Q1 2021 Domtar Corp Earnings Call
[music] good day, ladies and gentlemen, welcome to the downtown Corp, Q1, 2020 one.
Earnings Conference call with financial analysts.
This time, all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session participants are asked to press star One to register for a question should.
Should you require any assistance during the call. Please press Star then zero on your Touchtone phone.
As a reminder, this call is being recorded today Thursday may six 2021.
I would now like to turn the meeting over to Mr. Nicholas Estrela. Please go ahead.
Thank you Olivia.
Good morning, and welcome to our first quarter 2021 earnings call. Our speakers today will be John Williams, President and Chief Executive Officer, and Daniel <unk>, Executive Vice President and Chief Financial Officer.
During the call references will be made to supporting slides and you can find this presentation in the investors section of the website. As a reminder, all statements made during the call that are not based on historical facts are forward looking statements subject to a number of risks and uncertainties many of which are outside our control.
Back to you to review dumps are spot on instead of securities commissions for a listing of those.
Finally, certain non U S. GAAP financial measures will be presented and discussed and you can find the reconciliation to the closest GAAP measure in the appendix of this morning's release as well as on our website, so with that I'll turn it over to John.
Thank you Nick and good morning, everyone. We're off to a good start to the year. Despite some headwinds.
Market fundamentals currently point to a significant improvement for the rest of the year with momentum building across all of our businesses.
COVID-19 remain the dominant challenge in quarter, one as expected, but we also experienced major disruptions on our pulp operations on all supply chains across North America due to severe winter weather.
My Thanks go to hold on to our employees for their outstanding contributions because we continued to execute despite these difficulties.
Our performance reflects the quality of all work force the breadth of our products and services on the focus we all have on delivering value to our customers on all shareholders.
On paper despite continued lockdowns in some key markets and weather challenges all volumes were steady and we saw good momentum exiting the quarter.
We announced several price increases across most of our paper grades driven by improving supply and demand dynamics.
As these increases take hold on paper price realization will improve over the next few months.
It'll system operated well with no market related downtime taken in the quarter.
Our pulp business continued to experience strong demand with a solid volume performance in China as we supported key customers and increased all shipments and growing end markets.
Pulp volume was also up with growth in all of our markets.
We announced several price increases on the first quarter and through May on the back of strong demand and supply constraints.
This includes a difficult ocean shipping environment, whereas both container on a vessel availability remains gas.
Operationally some of our pulp mills experienced challenges.
Most affected was our Ashdown mill with severe weather resulted in a loss of 58000 tons of production on the financial impact of $29 million.
Our teams did an excellent job focusing on safety supplying our customers and restoring operations.
Looking ahead, both pulp volumes and prices are expected to improve significantly over the balance of the year.
Quarter, one saw significant raw material and logistics cost headwinds, mostly due to weather, notably in energy chemicals on fiber, but.
But we do expect cost to revert back to normal as the year progresses.
In terms of strategic initiatives, we made substantial progress in key areas during the quarter.
First we continue to execute on our cost savings program and we believe with firmly on track to complete the remainder of the program by year end.
Secondly, we successfully closed the sale of the personal care business.
Sale proceeds coupled with a strong cash position allowed us to pay down nearly $300 million of debt.
In addition, we resumed our stock buyback program and repurchased five 1 million shares on the first quarter.
Our balance sheet and enhance liquidity position us for resiliency and growth on our important pillar and providing the financial flexibility to execute our strategy going forward.
By implementing these strategic actions were doing exactly what we said we'd do.
Make dumped on more resilient so.
So the company can be successful through all market cycles.
And we will continue to drive for consistent improvements.
With that let me turn the call over to Daniel for the financial review before making further comments on our first quarter on outlook.
Thank you John and good morning, everyone.
Looking now at the Q1 financial highlights beginning on slide five.
We've reported this morning, a net loss of 54 cents per share for the first quarter compared to a net loss of $1.07 per share for the fourth quarter of 2020.
