Domtar Corp (UFS) Q1 2021 Earnings Call Transcript

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Domtar Corp (UFS)
Q1 2021 Earnings Call
May 6, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, Welcome to the Domtar Corporation Q1 2021 Earnings Conference Call with financial analysts. [Operator Instructions] As a reminder, this call is being recorded. Today is Thursday, May 6, 2021. I would now like to turn the meeting over to Mr. Nicholas Estrela. Please go ahead.

Nicholas Estrela -- Director of Investor Relations

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 Buron, 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. I invite you to review Domtar's filings to the Securities Commissions for a listing of those. Finally, certain non-U.S. GAAP financial measures will be presented and discussed. 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.

John D. Williams -- President, Chief Executive Officer & Director

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 remained the dominant challenge in quarter 1, as expected. But we also experienced major disruptions in our pulp operations and our supply chains across North America due to severe winter weather. My thanks go to all Domtar employees for their outstanding contributions as we continue to execute despite these difficulties. Our performance reflects the quality of our workforce, the breadth of our products and services and the focus we all have on delivering value to our customers and our shareholders. In Paper, despite continued lockdowns in some key markets and weather challenges, our 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, our paper price realizations will improve over the next few months. Our mill 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 our shipments in growing end markets. Fluff pulp volume was also up with growth in all of our markets. We announced several price increases in the first quarter and through May on the back of strong demand and supply constraints. This includes a difficult ocean shipping environment where both container and vessel availability remains scarce. Operationally, some of our pulp mills experienced challenges. Most affected was our Ashdown mill, where severe weather resulted in a loss of 58,000 tons of production and a 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 and fiber. 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 continued to execute on our cost savings program, and we believe we're firmly on track to complete the remainder of the program by year-end. Secondly, we successfully closed the sale of the Personal Care business. The sale proceeds, coupled with our strong cash position, allowed us to pay down nearly $300 million of debt. In addition, we resumed our stock buyback program and repurchased 5.1 million shares in the first quarter. Our balance sheet and enhanced liquidity position us for resiliency and growth and are important pillar in providing the financial flexibility to execute our strategy going forward. By implementing these strategic actions, we're doing exactly what we said we'd do, make Domtar more resilient, so the company can be successful through all market cycles, and we'll 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 and outlook.

Daniel Buron -- Executive Vice President & Chief Financial Officer

Thank you, John, and good morning, everyone. Looking now at the Q1 financial highlights, beginning on Slide 5. We've reported this morning a net loss of $0.54 per share for the first quarter compared to a net loss of $1.07 per share for the fourth quarter of 2020. The first quarter results include an after-tax loss of $0.41 per share from discontinued operations related to the sale of the Personal Care business compared to a loss of $0.78 per share for the fourth quarter of 2020. Our earnings from continuing operations before items were $0.09 per share in the first quarter compared to earnings of $0.34 per share for the prior quarter. In the first quarter, we recorded $2 million of accelerated depreciation and $2 million of restructuring costs related to our ongoing cost reduction program. In the quarter, we also incurred $8 million of non-capitalized costs related to the conversion of our Kingsport mill to containerboard. EBITDA before items amounted to $79 million compared to $91 million in the fourth quarter. Turning to the sequential variation in earnings on Slide 6. Consolidated sales were $24 million higher than the fourth quarter largely due to improved pulp pricing. Depreciation and amortization was $1 million higher and SG&A was $4 million higher when compared to the fourth quarter. For the first quarter of 2021, the company had no income tax recovery due largely to differences in taxable income by geography and to 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 statement on Slide 7. Cash flows 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 of outstanding indebtedness under our term loan agreement. We initiated the redemption of the $300 million notes due in 2022, which concluded early in April 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 well a solid balance sheet to support our mill to mill conversion to linerboard. Turning to the quarterly waterfall on Slide 8. When compared to the fourth quarter, EBITDA before items decreased by $12 million due to higher raw material for $25 million, higher freight costs for $7 million, lower productivity for $6 million, higher SG&A 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 Q1 EBITDA include approximately $25 million of costs net of partial net of partial insurance recovery related to the winter storm that partially affected Ashdown for half of the quarter. These costs include low volume and productivity for $13 million, higher energy costs for $8 million, needed repair and maintenance for $4 million and higher chemical and fixed costs for $4 million, totaling $29 million. This weather 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 9. Sales were flat versus last quarter and were 19% lower versus the same period last year. Estimated EBITDA before items was $103 million. Manufactured paper shipment were 1% higher when compared to the fourth quarter and 20% lower 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 were approximately $15 per ton higher than the average of the first quarter, showing 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 than the same period last year. Estimated EBITDA before items was a negative $15 million and was significantly impacted by the winter storm at Ashdown. Pulp shipments were flat versus the fourth quarter and 14% higher when compared to the same period last year. Average pulp prices increased $53 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 per metric ton higher than the average of the first quarter as we continue to implement announced price increases. Let's look at Page 11. Our Paper inventory decreased by 13,000 tons when compared to last quarter, while Pulp inventory decreased by 38,000 metric ton. Finally, you'll find on Page 12, our updated maintenance schedule for the remainder of the year. So this concludes my financial review. With that, I'll turn the call back to John. John?

