April 28, 2011 / 11:52 AM / in 7 years

RPT-UPDATE 2-Domtar sees lower 2011 shipments, rising costs

(Repeats to add dropped word in 4th bullet-point)

* Q1 adj EPS $3.25 vs est $2.35

* Q1 rev $1.42 bln vs est $1.40 bln

* Says to reconfigure mill for $23 mln

* Sees softwood pulp price increases (Adds conf call details, CEO comments on outlook, share movement)

April 28 (Reuters) - Canadian paper maker Domtar Corp expects shipment volumes to fall again this year — they dipped 4 percent last year — and warned that rising commodity and energy prices will likely pressure input costs.

“We continue to expect a moderate decline in 2011, similar to what we experienced in 2010,” CEO John Williams told analysts on a call.

But the company expects to benefit from higher prices for softwood pulp and for commercial printing and converting papers.

It also sees a gradual rise in white-collar employment growth in the United States partly offsetting waning paper demand. Domtar is one of North America’s largest producers of uncoated freesheet paper used primarily in office stationery.

Maintenance costs, which totalled $100 million in the first quarter, are expected to rise by $25 million in the current second quarter as a result of annual shutdowns at some major facilities, Williams said.

Montreal-based Domtar said last month it planned to close one of four paper machines at its Ashdown, Arkansas pulp and paper mill.

“We are seizing the opportunity to reconfigure one of the mill’s three pulp lines in this process. This will allow us to switch between hardwood and softwood pulp in order to improve flexibility,” Williams said, adding the project would take 18 months and cost about $23 million.

January-March earnings more than doubled to $133 million, or $3.14 a share, and topped market estimates, helped by higher paper shipments and pulp prices. Excluding one-offs, Domtar earned $3.25 a share.

Revenue fell marginally to $1.42 billion.

January-March paper shipments grew 7 percent from the previous quarter, while average pulp prices rose by $15 per metric ton.

Shares of Domtar last traded down about 1 percent at C$85.18 on the Toronto Stock Exchange. They had earlier risen 5 percent to a 10-week high of C$90.31. (Reporting by Gowri Jayakumar in Bangalore; Editing by Joyjeet Das and Ian Geoghegan)

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