First quarter results include an after tax loss of 41 cents per share from from discontinued operations related to the set of the personal care business compared to a loss I've said 78 cents per share for the fourth quarter of 2020.
Our earnings from continuing operations before items were nine cents per share in the first quarter compared to earnings of 34 cents per share for the prior quarter.
In the first quarter, we recorded $2 million of accelerated depreciation and $2 million on restructuring costs related to our ongoing cost reduction program.
In the quarter, we also incurred 8 million dollar on non capitalized costs related to the conversion of our kingsport meal to containerboard.
EBITDA before items amounted to $79 million compared to $91 million in the fourth quarter.
Turning to the sequential value share in earnings on slide six.
Consolidated sales were $24 million iron than the fourth quarter, largely due to improved pulp pricing.
Prestige and amortization was $1 million of out here and as Ginny was $4 million higher when compared to the fourth quarter.
For the first quarter of 2020 one the company had no income tax recovery due largely to differences in taxable income by geography, and two an absolute low taxable income in the quarter.
Our forecasted tax rate for the year is still expected to be slightly above 20%.
Now turning to the cash flow statement on slide seven.
<unk> from operating activities amounted to $33 million, while capital expenditures amounted to $51 million in the quarter. We received the proceeds from the sale of the personal care business. We also repaid 294 million daughter of outstanding indebtedness under our term loan agreement.
We initiated the redemption of two of the 300 million dollar notes due in 'twenty 'twenty, two which concluded early in their pool and will appear on our Q2 cash flow statement finally in the quarter, we repurchased $23 million of share in the open market and initiated a $200 million accelerated share repurchase program.
For a total share count reduction of 5.1 million.
Going forward one of our key objective is to maintain a strong liquidity position as with a solid balance sheet to support our mill to mill conversion to linerboard.
Turning to the quarterly water fight on fall on slide eight when compared to the fourth quarter EBITDA before items decreased by $12 million due to higher raw material for $25 million I afraid costs for $7 million lower productivity for $6 million I E.
And any costs for $2 million and higher fixed costs for $2 million. These were partially offset by higher selling prices for $21 million lower maintenance spending for $8 million and a favorable foreign exchange rate of $1 million.
Of note. Our Q&A bid does include approximately 25 million of costs net of partial insurance recovery related to the winter storm that part's true affected zone for half of the quarter.
These costs include low volume and puts TVT for $13 million higher energy costs for $8 million needed needed repair and maintenance for $4 million in iron chemical and fixed costs for $4 million totaling $29 million. The sweater event is partially covered by our property insurance.
And we expect to receive up to 60 million of which we already received $4 million.
Our paper business on slide nine.
Sales were flat versus last quarter and were 19% of the war against the same period last year estimated EBITDA before item was $103 million.
Manufacturer paper shipment were 1% higher when compared to the fourth quarter and 20 per cent of the war when compared to the same period last year.
Average transaction prices for all our paper grades were $9 per ton lower than the last quarter, mostly due to customer and product mix April average prices, where aflac smithy $15 per ton higher than the average on the first quarter swing. The first step in the implementation of announced price increases.
Let's turn to our pulp business on slide 10 sales.
Were 9% higher versus the last quarter and 24% higher.
In the same period last year.
EBITDA before item was and they get the $15 million and was significantly impacted by the winter storm on Ashdown.
All shipments were flat versus the fourth quarter, and 14% higher when compared to the same period last year.
Average pulp prices increased 53 per dollar per metric ton versus the fourth quarter as we started to implement the multiple price increases announced since the start of the year.
April average prices were approximately 100 dollar.
Metric ton higher than the average on the first quarter as we continue to implement announced price increases.
Let's look at page 11, our paper inventory decreased by 13000 ton when compared to last quarter, while pulp inventory decreased by 38000 metric ton.
Finally, you'll find on page 12, our updated maintenance schedule for the remainder of the year.
So this comfortable on my financial review with that I'll turn the call back to John John.
