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Cascades Inc. reported a sharp drop in third quarter profits Thursday as a foreign exchange loss and weak markets battered the forestry giant's bottom line.

The Quebec company said it earned $4-million or four cents a share for the three months ended Sept. 30, down from net profits of $34-million or 41 cents a share for the same 2002 period.

The 2002 results included a foreign exchange after-tax loss on U.S. dollar debt of $4-million because of the rising loonie.

Quarterly sales fell to $792-million from $874-million as the company was squeezed by weak global markets for its paper and cardboard packaging products.

Chief executive Alain Lemaire said Cascades faces tough times and suggested cost-cutting or other streamlining moves are on the way as the company tries to shore up its finances.

"The continuous and rapid appreciation of the Canadian dollar, combined with weak global demand for paper and packaging products pose a great challenge," Mr. Lemaire said in a release. "Although a slow economy may translate into certain advantages, such as lower recycled fibre demand and prices, these advantages do not entirely offset the lack of pricing power in most of our markets. Confronted with this reality, we are taking the steps we deem necessary to maintain our long-term competitiveness in our core operations."

Cascades makes cardboard packaging, tissue paper and specialized fine papers. The company employs nearly 14,000 people and operates close to 150 mills and centres in Canada, the United States, France, England, Germany and Sweden.

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