 million ($1 million after tax).
Fourth quarter 2007:
- Charge of $96 million ($66 million after tax) related to the impairment of goodwill and property, plant and equipment;
- Gains of $51 million ($35 million after tax) for lawsuit and insurance claim settlements;
- Expenses of $25 million ($17 million after tax) related to debt restructuring;
- Costs of $21 million ($14 million after tax) related to synergies, integration and optimization;
- Gain of $11 million related to a change in statutory income tax rates;
- Closure and restructuring costs of $7 million ($5 million after tax); and
- Gains of $2 million ($1 million after tax) related to financial instruments.
"Our first quarter financial performance was affected by higher-than-expected inflation on raw materials, which was only partially offset by price increases implemented late in the quarter. Nevertheless, we were able to maintain a balance in our paper production system with a shipments-to-production ratio above 100 percent, resulting in a papers inventory reduction," said Mr. Raymond Royer, President and Chief Executive Officer of Domtar. "Compared to the fourth quarter, we had few incremental savings from synergies but our plans are on track. Our goal is to surpass $200 million of synergies on a run-rate basis before year-end while, in the near term, reaping the benefits from the carry-over of recently implemented price increases in papers and pulp," added Mr. Royer.
Commenting on capital allocation, Mr. Royer said, "Our business fundamentals are sound and I am pleased with the progress Domtar has made since March 2007 toward paying down debt to improve its investment profile. Nevertheless, the uncertain financial markets remind us of the importance of maintaining access to capital markets. Given the added challenges of a slowing economy and current inflationary pressures, we must further increase our financial strength. Consistent with our targeted leverage ratios, we will continue to apply our excess cash flow to debt reduction to lower our cost of capital with the objective to get as close as possible to investment grade for the benefit of our shareholders." -- www.cnxmarketlink.com
