Domtar Corp. is launching a strategic review of its personal care business, nine years after launching the diaper and incontinence operations.
The forest products company says it is exploring “a range of value-creating alternatives,” which include a sale of the business.
Chief executive John Williams said Domtar has significantly improved the operating structure and cost profile over the past year.
“In addition, the scale-up of new customer and sales pipeline gives us confidence in the long-term prospects for the business,” he said in a statement.
“With this positive momentum, we believe now is the right time to initiate a strategic review.”
Domtar also says it will close and repurpose several U.S. facilities, affecting about 780 employees, as it looks to cut US$200 million in annual costs by the end of 2021.
It will permanently stop producing uncoated freesheet paper — used in office copiers and printers — in Tennessee, Michigan and Arkansas.
Repurposing the mill in Kingsport, Tenn., is the first step building a large and cost-competitive business, Williams said.
Domtar plans to enter the linerboard market with the conversion of the paper machine in Kingsport, Tenn., to produce about 600,000 annual tons of product used for cardboard boxes by early 2023. The conversion is expected to cost US$300 million to US$350 million and make the mill among the lowest cost operations in North America. It will directly employ about 160 workers.
“Kingsport is well-positioned to be the go-to supplier to independent converters for quality, service and innovation as the mill is less than a day’s drive from over 60 customers representing an addressable 3.9 million tons of annual containerboard demand.”
It will also complete the conversion of the Ashdown, Ark., mill to softwood and fluff pulp over the next 12 to 14 months.
“We have been proactive in reducing risk and safeguarding our ability to weather the current crisis. We are taking the appropriate steps to optimize our operations and to remain an agile, reliable partner to our customers,” Williams added.
The company expects that the overall environment will continue to be challenging with paper demand continuing to be weak with some recovery in the third and fourth quarters.
The South Carolina-based company says it earned US$19 million or 34 cents per diluted share in the second quarter, up from US$18 million or 28 cents per share a year earlier.
Adjusted profits decreased 44 per cent to US$20 million or 36 cents per share, from US$36 million or 57 cents per share in the second quarter of 2019.
Revenues for the three months ended June 39 decreased 2.1 per cent to US$1.01 billion.
Domtar was expected to lose 49 cents per share on $1.04 billion of revenues, according to financial markets data firm Refinitiv.
Paul Quinn of RBC Dominion Securities said the results were well above expectations, largely driven by results from paper and pulp segments.
He said the mill conversion in Arkansas was expected given the weakness in paper markets.
“We view the Ashdown conversion as a ‘slam dunk,’ while the entry into containerboard could make some investors nervous. The reduction in (uncoated free sheet) capacity (about 721,000 tons) should help to support markets in the medium-term.”
Investors responded warmly to Friday’s results and corporate announcement, sending Domtar’s shares up 23.4 per cent or C$7.01 at $36.98 in afternoon trading on the Toronto Stock Exchange.
This report by The Canadian Press was first published Aug. 7, 2020.
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