April 26, 2012 / 4:54 PM / 6 years ago

WRAPUP-Domtar, Tembec wilt under weak pulp markets

* Domtar ex-item Q1 EPS $1.65 vs $3.25 year ago

* Co’s sales fall 2 pct

* Says higher input and transaction costs hurt profit

* Tembec Q2 loss C$0.14/share vs EPS C$0.06 yr ago

* Co’s sales fall 10 percent

* Domtar’s shares fall 8 pct, Tembec’s down 7 pct

April 26 (Reuters) - Paper maker Domtar Corp’s profit more than halved and forestry company Tembec Inc posted a loss weighed down by weak pulp markets and lower selling prices, sending their shares down.

Low paper and pulp prices have been a drag on the core businesses of companies in the sector. Prices have been hit by a global economic downturn and declining demand for newsprint as newspapers grapple with falling circulation.

Domtar -- one of North America’s largest producers of uncoated freesheet papers used primarily in office stationery -- has been trying to ramp up its personal care business through acquisitions to counter weak prices.

The price of wood pulp futures has fallen more than 15 percent in the past year and is trading at more than two-year lows.

Domtar’s first-quarter profit of $28 million, or 76 cents per share, was hurt by higher costs as well. Excluding items, it earned $1.65 per share, compared with $3.25 in the year-ago period.

Domtar’s shares fell as much as 8 percent to C$86.74, while Tembec’s fell 7 percent to C$3.22 on Thursday on the Toronto Stock Exchange.

Tembec, which makes lumber, pulp, paper and specialty cellulose, posted its third straight quarterly loss. It said the market for northern bleached softwood kraft (NBSK), the paper industry’s benchmark for pulp, weakened in the quarter.

The company reported a net loss of C$14 million, or 14 Canadian cents per share, compared with a net profit of C$6 million, or 6 Canadian cents per share, a year ago.

High-yield pulp prices declined by $40 per tonne, decreasing adjusted EBITDA by C$6 million, said Tembec, which draws nearly a third of its revenue from pulp.

HITTING A TROUGH

Both the companies, however, said pulp prices have touched a “trough” and are expected to improve.

“In paper, both volumes and prices are expected to positively impact results due to new business in specialty and packaging papers,” Domtar said in a statement.

Some of the demand for pulp is coming back on China’s strong appetite for pulp-based hygiene products such as disposable diapers, feminine products and tissues.

Tembec said demand for specialty cellulose remains strong. It draws close to 30 percent of its revenue from this market.

The company said in March it would invest C$190 million in its Quebec plant to raise annual production capacity of specialty cellulose by 5,000 metric tonnes. (Reporting by Maneesha Tiwari and Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila)

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