Thank you Daniel on paper business was steady with total shipments in line with the prior quarter. We sold all of our paper capacity in March and we expect to run full for the remainder of the year.
COVID-19 restrictions continued to impact demand in Canada, and some U S and in some U S markets. Furthermore, some markets and channels were affected by severe winter weather that impacted supply chains and restricted some consumption.
We expect demand to rebound in quarter, two and throughout the year as people return to the office with data showing that only 25 per cent of the office workers in the 10 largest U S cities, we're back at that place of work as of mid March.
We remain optimistic with the overall outlook as operating rates and customer sentiments of strong market conditions are improving on our backlogs are growing we're well positioned to support increased demand from our key customers and remain their supplier of choice.
We're also ready to improve on paper mix, where we have unique on value added capabilities.
Prices were slightly down in the quarter due mostly to an unfavorable product mix. However price increase implementations in process across most grades.
Strong paper productivity on the benefits of our cost savings and efficiency improvements resulted in a solid cost performance EBITDA margins were at 17%, while our cash cost per ton was 11% lower versus the same quarter last year a.
Our strong performance despite sales volumes significantly below pre pandemic levels.
This continues the trend that we've seen in all core paper mills over the last few quarters.
Paper freight was higher impacted by increases in fuel greater length of haul on weather events.
In pulp outperformance was largely due to the weather impacts on operations supply chain on raw material costs.
Winter weather affected production at several sites, while wet weather impacted fibre supply, but some of our southern mills.
Specifically on ash down the weather related shutdown resulted in several weeks of lost production and higher costs.
Some of the challenges continued into April but operations have been steadily improving and we are at near full capacity just stop me.
The other mills have largely stabilized, but wood stocks are lower than we would like and the south east.
Pulp markets are expected to maintain momentum supported by demand growth and supply constraints with regards to weather related input cost headwinds, we're monitoring our suppliers as they recover from the winter storms with a particular focus on specific raw materials.
Turning to packaging the Kingsport conversion is progressing well the project is on schedule and the crews on site are completing demolition on preparing the site from the new buildings on OCC warehouse all equipment for the conversion has been purchased and we have also begun work on our operational readiness plan to prepare.
The mill for startup.
All senior management teams in place and we expect to start bringing employees back on site to initiate the training process towards the end of the year.
I'd like to take this opportunity to acknowledge the support of many state and local elected officials as well as the Tennessee Department of economic and community development. The department of Transportation and the department of Labor on workforce development there.
Our emboldened in this projects demonstrate what can happen when we have community leaders willing to work with industry to achieve best outcomes for everyone involved.
The customer response continues to be extremely positive.
We're actively involved as a member of the association of independent corrugated converges, which has resulted in discussions with domestic customers representing about 2.7 million tons of demand.
Our engineering work on our Ashdown mill for further expansion to linerboard is also progressing well and we will be decision ready by year end.
In closing, we have an excellent platform to support future success.
John towards them tell us well positioned to drive growth and reached the next stage in our evolution as a leading north American pulp and paper company, while transitioning into a major packaging player.
On coal business is centered around attractive end markets, where current fundamentals are very strong.
And our differentiated solutions and innovation enable us to meet the changing needs of our customers as consumer preferences evolve.
We see momentum continuing to build across our businesses with solid demand for softwood and fluff pulp.
And an improved supply demand backdrop in paper.
We expect flow through from recently announced price increases in pulp and paper will improve margins, even as we manage through the impact of higher input costs. In addition, we expect productivity and other cost initiatives to more than offset inflation.
Now, let's review the outlook for the remainder of the year.
Paper demand should start to accelerate through the year those vaccinations increase on people gain greater confidence to return to offices and schools.
We do expect softwood and fluff pulp markets to remain balance through the year due to steady demand growth and limited new supply.
Recently announced price increases will positively impact both pulp and paper, while the second quarter will be affected by seasonally higher maintenance costs as we moved into the planned outages at some of our major facilities.
