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The Globe and Mail

Tembec reports profit of $7-million on lower sales

Tembec's softwood lumber plant in Senneterre Que.

Jacques Boissinot/The Canadian Press/Jacques Boissinot/The Canadian Press

Forest products company Tembec Inc. on Wednesday posted a second-quarter profit of $7-million after a break-even period a year earlier, and says it expects several strong quarters ahead.

The Montreal-based company said its profit amounted to 7 cents a share, compared to nil in the same period of 2010. Sales declined to $452-million from $476-million.

Operating profit, stripping out one-time items, came in at $33-million, up slightly from $32-million a year earlier but up sharply from $11-million in the previous quarter.

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"As anticipated, the March, 2011, quarterly results were a significant improvement over the prior quarter," the company said in a statement.

"The relative strength of the Canadian dollar versus the U.S. dollar, which averaged above $1.01 (U.S.), was the only significant negative item. The $25-million EBITDA increase in the Dissolving and Chemical Pulp segment was essentially as per forecast." [EBITDA represents earnings before interest, taxes, depreciation and amortization.]/p>

"With the major annual maintenance expenses completed in the prior quarter and anticipated favourable markets and prices, several strong quarters are expected."

Sales for the second quarter had been expected to decrease by 4.6 per cent to $454-million, from $476-million a year earlier, according to analysts polled by Thomson Reuters.

Tembec shares fell 16 cents or 3 per cent to $5.17 in morning trading on the Toronto Stock Exchange.

The forest products company is building an $8.4-million pilot plant this summer, with government financial assistance, to develop a stronger and more durable structural material made from pulp and resin.

It said the potentially lucrative initiative recognizes the growing demand for environmentally friendly, lightweight structural composite products.

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The product, called Next-generation Sustainable Fibre, is based on a patented process.

The initial product will be railway ties designed for environmentally sensitive areas such as wetlands and government-owned parks.

It recently sold the hydroelectric-generating assets at its former mill in Smooth Rock Falls, Ont., for $16.5-million.

Tembec is an integrated forest products company, with operations in North America and France. It has about 4,300 employees, and operates more than 30 pulp, paper and wood product manufacturing units, and produces chemicals from byproducts of its pulping process.

Tembec markets its products worldwide and has sales offices in Canada, the United States, China, South Korea and Japan.

It was created in 1973 after a closed paper mill in Temiscaming, Que., was purchased from a large multinational company.

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The company restructured its debt in February, 2008, as the newsprint market was squeezed by a decline in demand in the 2008-2009 recession and the rise of Internet news affected traditional print advertising.

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