17.9°C Not observed 
6
MONTREAL - Tembec says the fundamentals of its business remain strong even though it anticipates that its earnings will step back from the best results the forest products company has enjoyed in several years.
"We're really happy with the progress the company has made — back in the black again and well into the black and planning to stay there," president and CEO James Lopez said on a conference call.
"It was a tough year in 2009 but I think the turnaround has been rewarding."
Over the past five years, the company has lost more than $1 billion, but it has earned $50 million during the first nine months of fiscal 2010.
Tembec (TSX:TMB) reversed a year-ago loss as improvements in all three of its business segments contributed to $59 million in third-quarter profits.
The Temiscaming, Que.-based lumber, pulp and paper producer earned 50 cents per share for the period ended June 30. That's up from a net loss of $38 million or 38 cents a year earlier.
Sales increased nearly 35 per cent to $545 million, from $407 million in the same period in 2009.
Operating earnings before depreciation, amortization and other non-recurring items (EBITDA) was $60 million, compared to negative $42 million a year ago and $32 million in the period quarter.
Tembec's results beat the guidance presented June 18 when it was discussing ways to enhance its liquidity with certain investors. At the time it expected EBITDA to be between $47 million and $53 million.
The improvement was due to a $4-million positive adjustment on the carrying value of inventories, and better results in its lumber and pulp segment.
Paul Quinn of RBC Capital Markets said rising prices that helped the company beat expectations won't endure.
"I think this is going to be a high water mark for awhile," he said in an interview.
The forest products segment generated $6 million in operating income as higher prices boosted sales to $126 million.
Tembec expects prices will continue to be volatile as a slow recovery in demand fuelled by U.S. housing construction will only return in mid to late 2011.
"The hemorrhage that we saw last year in EBITDA is over for lumber and in ... the next six to nine months you're going to look at a lumber business that's going to have a small loss," Lopez told analysts.
The pulp segment generated $58 million in operating income on sales of $331 million as two French kraft pulp mills sold in May contributed $43 million to sales and $10 million to EBITDA.
Paper pulp prices should continue to decrease but Lopez said the dynamics of the market are good in North America and Europe while Chinese demand remains strong but not as aggressive as in the past.
"We still remain of the review as many people in the business do that the fundamentals are still pretty darned good for paper pulp," he said.
The company said it will pay a $5 million insurance deductible in the coming quarter related to a June 30 fire at the Chetwynd mill that destroyed 50,000 cubic metres of chips and logs and caused a loss of 19,000 tonnes of production. The mill has resumed production at a reduced rate after being out of service for 12 days.
The company also is optimistic about its specialty and dissolving pulp because of the difficulties in entering the market and the less volatility of the product.
The paper segment earned $1 million on sales of $96 million.
Higher sales in the quarter were driven by higher shipments of bleached board.
Getting back into the black was a major achievement, but Tembec believes it will continue to grow, depending on the extent of price increases.
"We have a pretty rosy outlook for our paper business and it's going to become a material contributor of EBITDA over the next 12 months."
Tembec is a leading integrated forest products company with more than 30 manufacturing units in North America and France. The company has about 6,000 employees and $2 billion of sales in 2008.
Its shares gained three cents to closed at $2.17 in trading on the Toronto stock market.
