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Home »  News »  Business

Tembec's losses soared in the fourth quarter despite recovery of lumber business


The Tembec softwood lumber plant in Senneterre Que. is shown on Nov 13, 2008. THE CANADIAN PRESS/Jacques Boissinot

MONTREAL - Forest products company Tembec's losses soared in the fourth quarter even though its lumber business enjoyed its best quarter in several years due to a gradual recovery in the U.S. housing starts that improved demand and prices.

The Montreal-based pulp, paper and lumber producer lost $47 million or 47 cents per share for the quarter ended Sept. 29. That compared with a net loss of 17 cents per share or $17 million in the comparable prior-year period.

The higher losses was largely due to a $50-million, non-cash impairment charge due to the idling in September of its pulp mill in Chetwynd, B.C., due to weak market conditions. A total of 115 employees work at the mill, which Tembec purchased in 2002.

The high-yield pulp produced at the mill is used in printing and writing papers, paperboard as well as tissue and towelling. Production from Chetwynd, which had an annual capacity of 240,000 tonnes, was shipped primarily to Asia.

"Overall, the September 2012 quarterly results were in line with expectations, with improving lumber profitability offsetting the negative impact of difficult paper pulp markets," Tembec (TSX:TMB) said in a news release Thursday.

Tembec's sales in the quarter increased 5.2 per cent to $443 million from $421 million in the year-ago period.

Adjusted pre-tax operating earnings (EBITDA) were $23 million compared with $19 million in the fourth quarter of 2011 and $27 million in the third quarter.

For the full year, Tembec lost $82 million or 82 cents per share, compared with a loss of $5 million or five cents per share in 2011. Sales were flat at $1.7 billion. Adjusted EBITDA decreased to $64 million from $98 million in the prior year.

On the Toronto Stock Exchange, Tembec's shares dropped more than eight per cent, or 18 cents, to $2.04 in morning trading as investors reacted to the losses.

Tembec's lumber business had adjusted EBITDA of $8 million on $108 million of sales in the quarter, compared with a loss of $10 million on $121 million of sales a year ago.

It anticipates that normal seasonal price declines in the first quarter of its fiscal year.

"While the recent housing statistics in the United States are encouraging, we continue to forecast a slow and gradual recovery in housing, with lumber demand and prices following a similar pattern."

Excluding the impairment charge for Chetwynd, the company's high-yield pulp segment still lost $9 million in adjusted EBITDA while sales jumped 31.5 per cent to $100 million from $76 million in the prior year.

Even though it is increasing prices and it will be operating its two lowest-cost facilities going forward, Tembec said it expects market conditions for high-yield pulp to remain relatively weak.

The specialty cellulose and chemical pulp segment earned $16 million on $167 million of revenues, down from $30 million on $180 million of revenues a year ago.

"Market conditions for specialty cellulose were stable while those for NBSK pulp were very weak, with U.S. dollar pricing reaching "trough" levels, the company said, noting that the annual mill-wide maintenance outage at the Skookumchuck pulp mill also impacted the segment's quarterly results.

Tembec said it anticipates a stable market for specialty and viscose pulps in the coming quarters as prices are set to increase.

In paper, Tembec earned $14 million on $96 million of revenues, compared with $6 million on $84 million of revenues in the prior year as newsprint remained stable despite continued weaker North American demand.

Paul Quinn of RBC Capital Markets said the results were "more or less in line with expectations."

Analysts had expected $25 million in adjusted EBITDA and one cent per share in adjusted EPS, compared with the 20 cents per share loss recorded.

"While they missed on EPS, their $23 million in EBITDA includes a $3 million inventory devaluation," he wrote in a email.

He said the lumber segment's improvement from the prior quarter was driven by stronger random length and stud lumber prices as well as higher eastern lumber shipments.

Tembec is spending $190 million to replace three old, low-pressure boilers with one new device, adding up to 40MW of incremental electricity output at its key facility in Temiscaming, Que. A total of $59 million had been spent on the Temiscaming specialty cellulose project as of the end of the quarter.

The company has some 4,000 employees, and operates market pulp, paper and wood product manufacturing units, and produces silvichemicals from by-products of its pulping process and specialty chemicals.


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