MONTREAL – Domtar Corp. missed analyst expectations as lower shipments and prices for pulp and paper drove down profit in the fourth quarter, despite an increased contribution from its newer personal care business.

The Montreal-based company earned US$19 million or 54 cents in the three months ended Dec. 31 — down from US$61 million or $1.63 per share a year earlier and US$66 million or $1.84 per share in the third quarter of 2012.

Adjusting for one-time items related to closures and downsizing, it earned US$46 million, or $1.31 per share, down from US$93 million or $2.49 per share in the prior year.

Analysts had expected Domtar (TSX:UFS) would earn $1.42 per share in adjusted earnings, according to estimates compiled by Thomson Reuters.

Sales fell three per cent to US$1.33 billion.

“Our paper and pulp businesses performed largely in-line with expectations from a sales standpoint in the fourth quarter,” Domtar president and CEO John Williams said in a statement.

“Higher costs for fibre and energy and unexpected costs incurred at a pulp mill following a planned maintenance outage affected results.”

During the last quarter of 2012, Domtar recognized $27 million of closure and restructuring costs ($18 million after tax) in the fourth quarter of 2012. It also wrote down property, equipment and other assets by $12 million ($8 million after tax) and recognized a $2-million loss ($1 million after tax) on the sale of property, plant and equipment — for a total of $41 million in pre-tax items.

A year earlier, the comparable total was $50 million.

The company, a leading supplier of office papers used for computer printers, faxes and copiers which reports in U.S. dollars, said earnings from its pulp and paper fell by more than half to $40 million from $92 million in the year-ago period, on $1.1 billion of sales. Its personal care business doubled in size in the year, contributing $13 million of profit on $111 million of sales, compared to $7 million on $54 million in the 2011 period.

Paul Quinn of RBC Capital Markets described the earnings miss as negative, with normalized EBITDA of $180 million, coming in below his forecast of $196 million and the $191 million consensus of analysts.

For the full year, Domtar earned $172 million, or $4.76 per share, compared to $365 million or $9.08 per share in 2011. Sales dipped $130 million to $5.5 billion.

“The down cycle in pulp prices contributed to the majority of the decline in Domtar’s earnings,” Williams added.

Still, he said, Domtar accomplished a lot in 2012, completing two acquisitions in its personal care business, converting a paper mill to specialty papers and launching projects that provide alternative uses for wood fibre and by-products.

It returned $215 million to shareholders last year through dividends and share buybacks. It repurchased more than two million of its shares in the year, and nearly 8.7 million since May 2010.

Its net debt was $564 million.

Williams expects Domtar will slightly outperform the three to four per cent anticipated drop in market demand for uncoated freesheet paper in 2013 because of its exposure to stable specialty and packaging papers and added volume from its supply agreement with Appleton.

“Paper prices are expected to trend at levels similar to year-end while we expect a slow and steady recovery in pulp prices,” he said, adding that growth plans in the personal care segment should yield returns beginning in the fourth quarter of 2013.

On the Toronto Stock Exchange, Domtar’s shares lost $3.09, or 3.7 per cent, at C$79.91 in Friday morning trading.