April 27, 2011 / 1:28 PM / 7 years ago

UPDATE 2-Tembec Q2 lags; sees disappointing forest products sales

* Q2 EPS C$0.07 vs est C$0.22

* Q2 revenue down 5 pct at C$452 mln

* Sees weak newsprint, forest products sales

* Shares down 5 pct in morning trade (Adds segment details, housing starts, share movement)

April 27 (Reuters) - Tembec Inc’s quarterly profit lagged estimates, as lower demand for construction lumber and a fall in newsprint shipments dragged results, sending the Canadian forest products-maker’s shares down 5 percent.

Quebec-based Tembec, which supplies the North American housing space with Spruce-Pine-Fir lumber, expects its forest products segment — 27 percent of total sales — to post disappointing results until U.S. housing starts recover.

While U.S. housing starts rose 7.2 percent to a seasonally adjusted annual rate of 549,000 units in March, the rebound in residential construction may not signal a recovery, as a over-supply of homes continue to discourage builders from taking up new projects. [ID:nCAT005413]

Revenue at the company’s fast-growing dissolving pulp segment rose 20 percent on increased shipments and higher pulp prices. The unit, which contributed about 31 percent to sales last year, was the largest revenue-maker this year, at 39 percent.

Dissolving pulp is used to produce regenerated cellulose, which in turn is used to make viscose rayon fiber, whose demand has been increasing in emerging markets.

As demand for magazines, newspapers and books shrink and give way to e-books and smartphones in developed economies, Tembec forecast challenging conditions to persist for newsprint.

January-March profit was C$7 million, or 7 Canadian cents a share, versus analysts’ forecast of 22 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 5 percent to C$452 million, below estimates of C$453.7 million.

Shares of the company were down 3 percent at C$5.16 on Wednesday morning on the Toronto Stock Exchange. They touched a low of C$5.06 earlier in the session. (Reporting by Gowri Jayakumar in Bangalore; Editing by Prem Udayabhanu and Don Sebastian)

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