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Tembec first-quarter loss widens Add to ...

Tembec expects its quarterly results will improve for the rest of the year after net losses surged in the first quarter because of internal maintenance downtime and unexpected global pulp price declines.

The Montreal-based forest products company said Thursday that it lost $16-million, or 16 cents per share for the period ended Dec. 24. That compared to a loss of 11 cents per share a year earlier, or $11-million.

Revenues were $401-million, down about five per cent from $422-million a year ago.

“It was most disappointing for the company, because our three biggest pulp mills all struggled with operating issues and had unplanned downtime,” president and CEO James Lopez said during a news conference ahead of the company's annual meeting.

Extended or unplanned maintenance downtime of pulp mills in British Columbia, France and Temiscaming, Que., cost the company an extra $80-million during the quarter.

It also faced lower prices because South American producers flooded China will pulp due to weakened demand in Europe.

“What we didn't grasp the full magnitude of, until the results came out just this week, was how much destocking happened by the big producers in the southern hemisphere,” Mr. Lopez told reporters.

With its mills back up and running and prices expected to improve, Tembec said the rest of the year holds the promise of improvement.

“We really think the first quarter represents by far the worst case that we're going to see this year.”

Operating earnings before depreciation, amortization and other specific or non-recurring items (EBITDA) was unchanged from a year ago at $12-million, but was down from $19-million in the prior quarter.

The company also absorbed a $4-million negative inventory adjustment and extended maintenance downtime at its NBSK mill.

Revenues and operating profits for its specialty cellulose pulp segment were down during the quarter. But Tembec said the division remains strong and prices should increase this year.

Locked in contracts for specialty cellulose are raising prices by up to $130 (U.S.) per tonne to some $1,650 per tonne. Paper pulp prices are believed to have reached their cyclical lows and should improve in the coming quarters.

The lumber segment continues to deal with sluggish U.S. demand and weak prices, but a slow recovery in housing starts and the annual seasonal pickup should lift prices in the next few quarters.

Markets for coated bleached board and newsprint remain stable.

Tembec has announced a capital spending program which includes $190-million (Canadian) to build a new cogeneration plant at its site in Temiscaming, Que. The program promises to improve the mill's cost structure and margins. In addition to generating $40-million in additional EBITDA per year, the investment will help to insulate the company from wild swings in oil prices.

Tembec also announced the sale of its two B.C. sawmills for $60-million.

Mr. Lopez declined to say if the company is looking to sell its remaining sawmills or paper mill to focus on the pulp business.

“They're part of our portfolio until they're not.”

He said the B.C. sawmills were sold because they received the right value at the right time.

“When we have a transaction we let everybody know but anything's on the table.”

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