Before I turn the call back to Nick I'd like to briefly address the recent media speculation regarding dumped on.
As we indicated on our press release on Tuesday morning.
We did confirm the dumped on has been in discussions with paper excellence regarding a potential transaction.
Theres no guarantee these discussions will result in an agreement and we do not intend to provide any additional updates unless or until the circumstances warrant we will not be providing any additional details on today, it's cool.
Given this we ask that you. Please limit your questions to the topic of our results on our outlook.
Again, thank you for your time on support and I'll turn the call over back to Nick for questions.
Yeah.
Thank you John I'd ask our participants to ask a couple of questions at a time and return to the queue for follow ups. Olivia. Please open up the lines for questions.
Thank you.
If you would like to.
Please signal by pressing star one on your telephone keypad.
Speaker phone. Please make sure your mute function is turned off.
Net.
Again John.
To ask a question, we'll pause for just a moment to allow everyone the opportunity.
Our first question is coming from Anthony Pettinari.
Please go ahead.
Good morning.
Anthony Good morning.
Good morning, John just a couple of questions on pricing for uncoated free sheet. The the $60 per ton price increase that has been recognized by pulp and paper week when should we expect that to fully flow through.
For you and then can you remind us the price increases that you have outstanding for me for pulp.
For N P. S. K S P S K and fluff.
So I would say we'd be at the kind of new run rate on that pricing by end of the quota to Anthony maybe some of it when Lee can look, but suddenly buying Dakota too.
And you know, it's a it's 100 bucks a ton really pretty much on everything from.
Hi.
Okay. Okay. That's helpful. And then you mentioned, maybe some lingering impact at ash down from the storm in April is it possible to quantify that or put a finer point on that.
Well, we've been operating a rounds of 80, 85% of output so that will still have a bit of an impact.
But of course, you know being quoted two we would expect about our insurance back.
That would.
Easily offset kind of what we're experiencing now.
And you know we're ramping up daily so.
Our expectation is it would be neutral or slightly positive between those two impacts.
Yeah, No that's very helpful I'll turn it over.
Thanks.
Thank you.
Next question is coming from Mark Connelly with Stephens. Please go ahead.
Thanks, John you describe the pulp demand is steady, but there's a perception in the market that theres been quite a bit of volatility, especially in Asia is that because of shipping and logistics stuff and are you, saying that underlying demand is stable and if so are you seeing I'm seeing customer try to stockpile.
With any success to get out of these hikes.
Yeah. So we're not seeing them have any success with stockpiling I think driven by freight.
So if you look at.
Our experience probably 20 to 30000 tonnes kind of moves across every month, because we're struggling to get.
Ocean freight, let's assume that's happening for everybody.
And as you know Asian customers, particularly Chinese customers are used to having a lot of inventory in tons of pulp.
That inventory is definitely a decline because you know end use demand for their products is still reasonably strong.
So there is very much developing a sense that you know we need to order pulp because.
Our end use demand is reasonable and the sort of service levels, we used to have less reliable than they were because of ocean freight.
That's all that put together says the customer is experiencing a sense of urgency around making certain that he's kind of pulp on the way.
So it's you know the numbers, maybe the numbers, but I think psychologically that customers definitely feeling that they need to order that pulp and that gives you a bit of color.
No that's helpful and I mentioned last quarter that you didn't see the normal normal seasonal declines in white paper mix, but this quarter you have.
As we look forward to some sort of normalization what kind of visibility do you really have into what that mix is going to be going forward.
Okay.
Well I think.
On the answer is it's a judgment call based on a bit of data I would say if you think about.
People returning to the office patently, we're going to see.
Essentially cut size be a larger part of the mix.
Now we know we can make that very efficiently. So.
That could move the mix around a little bit but.
And we wouldn't therefore, we'll have to do some of the fill tons, where the margins are reasonably unattractive. We have to do if we did some fill tons. We had some commitments we have to keep in quarter one.
But as those people come back to the office you could certainly see cut size being a larger a slightly larger part of the mix.
