Dwindled demand causes Tembec to hit rock bottom
Published Thursday November 19th, 2009
MONTREAL - Tembec Inc. (TSX:TMB) expects a gradual improvement in its financial performance after dwindled demand caused the forestry company to hit rock bottom.
"We think the worst is behind us," CEO James Lopez said Wednesday during a conference call.
"Despite the fact that the economy is not robust, we think there's enough positive things happening that we feel confident that the financial performance will improve for this company."
A higher Canadian dollar coupled with a weak lumber market and deterioration in the newsprint sector were behind Tembec's fourth-quarter loss of $17 million, which was much deeper than the $4-million loss it posted in the same period a year earlier.
The company said the loss amounted to 17 cents per share for the quarter ended Sept. 26, versus four cents per share a year earlier. Revenues totalled $451 million, down from $629 million last year.
Analysts surveyed by Thomson Reuters had on average forecast adjusted losses would total 34 cents per share on $381 million of sales.
While the quarterly operating results were an improvement over the previous quarter, they remained relatively poor, the Montreal-based company said.
In response to market and currency challenges, Tembec has curtailed production and reduced inventories.
The company has also achieved $27 million of $100 million in planned asset sales.
Tembec said it expects lumber markets will gradually improve in 2010 but housing starts will remain well below one million units.
Housing starts had a setback in October, falling 10.6 per cent to an annualized 529,000 units, the lowest level of construction since April's record low of 479,000 units.
Lopez said Tembec's near-term goal is to get the lumber business back to break-even.
Sales and operating earnings improved from the third quarter because of higher prices and volumes. However, sales fell 37 per cent to $105 million from a year-ago, while the loss before interest, taxes, depreciation and amortization decreased to $5 million from $9 million in 2008.
Pulp markets improved with continued production curtailments and increased demand from China. Sales and earnings improved from the previous quarter but were down from the year ago period.
Lower newsprint demand continued to put pressure on the segment as prices fell in September. The segment lost $11 million on $93 million of sales, compared to a profit of $7 million on $126 million of sales in the year-ago period.
"The situation in newspapers is nothing short of disastrous," Lopez said, noting a further 25 per cent reduction in demand.
Richard Kelertas of Dundee Capital Markets said they were "lousy numbers" that failed to meet his expectations.
"Negative EBITDA of that magnitude can't continue much longer," he said in an email.
For the 2009 financial year, Tembec lost $214 million, or $2.14 per share, compared to a year-earlier $150-million loss, according to results before and after its recapitalization in February 2008.
Sales totalled $1.8 billion, down from $2.4 billion in 2008.
On the Toronto Stock Exchange, Tembec's shares closed at $1.03, up five cents, or 5.1 per cent.
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