John D. Williams -- President, Chief Executive Officer & Director

Thank you, Daniel. Our 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 restrictions continue to impact demand in Canada and some -- 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% of the office workers in the 10 largest U.S. cities were back at their place of work as of mid-March. We remain optimistic with the overall outlook as operating rates and customer sentiments are strong. Market conditions are improving and 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 our paper mix where we have unique and value-added capabilities. Paper prices were slightly down in the quarter due mostly to an unfavorable product mix. However, price increase implementation is in process across most grades.

Strong paper productivity and 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 strong performance despite sales volumes significantly below pre-pandemic levels. This continued the trend that we've seen in our core paper mills over the last few quarters. Paper freight was higher impacted by increases in fuel, greater length of haul and weather events. In Pulp, our output was largely due to the weather impacts on operations, supply chain and raw material costs. Winter weather affected production at several sites, while wet weather impacted fiber supply at some of our southern mills. Specifically at Ashdown, 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 to start May. The other mills have largely stabilized, but wood stocks are lower than we would like in the southeast. Pulp markets are expected to maintain momentum, supported by demand growth and supply constraints. With regard 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's on schedule and the crews on site are completing demolition and preparing the site for the new buildings and 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 start-up.

Our senior management team is in place, and we expect to start bringing employees back on site to initiate the training process toward 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 and Workforce Development. Their involvement in these 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 Converters, which has resulted in discussions with domestic customers, representing about 2.7 million tons of demand. Our engineering work at 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. Domtar is well positioned to drive growth and reach the next stage in our evolution as a leading North American pulp and paper company while transitioning into a major packaging player. Our core 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 as vaccinations increase and people gain greater confidence to return to offices and schools. We do expect softwood and fluff pulp markets to remain balanced 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 move 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 Domtar. As we indicated in our press release on Tuesday morning, we did confirm that Domtar has been in discussions with Paper Excellence regarding a potential transaction. There's 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's call. Given this, we ask that you please limit your questions to the topic of our results and our outlook. Again, thank you for your time and support, and I'll turn the call over back to Nick for questions.

Nicholas Estrela -- Director of Investor Relations

Thank you, John. [Operator Instructions] Olivia, please open up the lines for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is coming from Anthony Pettinari with Citi. Please go ahead.

Anthony James Pettinari -- Citigroup Inc., Research Division -- Analyst

Good morning. John, just a couple of questions on pricing. For uncoated freesheet, the $60 a ton price increase that has been recognized by Pulp & 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 May for pulp, for NBSK, SBSK and fluff?

John D. Williams -- President, Chief Executive Officer & Director

So I would say we'd be at the kind of new run rate on that pricing by end of quarter 2, Anthony. Maybe some of it will leak into -- but certainly by end of quarter 2. It's $100 a ton really, pretty much on everything for May.

Anthony James Pettinari -- Citigroup Inc., Research Division -- Analyst

Okay. Okay. That's helpful. And then you mentioned maybe some lingering impact at Ashdown from the storm in April. Is it possible to quantify that or put a finer point on that?

John D. Williams -- President, Chief Executive Officer & Director

Well, we've been operating around sort of 80%, 85% of output. So that will still have a bit of an impact. But of course here in quarter 2, we'd expect about our insurance back. So I think that would easily offset kind of what we're experiencing now, and we're ramping up daily. So our expectation is it would be neutral or slightly positive between those two impacts. Does that help?

Anthony James Pettinari -- Citigroup Inc., Research Division -- Analyst

Yes. No, that's very helpful. I'll turn it over.

John D. Williams -- President, Chief Executive Officer & Director

Okay. Thanks.