And however, sorry.
No it's far away.
I was just going to ask whether there's a part of the business that you just don't expect to come back I.
I mean, not not in terms of tonnage, but just sort of part of your mix that just goes away.
That's not what we've experienced so far what.
We're saying is.
And I guess I'd use March and April as the examples, but actually the mix moves around a little but not wildly dramatically right.
That was a few dollars per ton.
But what we're really seeing is strong demand in packaging I think the overall.
Environment for packaging papers as strong just because you know there's a view out there that we have to do something to substitute plastic. So we've got a lot of R&D work on some very interesting products over time, I think that will help us build that business.
The cut size business has been remarkably resilient considering you know those numbers I gave you that sort of 25 per cent of people are back on their office in the 10 largest cities. So you know as I think financial institutions going back to work in June July and August.
We're gonna see cut size move I haven't seen anything stop.
Obviously I've seen demand decline you know point of sale has held up pretty well on all much in business on a roll business has held up pretty well printers have been.
Busy other unexpected I mean, they are printing paper menus, where perhaps previously you know people use. So there are all kinds of reasons why little bits of this business are doing okay, not nothing's die to death at this point if.
If that answers your question.
Very helpful. Thank you.
Youre welcome.
Okay.
Next we will go to George Staphos with Bank of America. Please go ahead.
Thank you hi, everyone. Good morning, John Good morning.
Good thank you.
If you could.
If you could give us a bit more color on what youre seeing on early trends in April.
If possible year on year.
And.
And specifically within China.
The level of activity you're seeing.
In response to Mark's question, you were talking about.
On the need for customers over there.
Yeah.
China.
Security.
Security of supply and that's leading to that.
I'm wondering more but you're also starting to see the futures market.
So.
John.
A customer over there who is worried about supply, but not affecting that through the futures market. So broadly what are you seeing in the market and why aren't we seeing the futures cash.
Yeah, I mean, that's not a great deal of physical pulp as you know traded through that market is a bit it's not a law.
Uh Huh, our view is very much driven by our customer and our customers on what we're really seeing is.
There's absolutely no slowdown in their demand for our pulp and in fact, it stays strong we of course have had on our own supply challenges. So you know, we've we've had to juggle a little bit and make certain that we take care about major accounts.
So where that futures market goes I mean, quite frankly, George I'm not sure I have much more visibility than you will do but well I.
Can talk about is you know we've we've issued another price increase that tells you that we feel pretty confident in the demand in that market.
We'll just have to see how it plays out.
But I think it's got it it looks to me it looks to US I guess I should say that it has a pretty solid runway at the moment.
Under GAAP.
I appreciate it John.
John.
My final quick my follow up question would be on on paper.
Strategically.
Two large competitors in North America.
Depending on how you wanted to find it.
Yeah.
Shrinking in terms of what their expected activity will be within uncoated free.
Heat market either in terms of ownership.
Ore production and so I guess, the simple way to look at that would be good.
Good thing for Domtar since.
The largest player in the market, but is that an over simplification and you know what.
What would you see as the challenges.
In the market.
Player given what we're seeing out of the other participants.
Could you share some color there.
Just one.
One clarification to Anthonys question. So given that were neutral positive on ash down into Q does that suggest we just see a flip on the $25 million on ticket from once you. Thank you.
Alrighty so.
What does it mean for us in the paper business well I think it goes absolutely mean for us we all.
The credible supplier in the space, we have the grade range.
We have a fantastic service record, we have a great relationship with all key customers on many of whom rely on this paper.
A key part of their product mix, particularly obviously the office supply folks.
<unk>.
So I think that's all good news for us quite frankly.
<unk>.
And you know well I would remind you of course, we took out nearly 25 per cent of our capacity so.
You know this market now looks pretty tight quite frankly, and we think that gives us opportunities.
Going forward.
So, yes, I think to use your phrase the simple the simple answer is it's good news for us.
