July 26, 2011 / 4:28 PM / in 6 years

UPDATE 2-Tembec Q3 profit down; sees lumber prices recovering

* Q3 EPS C$0.19 vs C$0.59 year ago

* Q3 revenue falls 18 pct to C$448 mln

* Sees lumber pricing recovery at low levels

* Sees reduced profit at dissolving pulp unit in Q4 (Adds details and forecast on segments, pulp and lumber prices)

July 26 (Reuters) - Tembec Inc's quarterly profit fell 70 percent as a result of low timber prices, but the Canadian forest products-maker expects lumber prices to recover and rise later this year.

Quebec-based Tembec, which supplies the North American housing market with spruce-pine-fir lumber, posted a third-quarter profit of C$19 million ($20.1 million), or 19 Canadian cents a share, versus C$59 million, or 59 Canadian cents a share, a year ago.

"While we are seeing some recovery in prices and higher lumber futures pricing, it is occurring from very low levels," Tembec said in a statement, adding that results in the forest products segment would be weak until a U.S. housing recovery.

In June, U.S. housing starts increased 14.6 percent to a six-month high at a seasonally adjusted annual rate of 629,000 units, partly reflecting growing demand for rental apartments.

Revenue fell 18 percent to C$448 million.

Analysts had, on average, forecast earnings of 13 Canadian cents a share, on revenue of C$474 million, according to Thomson Reuters I/B/E/S.

Sales at the company's dissolving pulp segment fell 13 percent, and Tembec expects the unit's profitability in the July-September quarter to decline as a result of a 16-day maintenance outage at its Skookumchuck, British Columbia mill.

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.

Sales at Tembec's paper segment rose slightly to C$85 million, helped by reduced mill costs, but the company expects dwindling demand for magazines, newspapers and books to continue to strain newsprint sales.

Shares of the company rose 3 percent to C$4.15 on Tuesday on the Toronto Stock Exchange. ($1 = 0.944 Canadian Dollars) (Reporting by Gowri Jayakumar in Bangalore; Editing by Saumyadeb Chakrabarty)

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