Operator

Thank you. Our next question is coming from Mark Connelly with Stephens. Please go ahead.

Mark William Connelly -- Stephens Inc., Research Division -- Analyst

Thanks. John, you described the pulp demand as steady, but there's a perception in the market that there's 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 customers try to stockpile with any success to get out of these hikes?

John D. Williams -- President, Chief Executive Officer & Director

Yes. So we're not seeing them have any success with stockpiling, I think, driven by freight, Mark. So if you look at our experience, probably 20,000 to 30,000 tons 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 terms of pulp. That inventory has definitely declined because end-use demand for their products is still reasonably strong. So there is very much developing a sense that we need to order pulp because our end-use demand is reasonable and the sort of service levels we're used to are less reliable than they were because of ocean freight. So I think that's -- all that put together says the customer is experiencing a sense of urgency around making certain that he's going to get pulp on the way. So it's -- the numbers may be the numbers, but I think psychologically, that customer is definitely feeling that they need to order that pulp, if that gives you a bit of color?

Mark William Connelly -- Stephens Inc., Research Division -- Analyst

Sure. No, that's helpful. And you mentioned last quarter that you didn't see the 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?

John D. Williams -- President, Chief Executive Officer & Director

Well, I think -- 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, mainly, we're going to see potentially 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, have to do some of the fill tons where the margins are reasonably unattractive. We had to do a few -- we did some fill tons. We had some commitments we had to keep in quarter 1. But as those people come back to the office, you could certainly see cut size being a larger -- slightly larger part of the mix. However...

Mark William Connelly -- Stephens Inc., Research Division -- Analyst

Do you...

John D. Williams -- President, Chief Executive Officer & Director

Sorry, please. No, please. Fire away.

Mark William Connelly -- Stephens Inc., Research Division -- Analyst

I was just going to ask whether there's a part of the business that you just don't expect to come back. I mean, not in terms of tonnage, but just sort of a part of your mix that just goes away.

John D. Williams -- President, Chief Executive Officer & Director

That's not what we've experienced so far. What we're seeing is -- and I guess I'd use March and April as the examples. But actually, the mix moves around a little but not widely 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 is strong just because 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 and some very interesting products over time, I think, that will help us build that business. The cut size business has been remarkably resilient considering those numbers I gave you, that sort of 25% of people are back in their office in the 10 largest cities. So as I think financial institutions go back to work in June, July and August, we're going to see cut size move. I haven't seen anything stop Obviously, I've seen demand decline. Point-of-sale has held up pretty well. Our merchant business and our roll business has held up pretty well. Printers have been busier than expected. I mean, they're printing paper menus where perhaps previously people used. So there are all kinds of reasons why little bits of this business are doing OK. Nothing's died to death at this point, if that answers your question?

Mark William Connelly -- Stephens Inc., Research Division -- Analyst

Very well. Thank you.

John D. Williams -- President, Chief Executive Officer & Director

Your welcome.

Operator

Next, we will go to George Staphos with Bank of America. Please go ahead.

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Thank you. Hi everyone. Good morning. I wanted to -- if you could -- ask if you could give us a bit more color on what you're seeing on early trends in April, if possible, year-on-year? And specifically within China, what level of activity you're seeing? And in response, I think, to Mark's question, you were talking about the need for customers over there in Asia and in China to have some security of demand, some security of supply, and that's leading to them ordering more. But you're also starting to see the futures market there slide a bit. So how do I reconcile 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 prices continue to move higher then?

John D. Williams -- President, Chief Executive Officer & Director

Yes. I mean there's not a great deal of physical pulp, as you know, traded through that market. There's a bit. It's not a lot. Our view is very much driven by our customer and -- our customers. And 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 our own supply challenges. So we've had to juggle a little bit and make certain that we take care of our 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 all I can talk about is 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 looks to me and it looks to us, I guess, I should say, that it has a pretty solid runway at the moment.

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Understood. Appreciate the thoughts there, John. One -- my final -- my follow-up question would be on paper. Strategically, we've obviously seen your two large competitors in North America, depending on how you want to define it, shrinking in terms of what their expected activity will be within the uncoated freesheet market, either in terms of ownership or production. And so I guess the simple way to look at that would be, hey, that's a good thing for Domtar since you remain the largest player in the market. But is that an oversimplification? And what would you see as the challenges in the market as a leading player, given what we're seeing out of the other participants, if you could share some color there? And just as a point of clarification to Anthony's question, so given that we're neutral positive on Ashdown in 2Q, does that suggest we just see a flip of the $25 million in 2Q from 1Q? Thank you.