And I'm still convinced that we can deploy our assets overtime imaginatively to of course make those containerboard conversions and I think within the paper business you know come up with products that are really highly functioning substitutes for plastic.
And if we can find those in sufficient volume I actually think there.
There's a great future ahead of us so that's where I sit on that as far as the Ashdown thing is concerned.
I mean I.
All of that.
Whether or not it all comes back but suddenly you know obviously the insurance claim comes in so that 16 million comes in I think that offset some of the you know the challenges. We've continued to have an ash down although it is improving dramatically so I.
I think I think yeah, you could absolutely say its not gonna happening quota to the white house quota on it'll come straight back.
Alright.
Thanks very much.
You're very welcome.
Thank you.
Next we will go to Adam Josephson with Keybanc. Please go ahead.
Thanks, Good morning, everyone and John I'm glad you're feeling better.
Adam Thank you I appreciate that.
I'm, sorry, you've lost that nice fringe, Quebec acts on there, but I'll do the best I can [laughter].
On.
Kingsport can you see you mentioned that youre preparing the site for new buildings, and the OCC warehouse and that you've purchased all the equipment.
On the conversion can you just give us more detail about what those new buildings will house.
And what the next steps will be and how much money you've committed to spending out of the I believe you said 300 to 350 that you said you expected to spend all told on the project.
Yeah sure so.
Just to remind ourselves we started that site demolition in November.
That's continuing on it.
It'll end soon on the demolition side and then we are preparing for the construction of a large old corrugated container warehouse.
Which again is sort of well a lot of that demolition, where it was about we have submitted the site environmental permit applications.
So that should happen fairly soon and then construction can really begin we bought at all on our major pieces of equipment, including the OCC processing equipment and the repurpose linerboard machine.
So you know.
Detailed engineering is underway and the leadership teams in place so where.
I guess I would say pretty much completely committed.
So that project.
And when you say pretty much is there any I couldn't give you a percentage.
Yes, I Couldnt give you a percentage, but I mean, you know with all of that major equipment ordered.
Is it 70 60, 70% probably of what we're going to spend.
Construction is a large part of it of course.
Yeah, no understood John Thank you and on Ash down you talked about the work progressing and you expect to have a decision by year end can you just talk about how your thinking has evolved over the past.
Several months based on what's happening at Dom Tar based on what's happening on the containerboard market based on any feedback you've received from potential customers at day <unk>.
Youre thinking has changed if at all and just any insight you can give us into your your thought process as it has evolved over time.
Yeah. So I mean undoubtedly you know the market responds to US arriving has been incredibly positive from a potential customer.
We looked at how we were thinking about that project.
We're now, saying actually we're going to be more aggressive perhaps than we were originally going to be.
Probably 700000 tons of containerboard Kraft liner brand new machine.
We're doing obviously the engineering work to make certain that judgment is correct.
But that's all planned and will be decision ready with that type of plan by year end.
Really appreciate it John Thank you.
Youre welcome.
Thank you.
Again, if you would like to ask a question.
Why now.
Al.
We will take our next question from Mark Wilde with Bank of Montreal. Please go ahead.
Hi, Good morning, John Good to have you back in the final.
Well. Thank you so much mark I appreciate that.
Hey, John I'm, just curious just going back to that paper business briefly is the increase in pulp costs around the world combined with these freight and logistics issues is that incrementally.
Is that a is that helping you visa b sort of any pressure from imports.
It's an interesting question. So the answer is yes, but the box being I'm not sure I could prove it other than you know product isn't signing up as you can see imports are very low right now into the U S versus sort of some of the levels, we've seen but that that can go up and down based on.
Based on the month from based on freight of course dramatic moves in Europe on industry capacity.
Which of course helps if on everyone's being truthful and of course web people on.
Yeah, I mean, where people are not integrated.
I'm on definitely that helps us as we are integrated within the U S context market goes there are very few people left.
You know, making commodity grades who on integrated.
But thats certainly there in some of the other especially as grades so that helps us so I would say that you know.
