August 5, 2009 / 2:33 PM / 8 years ago

CORRECTED - CORRECTED-UPDATE 2-Domtar Q2 profit doubles, sees pulp markets i

(Corrects paragraph 7 to clarify pulp prices are currently $80 to $100 per ton above the Q2 average, not averaged $80 to $100 per ton in Q2. Also corrects second bullet point and paragraph 8 to show net debt-to-capitalization ratio fell to 45 percent, not that company reduced its debt by 46 percent)

* Q2 EPS $1.12 vs $0.56 yr-ago

* Reduced net debt-to-capitalization ratio from Q1

* Q2 sales fall 19 pct

* Shares climb as much as 25 pct (Recasts, adds analyst comments, conference call details) By Isheeta Sanghi

BANGALORE, Aug 4 (Reuters) - Forestry firm Domtar Corp’s (UFS.TO) (UFS.N) second-quarter profit doubled, helped by a U.S. tax credit, and the company said it sees pulp markets improving in the third quarter, sending its shares up as much as 25 percent.

Domtar, which operates across paper, pulp and wood segments, said pulp supply on a global basis had returned to its 2007 levels with sustained demand, and an improved pricing outlook.

“We’re feeling very good about pulp,” a senior company executive said during a conference call with analysts.

The company, which currently has pulp capacity of 1.3 million to 1.4 million tons of external sales, said it has already sold out its pulp capacity.

Domtar said it sees “pretty strong” pulp demand and also sees increasing pricing momentum globally.

“Pulp prices have increased significantly in the past few weeks, and we expect average prices in the third quarter to be higher than the average prices experienced in the second quarter,” financial chief Daniel Buron said.

Domtar said the price of pulp was currently $80 to $100 per ton above the second-quarter average.

DEBT REDUCED

Domtar’s net debt-to-total capitalization ratio fell to 45 percent from 51 percent in the first quarter of the year.

“We remain 100 percent focused on debt repayment,” Chief Executive John Williams said on the call.

Domtar said it would continue to carry more cash on its balance sheet, compared with what it used to do prior to the recession, and will wait to see how the economy emerges from the current downturn to change that philosophy.

Q2 RESULTS

The company earned $48 million, or $1.12 a share, compared with $24 million or 56 cents a share a year ago.

Domtar’s results were helped by a refundable excise tax credit of $79 million, after tax, for the production and use of alternative bio fuel mixtures, and a gain of $6 million, after tax, on debt repurchase.

Before items, Montreal, Quebec-based Domtar posted a loss of $33 million, or 76 cents a share, compared with net income of $32 million, or 74 cents a share, in the year-ago quarter.

The company was stung by exchange rates as it has a large presence in the United States and the Canadian dollar has steadily been gaining in value against the U.S. greenback. Domtar incurred a charge of about $8 million as a result of currency fluctuations.

Domtar’s operations in Canada generated a pre-tax book loss in the quarter, and there was no income tax recovery recorded due to the valuation allowance taken on its Canadian deferred income tax assets, resulting in a charge of 37 cents a share.

“The company delivered relatively good results on an EBITDA basis. On the bottom line it was a bit lower than expectations,” Desjardins Securities analyst Pierre Lacroix said on the phone.

Sales fell to $1.3 billion for the quarter, compared with $1.6 billion last year.

Analysts on average were expecting the company to post a loss of 74 cents, excluding items, on revenue of $1.35 billion.

The company’s shares were up C$4.99 at C$25.45 in Tuesday afternoon trade on the Toronto Stock Exchange. They touched a high of C$25.61 earlier in the session. (Editing by Maju Samuel) ((isheeta.sanghi@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: isheeta.sanghi.thomsonreuters.com@reuters.net))

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