John D. Williams -- President, Chief Executive Officer & Director

All right. So what does it mean for us in the paper business? Well, I think it does absolutely mean for us. We are the credible supplier in the space. We have the grade range. We have a fantastic service record. We have a great relationship with our key customers, many of whom rely on this paper as a key part of their product mix, particularly obviously, the office supply folks. So I think that's all good news for us, quite frankly. And I would remind you, of course, we took out nearly 25% of our capacity. So 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 answer is it's good news for us. And I'm still convinced that we can deploy our assets over time imaginatively to, of course, make those containerboard conversions. And I think within the paper business, come up with products that are really highly functioning substitutes for plastic. And if we can find those in sufficient volume, I actually think that 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 think all that -- whether or not it all comes back, but certainly, obviously, the insurance claim comes in. So that $16 million comes in. I think that offsets some of the challenges we've continued to have in Ashdown, although it's improving dramatically. So I think, yes, you could absolutely say it's not going to happen in quarter two the way it had in quarter 1, it will come straight back. Does that help?

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Alright. It was John. Thank you very much.

John D. Williams -- President, Chief Executive Officer & Director

Your very welcome.

Operator

Thank you. Next, we will go to Adam Josephson with KeyBanc. Please go ahead.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Thanks, good morning everyone. John, I'm glad you're feeling better.

John D. Williams -- President, Chief Executive Officer & Director

Adam, thank you. I appreciate that. I'm sorry you've lost that nice French Quebec accent though, but I'll do the best I can.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

On Kingsport, can you -- you mentioned that you're preparing the site for new buildings in the OCC warehouse and that you've purchased all the equipment for 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 million to $350 million that you said you expected to spend to hold on the project?

John D. Williams -- President, Chief Executive Officer & Director

Yes, sure. So Just to remind ourselves, we started that site demolition in November. That's continuing. It will end soon on the demolition side. And then we're preparing for the construction of a large old corrugated container warehouse, which again is sort of what a lot of that demolition work was about. We have submitted the site environmental permit applications. So that should happen fairly soon, and then construction can really begin. We've ordered all our major pieces of equipment, including the OCC processing equipment and the repurpose linerboard machine. So our detailed engineering is under way and the leadership team is in place. So we're I guess, I would say, pretty much completely committed to that project.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

When you say pretty much, is there any...

John D. Williams -- President, Chief Executive Officer & Director

I couldn't give you a percentage, but I mean, with all that major equipment ordered, it's 60%, 70% probably of what we're going to spend. Remember, construction is a large part of it, of course.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Yes. No, understood, John. And on Ashdown, 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 Domtar, based on what's happening in the containerboard market, based on any feedback you've received from potential customers, let's say. How your thinking has changed, if at all? And just any insight you can give us into your thought process as it's evolved over time.

John D. Williams -- President, Chief Executive Officer & Director

Yes. So I mean, undoubtedly, the market response to us arriving has been incredibly positive from the 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 700,000 tons of containerboard, kraftliner, brand-new machine. We're doing, obviously, the engineering work to make certain that judgment is correct. But that's our plan and we'll be decision-ready with that type of plan by year-end.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Really appreciated it John. Thank you.

John D. Williams -- President, Chief Executive Officer & Director

Your welcome.

Operator

Thank you. [Operator Instructions] We will take our next question from Mark Wilde with Bank of Montreal. Please go ahead.

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

Yes. Good morning John. Good to have you back.

John D. Williams -- President, Chief Executive Officer & Director

Well, thank you so much mark. I appreciate that.

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

John, I'm just curious, just going back to the paper business briefly, is the increase in pulp costs around the world combined with these freight and logistics issues? Is that -- incrementally, is that helping you vis-a-vis sort of any pressure from imports?

John D. Williams -- President, Chief Executive Officer & Director

That's an interesting question. So the answer is yes but, the but being I'm not sure I could prove it other than product isn't turning 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 can go up and down based on the month and based on freight. Of course, dramatic moves in Europe on industry capacity, which, of course, helps if one's being truthful. And of course, where people are not -- yes. I mean where people are not integrated, undoubtedly that helps us as we are integrated. Within the U.S. context, Mark, of course, there are very few people left making commodity grades who aren't integrated. But they're certainly there in some of the other specialist grades, so that helps us. So I would say that a sort of slightly weaker dollar all says the risk of imports has reduced. I mean I think what has to happen, though we have to certainly make certain, and we are making certain, of course, that we can supply our customers so they don't worry about security of supply.