That's sort of slightly weaker dollar old sei is the risk of imports has.
Reduced I mean, I think what has to happen, though we have to suddenly make certain and we are making something of course that we can supply our customers. So they don't they don't worry about security of supply.
Okay.
John with D. A.
With your competitor you know either reducing the size of their white paper footprint or you know changing their ownership.
Is that.
Allowing you to potentially you know pickups in some bigger contracts and things.
Yeah.
Well undoubtedly there are customers now saying to us.
You guys looked like the people, who really mean it in terms of being in the white paper business and you know where we'd be happier to make longer term commitments to you.
Again.
We we can sell to point 1 million tons of paper, yes, we got a bit of productivity creep every year, but.
So we'd make those choices really mark around mix more than we make them on pure volume if that makes sense.
Yeah. So if we see a mix opportunity yeah, if we see a mixed operating those conversations we would obviously take it.
Okay and last one for me John I'm, just curious you know with.
Bolt kings poor and harsh down.
As much as you can talk about this on a public conference call.
It seems like you're probably in a little bit of a difficult waltz here because you've got.
Potential customers, who are on a really tight supply market right now and so they have to be a little bit careful in how they manage their relationships with existing suppliers, even while they're talking with you. So you know just isn't that she can help us understand how that's kind of playing out right now.
Talk with people about establishing relationships in 18 months or 21 months when that when Kingsport starts up.
That's a great question Mark.
I don't really have.
And expectation that we will have a massive chunks.
Committed business before we start up I think what is developing is we're going to have a lot of extremely interested independent companies, who are really want somebody in this makes who's out to support them.
And you know we will have trial after trial after trial after trial I'm sure with them as we as we you know as we actually produce.
And I've always felt that was going to be the case actually for the point you raised that of course, you know if you commit to us at this point may be publicly patently you run the risk of perhaps not being first on the list for supply from the current supply base.
So that's.
Let's leave it that shall we so I think to my mind.
What we're seeing is a very positive response.
Those I think will turn into great relationships over time.
But I think that will be and you know we've allowed ourselves a couple of years in the ramp up as.
Our product mix moves you know kind of towards those domestic customers because it's going to take some time. So we planned for that.
I never had any expectation when we had talked to people, perhaps who you know wanted to commit to us upfront. What I found was the sort of chunk of the economics. They wanted versus the risk mitigation on on par versus our judgment of the marketplace. The math didn't work.
Yeah, well, that's proven to be a proven to be correct I think as the markets tightened up here.
Yep.
Alright, I'll turn it over good luck.
Well thank you.
Yeah.
Our next question is coming from Paul Quinn with RBC capital markets. Please go ahead.
Yeah. Thanks, very much morning, John could you define you alive and kicking.
[laughter] alive, if not kicking pool, but thank you [laughter] two questions one on the pulp side.
Even when I back in the day 29 million hit per us down in the quarter.
You know your pulp margins are still lagging your European peers as well as domestic producers just wondering if you figure that your margins will pick up back to back to historically, where they've side or if theyre, sending something fundamental that youre going to have lower margins going forward.
It's a great question so we.
We had on our other challenges so as you know.
Although espanola is.
This has been a challenge for us and we're making you know we got a plan to improve it but it's not as reliable as we like Dryden as reliable, but at slightly lower volumes than all objectives. All we have a a maintenance shut coming up in drawing where we hope to have sold most of those issues and actually Plymouth.
A bit of a challenge with through that now we had a on electrical issue in Plymouth that cost us a few tons. So.
You know it was asked.
As happens in some of these networks occasionally it it was just a tough quarter in the pulp business.
Great productivity on the paper business book pulp was tough so to answer your question I have every expectation those margins should come back I mean, we're working hard to drive out costs down ash down when it settles is really a fantastic mill in terms of cost position.
So it's Plymouth and Espanola, we were going on we've got a kind of a two year program I would say that to make that more productive we know what we're going to do and drawing in Kamloops is a star asset so.
