Mill closing costs, softwood lumber duties bite into Tembec profit
By BERTRAND MAROTTE
Friday, July 29, 2005 Page B3 / GLOBE AND MAIL
MONTREAL -- Costs related to mill closings have deepened the third-quarter loss at beleaguered forest products giant Tembec Inc.
The company yesterday posted a loss of $142.5-million or $1.66 a share, compared with a loss of $12.6-million or 15 cents in the year earlier period.
Revenue slipped to $957.9-million from $1-billion.
Excluding extraordinary items -- an after-tax loss of $91.7-million on mill shutdowns as well as an after-tax loss of $16.8-million related to foreign exchange --the loss was $49.8-million or 58 cents a share, compared with a loss of $2.1-million or 3 cents a share.
Richard Kelertas, an analyst at Desjardins Securities, said in a note to clients yesterday that the loss of 58 cents a share was "well below consensus expectation of [a loss of 31 cents] and our forecast of [40 cents].
"With such a low level of profitability at this stage of the cycle, we believe Tembec faces tough challenges ahead that will not help the stock price in any way. Moreover, no significant earnings momentum is expected in the very near term with the seasonal weakness for market pulp."
Tembec's shares fell 10 cents to close at $3.64 on the Toronto Stock Exchange yesterday.
The Montreal-based lumber, pulp and paper producer said margins in the three business units "remain below normalized levels."
The company blamed softwood lumber export duties to the United States for the reduced lumber margins and said rising pulp and paper prices have been offset by the relatively weak U.S. dollar.
But Tembec president and chief executive officer Frank Dottori told analysts on a conference call he is confident an agreement can be struck to end the long-running Canada-U.S. fight over softwood lumber.
Tembec has incurred $292-million in U.S. lumber export duties since May, 2002. Mr. Dottori refused to say how much of that he believes the company could recoup if an agreement is reached.
"I'm rather bullish that there is a potential deal on the table that we can discuss," he said.
He also urged the Ontario government to find a speedy solution to the high energy costs in the province that are a key factor in decisions on mill shutdowns by forest products companies.
"We hope, we believe, the government is now starting to realize how serious the situation is. It isn't only Spruce Falls," he said, referring to Tembec's newsprint mill in Northern Ontario that has proven to be a significant drag on the company because of costly electricity.
The company said in a press release that prices for pulp have seen some seasonal weakening but are expected to strengthen in the second half of the year, while paper prices are also seen as firming up.
"The challenges faced by the industry are the strength of the Canadian dollar and rising chemical, energy and wood costs, particularly in Eastern Canada," the company said.
Mr. Dottori said Tembec is back on track after the recently announced closings of four mills in Eastern Canada.
Tembec said in May that it is closing three sawmills and one small paper mill, resulting in the loss of more than 450 jobs. The bulk of the layoffs were concentrated at two locations: a paper mill at St-Léonard-de-Portneuf, Que. and a saw mill at Mansfield-et-Pontefract, Que. (*)
