February 26, 2010 / 1:05 PM / in 7 years

UPDATE 2-Cascades sees profit squeeze after strong Q4, shrs dip

* Q4 adj EPS C$0.27 vs est C$.018

* Q4 sale falls 7 pct, costs fall 8 pct

* Warns of near-term pressure on profits

* To divest non-essential assets

* Sets 2010 capex at a range of C$125 mln to C$135 mln (Adds conference call details, analyst comment, stock movement)

BANGALORE, Feb 26 (Reuters) - Packaging and paper-products company Cascades Inc's (CAS.TO) quarterly profit beat market estimates, as a drop in costs offset a fall in sales, but warned of its profitability being pressured in the short term, sending its shares down as much as 5 percent.

"We however anticipate some short-term pressure on profitability due to the significant rise of recycled fibre costs," Chief Executive Alain Lemaire said in a statement.

He, however, added that the first quarter would be helped by the continuous improvement of demand and by the rise in selling price increases in most of its sectors.

The company's implementation of price increases across many of its products will more than offset the cost impact of rising recycled paper prices in the near-term said RBC Capital Markets analyst Paul Quinn, who rates Cascades' stock at "outperform."

The company said its 2010 capital spending will be at similar levels as last year.

"We aim at a range of C$125 million to C$135 million at the beginning of the year and (towards) mid-year, depending on cash flow, we can increase that," a company executive said on a conference call with analysts.

"There are a couple of reasons why they are keeping it low -- they want to continue to pay down debt. They will start negotiations sometime in April-May on their revolver and they want to demonstrate, at least when those negotiations are on, that they are fiscally responsible," Quinn said.

"To maintain its business over a long-term it needs to spend C$200 million capex on its machines."

The company's fourth-quarter loss widened to C$41 million, or 42 Canadian cents a share, from C$18 million, or 19 Canadian cents a share, last year.

Excluding items, the company's profit of 27 Canadian cents a share, beat analysts' expectations of 18 Canadian cents a share, according to Thomson Reuters I/B/E/S.

The company, whose three segments include packaging products, speciality products and tissue papers, also said it would continue to divest its non-strategic or non-performing assets.

Despite a rise in shipments, sales fell to C$952 million hurt by a drop in selling prices and the appreciation of the Canadian dollar.

Shares of the Kingsey Falls, Quebec-based company were trading down 1 percent, or 9 Canadian cents, at C$8.20 in afternoon on the Toronto Stock Exchange. They hit a low of $7.86 earlier in the session. (Reporting by Koustav Samanta in Bangalore; Editing by Jarshad Kakkrakandy and Savio D'Souza)

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