To your point I think that was just a weak quarter in the bulk business.
Okay. That's fair and then just on capital allocation you you repurchase shares in the quarter, but now we've seen your share of student market moved or are you committed to the plan of the capital allocation on share repurchase following the sale of personal care.
We are yeah, we still remain committed.
Excellent Phil I had best of luck.
Thank you.
Our next question once again comes from George Staphos with Bank of America. Please go ahead.
Hey, John a quick cleanup.
Cleanup question here.
Yeah.
More aggressive plan on containerboard.
Give us a rough and ready outlook on the pulp.
On a going forward based on again, if you do the more aggressive containerboard plant, thanks, and good luck in the quarter sure.
So I think we gave that number out recently I think it's about a 250000 reduction in pulp which.
But it would really impact impact on southern softwood not not flow. Okay. So what was it mix it forgive me, but so what would the mix than b.
Okay.
It would be majority fluff by some margin.
I can't give you the exact number Joe will dig it out and give it to you I'm happy to give it to you.
I think John it's gonna be Uh huh.
I think it's going to be off down.
Go ahead.
Daniel.
100% fluff, obviously, you have the ability to swing depending on market condition, but we'll we'll dry on the fluff machine all day pump that will be left in Nashville.
Understood Daniel Thank you guys.
Thanks.
Thank you.
Next we will go to Adam Josephson with Keybanc. Please go ahead.
Thanks, a lot John and Daniel for taking my follow ups just to on pulp Danielle one.
For you. So your sequential price per ton in pulp was up I think 53, and I think he mentioned the exit rate is up another hundred into Q can you just help me with.
How much that that total of $1 50 compares to.
All the price increases you've announced from November onwards, just to give us a sense for.
What what that 150 captures and what it doesn't.
I mean, that's a that's a tough question because there was so many are.
Different price increases on our so we're still of the view that we're going to get it all it's normally happening rather quickly in Asia.
You have the discount rate in North America that is.
A bigger than in Asia, and you have also kind of a more contractors ton in North America, where there's a lag of one two and very few cases three months on the up and down but we're still expecting to have to.
To get all of that in the current market environment.
Got it Daniel and John just for the benefit of hindsight it seemed like the pulp market.
Let me turn to turn on a dime at the beginning of November and that's when obviously futures soft with futures prices in China started to take off.
And I've read all kinds of explanations as to why it yes.
Production disruptions in ocean freight problems in currency and demand and it just seems like at a laundry list of.
Possible explanations for what happened beginning in November but do you have a good sense for what turn so suddenly in November that has persisted through now and why the market was so weak up until November and suddenly everything changed.
Well I don't know.
Yes quite gosh.
I guess my speculation is good as anybody else's speculation obviously from a supplier standpoint that was one of the longest worst runs in pulp for many of the moon.
So it was kind of I think albeit to the supplier base that you know they could take maintenance shops. They could do just about anything because they weren't going to need those tons.
So I think there was definitely a feeling around suddenly from us anyway, but you know we've had enough of this something has to change.
I mean market. So obviously do they move on data or do they move on sentiment maybe they move on sentiment I think that'd be there came a point where the customer was thinking.
I'm, just not somehow I'm not feeling comfortable around the supply chain of pulp I'm not feeling comfortable around my ability to buy anything I want.
And I think that sentiment fed into the futures market and then it kind of fit into dare I say the market and it carries on to this day.
And that's what that's what it it's not as if these pulp prices are sort of you know unbelievable versus history.
You know that.
The higher end of cycle prices, but that's certainly not off the chart. So.
To my mind I think that's what that's what drove this.
Perfect. Thanks, a lot John.
Alright, thank you.
Thank you.
Concludes today's question answer session.
At this time I will turn the conference back to you for any final remarks.
Yeah.
Thank you Olivia we will release, our second quarter 2021 results on Thursday August the <unk> 2021 thank you for listening and have a great day.
Yes.
This concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
Yeah.
[music].
Okay.
[music].
Yeah.
[music].