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Domtar reports lower Q1 profit as special items take toll, revenue up slightly

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MONTREAL - Domtar Corp. missed expectations as its net income dropped 13 per cent due to weather-related issues, increased costs and a drop in productivity of some of its pulp and paper mills.

The Montreal-based company, which reports in U.S. dollars, earned US$39 million for the period ended March 31, compared with $45 million a year earlier.

Its net income amounted to $1.20 per diluted share, down nine cents from the prior year.

Excluding certain items in both quarters, Domtar's (TSX:UFS) adjusted profits of net income was US$42 million after adjustments in the first quarter — below analyst estimates on both counts.

Under standard accounting, Domtar's net income surged 27 per cent to $42 million or $1.29 per share, compared to $33 million or 95 cents per share in the 2013 quarter.

Analysts had estimated $1.76 per share of adjusted earnings and $1.46 per share of net income for the quarter, according to data compiled by Thomson Reuters.

Sales totalled $1.394 billion, up from $1.345 billion a year earlier, as increased sales from personal care products, such as adult diapers, offset declines in the company's main pulp and paper business.

Domtar reported sales from personal care products, a growth business for the company, increased to $233 million from $111 million a year earlier while sales from pulp and paper declined to $1.168 billion from $1.238 billion.

Commenting on the first quarter results, John D. Williams, president and CEO, said that the severe winter weather across the eastern part of North America increased energy and fibre costs for some of the pulp and paper mills and reduced productivity.

Nonetheless, he said the company benefited from higher pulp and paper prices.

"I am pleased with the progress made so far in our personal care division, despite some erosion of sales in our baby diaper business. We are well underway with our adult incontinence organic growth plan and our teams are moving fast in the deployment of new machinery to begin manufacturing product-for-sale by the end of the fourth quarter."

Domtar said it expects to get a boost from paper price increases and relatively stable input costs for the remainder of the year, coupled with the addition of new personal care production lines towards the end of the year.

Paul Quinn of RBC Capital Markets described the results as "slightly negative."

He said the normalized $182 million of pre-tax earnings (EBITDA) was below his estimate of $203 million and the $193 million analyst consensus.

On the Toronto Stock Exchange, Domtar's shares closed at $108.78 on Thursday, up $1.59 or 1.5 per cent.

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