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

Okay. And John, with your competitors either reducing the size of their white paper footprint or changing their ownership, is that allowing you to potentially pick up some bigger contracts and things?

John D. Williams -- President, Chief Executive Officer & Director

Well, undoubtedly, there are customers now saying to us, You guys look like the people who really mean it in terms of being in the white paper business. And we're -- we'd be happier to make longer-term commitments to you. Again, we can sell 2.1 million tons of paper. Yes, we get 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. So if we see a mix opportunity -- yes, if we see a mix opportunity in those conversations, we'd obviously take it.

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

Okay. And the last one for me, John. I'm just curious with both Kingsport and Ashdown. 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 vault here because you've got potential customers who are in 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 just as best you can, help us understand how that's kind of playing out right now as you talk with people about establishing relationships in 18 months or 21 months when Kingsport starts up.

John D. Williams -- President, Chief Executive Officer & Director

That's a great question, Mark. So I don't really have an expectation that we'll have massive chunks of 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 mix who's out to support them. And we'll have trial after trial after trial, I'm sure, with them 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, if you commit to us at this point, maybe publicly, patently, you run the risk. Perhaps not being first on the list for supply from the current supply base. So let's leave it there, 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 there will be, and we've allowed ourselves a couple of years in the ramp-up as our product mix moves kind of toward 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 wanted to commit to us upfront, what I found was the sort of chunk of the economics they wanted versus the risk mitigation on our part versus our judgment of the marketplace, the math didn't work.

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

Yes. Well, it's proven to be correct, I think, as the market is tightened up here.

John D. Williams -- President, Chief Executive Officer & Director

Yes.

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

Alright. Ill turn it over. Goodluck

John D. Williams -- President, Chief Executive Officer & Director

Thank you.

Operator

Our next question is coming from Paul Quinn with RBC Capital Markets. Please go ahead.

Paul C. Quinn -- RBC Capital Markets, Research Division -- Analyst

Thank you so much. Good morning John, good to find you alive and kicking.

John D. Williams -- President, Chief Executive Officer & Director

Alive if not kicking, Paul, but thank you.

Paul C. Quinn -- RBC Capital Markets, Research Division -- Analyst

Okay. I just had two questions. One on the pulp side. Even when I back in the $29 million hit for Ashdown in the quarter, your pulp merchants are still lagging European peers as well as domestic producers. Just wondering if you figure that your margins will pick up back to historically where they've sat or if there's something fundamental that you're going to have to lower margins going forward?

John D. Williams -- President, Chief Executive Officer & Director

It's a great question. So we had our other challenges. So as you know, although Espanola has been a challenge for us, and we're making -- we've got a plan to improve it, but it's not as reliable as we like. Dryden is reliable, but at slightly lower volumes than our objectives are. We have a maintenance shut coming up in Dryden where we hope to solve most of those issues and actually Plymouth was a bit of a challenge, we're through that now. We had an electrical issue in Plymouth that cost us a few tons. So it was -- as happens in some of these networks occasionally. It was just a tough quarter in the pulp business. Great productivity in the paper business, but pulp was tough. So to answer your question, I have every expectation those margins to come back. I mean we're working hard to drive our cost down. Ashdown, when it settles, is really a fantastic mill in terms of cost position. So is Plymouth. And Espanola, we're going to -- we've got a kind of 2-year program, I would say, there to make that more productive. We know what we're going to do in Dryden, and Kamloops is a star asset. So to your point, I think that was just a weak quarter in the pulp business.

Paul C. Quinn -- RBC Capital Markets, Research Division -- Analyst

Okay. That's fair. And then just on capital allocation, you repurchased shares in the quarter, but now we've seen your shares do a market move. Are you committed to the plan of capital allocation on share repurchase fall in the sale of Personal Care?

John D. Williams -- President, Chief Executive Officer & Director

We are. Yes. We still remain committed.

Paul C. Quinn -- RBC Capital Markets, Research Division -- Analyst

Excellent. -- best of luck.

John D. Williams -- President, Chief Executive Officer & Director

Thank you.

Operator

Our next question, once again, comes from George Staphos with Bank of America. Please go ahead.

