February 5, 2009 / 1:52 PM / 9 years ago

UPDATE 2-Domtar posts Q4 loss, but steady prices bring relief

* Posts surprise Q4 loss

* Economic downturn hits demand

* Production cuts help keep prices stable

* Co planning more cost cuts

* Shares recover most of their early losses (Recasts; adds outlook, analyst comments, background, updates share movement)

By Chakradhar Adusumilli

BANGALORE, Feb 5 (Reuters) - Weak demand for most paper products and restructuring costs pushed Domtar Corp (UFS.TO) (UFS.N) to post a quarterly loss, but in a rare sign of relief, the company said prices of its flagship product remained stable.

Canadian forestry firm Domtar, which mainly sells office paper, has been idling mills and cutting jobs to save costs as the current economic turmoil has pulled down demand for some of its products such as fluff and pulp.

As Montreal, Quebec-based Domtar and its peers trim production in the face of weak demand, prices for uncoated freesheet paper products — used for office and business printing — have remained stable even during the downturn.

“I think the positive news is they have been able to hold pricing in paper... on one side, they lost money because of the down time, on the other side they were able to hold to pricing in uncoated freesheet paper,” BMO Capital markets analyst Stephen Atkinson told Reuters.

Shares of the company fell as much as 19 percent to their lifetime low, but recovered most of their losses and were trading down 5 Canadian cents on Thursday afternoon in Toronto.

Domtar indicated it was planning more measures to cut costs, and said its near-term priorities include a salary freeze and reducing non-critical spending.

The company also said it would permanently reduce fine-paper manufacturing at its Plymouth, North Carolina mill, affecting about 185 employees.

“Continued adverse economic conditions and the decline of fine-paper orders require that we reduce our uncoated freesheet manufacturing capacity,” Chief Executive John Williams said in a statement.

The company expects a capacity reduction of 293,000 short tons of fine paper at the Plymouth mill by the end of February.

The closure of two paper-making machines at the mill will result in pretax charges of about $51 million, to be taken in the first quarter, Domtar said.

The Plymouth mill will continue to operate two pulp lines, one pulp dryer and one paper machine.

Domtar said economic uncertainty has made it tough to predict sales volumes, but forecast capital expenditures of $140 million to $170 million for 2009. [ID:nWNAB8957]

The company posted a net loss of $676 million, or $1.31 a share, for the fourth quarter, compared with a loss of $26 million, or 5 cents a share, a year earlier.

The results were hurt by several one-time items, including impairment charges and restructuring costs.

Excluding items, the company reported a loss of 4 cents a share. Consolidated sales fell 11 percent to $1.47 billion.

Analysts on average expected a profit of 6 cents a share, before items, on revenue of $1.53 billion, according to Reuters Estimates.

Domtar shares, which have lost more than two-thirds of their value in the past six months, were trading down 5 Canadian cents at C$1.55 on the Toronto Stock Exchange. (Additional reporting by Krishna Chaithanya; Edited by Pratish Narayanan)

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