August 1, 2008 / 3:18 PM / 9 years ago

UPDATE 1-Tembec cuts loss, says markets still difficult

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OTTAWA, Aug 1 (Reuters) - Losses at forest products company Tembec Inc (TMB.TO) shrank dramatically in the third quarter without last year’s C$173 million ($168 million) charge for an idled paper mill in Louisiana.

Stung by ongoing weakness in the lumber market and with no clear signs of a U.S. housing recovery, Tembec said on Friday that its cost-cutting efforts are being hampered by high fuel prices.

“If global energy prices remain at these lofty levels, manufacturers will have to increase selling prices well beyond normal historical levels to earn satisfactory margins,” the Montreal-based company said in a statement.

Tembec said it lost C$27 million, or 27 Canadian cents a share, in the period ended June 28. That compares with a loss of C$164 million, or C$1.91 a share, in the same period last year.

Revenue declined 14.5 percent to C$609 million from C$712 million for the lumber, pulp and paper producer.

Earnings before unusual items, interest, income taxes, depreciation, amortization and non-operating expenses more than doubled to C$9 million from C$4 million.

The results are “well below acceptable levels”, the company said, as earnings continued to be squeezed by low lumber prices in the United States.

Tembec recently announced a $100 per tonne energy-related surcharge on its specialty dissolving pulps.

The company, which recently recapitalized, said its liquidity, balance sheet leverage and debt service demands are now improved but it is not yet cash-flow positive.

Tembec converted $1.2 billion of debt into new equity in a February transaction that included a four-year loan of up to $300 million for additional liquidity.

Tembec shares were down 6 Canadian cents at C$3.45 on the Toronto Stock Exchange on Friday morning. So far this year, the stock has lost about half its value. ($1=$1.03 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson)

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