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Thanks. John, a quick cleanup question here. Just Ashdown, you go ahead with the more aggressive plan on containerboard. Can you give us a rough and ready outlook on the pulp capacity at Ashdown on a going-forward basis, again, if you do the more aggressive containerboard plan? Thanks and good luck in the quarter.

John D. Williams -- President, Chief Executive Officer & Director

Sure. I think we gave that number out recently. I think it's about a 250,000 reduction in pulp, which would really impact ourselves in softwood not fluff.

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Okay. So what would the mix -- forgive me, but so what would the mix then be softwood versus fluff in total?

John D. Williams -- President, Chief Executive Officer & Director

It would be majority fluff by some margin. I can't give you the exact numbers, George. We'll dig it out and give it to you. I'm happy to give it to you.

Daniel Buron -- Executive Vice President & Chief Financial Officer

I think, john, it's going to be...

George Leon Staphos -- BofA Securities, Research Division -- Analyst

We've had like [Indecipherable] at Ashdown. Go ahead.

John D. Williams -- President, Chief Executive Officer & Director

Daniel, please.

Daniel Buron -- Executive Vice President & Chief Financial Officer

It will be 100% fluff. Obviously, you have the ability to swing depending on market condition, but we'll dry on the fluff machine all the pulp that will be left in Ashdown.

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Understood Daniel. Okay. Thank you guys.

Daniel Buron -- Executive Vice President & Chief Financial Officer

Thanks.

Operator

Thank you. And next, we will go to Adam Josephson with KeyBanc. Please go ahead.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Thanks a lot John and Daniel for taking my follow-up. Just two on pulp. Daniel, one for you. So your sequential price per ton in pulp was up, I think, 53, and I think you mentioned the exit rate is up another 100 in 2Q. Can you just help me with how much of that total of 150 compares to all the price increases you've announced from November onward, just to give us a sense for what that 150 captures and what it doesn't.

Daniel Buron -- Executive Vice President & Chief Financial Officer

I mean that's a tough question because there were so many different price increases announced. 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 bigger than in Asia, and you have also kind of a more contracted ton in North America, where there's a lag of 1, two and in very few cases, three months on the up and the down, but we're still expecting to get all that in the current market environment.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Got it, Daniel. And John, just with the benefit of hindsight, it seemed like the pulp market really turned on a dime at the beginning of November, and that's when obviously future -- softwood futures prices in China started to take off. And I've read all kinds of explanations as to why production disruptions and ocean freight problems and currency and demand and it just seems like a laundry list of possible explanations for what happened beginning in November. But do you have a good sense for what turned so suddenly in November that has persisted through now? Why the market was so weak up until November and suddenly everything changed? --

John D. Williams -- President, Chief Executive Officer & Director

Well, I'm not -- yes, quite, gosh, I guess my speculation is as good as anybody else's speculation. Obviously, from a supplier standpoint, that was one of the longest worst runs in pulp for many a moon. So it was kind of, I think, obvious to the supplier base that they could take maintenance shuts, they could do just about anything because they weren't going to need those tons. So I think there was definitely a feeling around certainly from us anyway, but we've had enough of this something has to change. I mean markets, obviously, do they move on data or do they move on sentiment, maybe they move on sentiment. I think 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 fed into, dare I say, the market and it carries on to this day. And that's what -- it's not as if these pulp prices are sort of unbelievable versus history. They're at the higher end of cycle prices, but they're certainly not off the chart. So to my mind, I think that's what drove this.

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Perfect. Thanks a lot John.

John D. Williams -- President, Chief Executive Officer & Director

Alright Adam. Thank you.

Operator

Thank you. That concludes today's question-and-answer session. Mr. Estrela, at this time, I will turn the conference back to you for any final remarks.

Nicholas Estrela -- Director of Investor Relations

Thank you, Olivia. We will release our second quarter 2021 results on Thursday, August 5, 2021. Thank you for listening, and have a great day.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Nicholas Estrela -- Director of Investor Relations

John D. Williams -- President, Chief Executive Officer & Director

Daniel Buron -- Executive Vice President & Chief Financial Officer

Anthony James Pettinari -- Citigroup Inc., Research Division -- Analyst

Mark William Connelly -- Stephens Inc., Research Division -- Analyst

George Leon Staphos -- BofA Securities, Research Division -- Analyst

Adam Jesse Josephson -- KeyBanc Capital Markets Inc., Research Division -- Analyst

Mark William Wilde -- BMO Capital Markets Equity Research -- Analyst

Paul C. Quinn -- RBC Capital Markets, Research Division -- Analyst

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