Tembec reported a net loss of $10 million in its first quarter, ending December 29, 2012, on consolidated sales of $376 million.
For comparison, in the previous quarter, Tembec reported a net loss of $16 million on consolidated sales of $401 million.
Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $19 million for the three-month period ended December 29, 2012, as compared to adjusted EBITDA of $12 million a year ago and adjusted EBITDA of $23 million in the prior quarter.
Outlook from Tembec
Overall, the December 2012 quarterly results were in line with expectations. The Forest Products segment results declined versus what had been a very strong September quarter. The seasonal reduction in stud lumber prices combined with planned production curtailments during the holiday period reduced adjusted EBITDA.
Looking ahead, the normal seasonal increase in prices is anticipated in the March quarter. While the recent housing statistics in the United States are encouraging, we continue to forecast a slow and gradual recovery in housing, with lumber demand and prices following a similar pattern. The Specialty Cellulose Pulp segment results were negatively impacted by the annual planned maintenance outage at the Temiscaming facility. Market conditions for specialty grades were stable while viscose grade prices continued to trend downwards. We anticipate a continued stable market for specialty grades. However, growth in this market has slowed and Tembec’s plans to increase volumes and reduce viscose grade production are being delayed.
Tembec will continue to maintain a relatively modest exposure of 30,000 to 40,000 tonnes per year to the viscose market. The latter market is currently under pressure as new capacity is exceeding demand growth. While the adjusted EBITDA improvement in the Paper Pulp segment was significant, it was coming off a very difficult September quarter, which had included a costly annual planned maintenance outage at the Skookumchuck pulp mill. The closure of the relatively high cost Chetwynd mill in the prior quarter also had the expected positive effect on segment performance. Tembec anticipates further cost reduction when the new anaerobic plant in Matane becomes fully operational. However, paper pulp markets remain relatively weak as evidenced by the segment’s breakeven results in the most recent quarter. While we have seen the implementation of small increment price increases, we expect the market for paper pulp to remain challenging in the near term. Paper segment results declined as the prior quarter had benefited from very strong shipment levels as well as very low energy costs at the newsprint mill in Kapuskasing.
Looking forward, prices for coated bleached board should be stable while newsprint prices may see a small decline. Recently restarted newsprint capacity combined with continued declining North American demand will not be conducive to improved prices. Tembec continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is a $190 million high-pressure boiler and turbine to be installed at the Temiscaming, Quebec, site. The project will materially improve the mill’s cost structure and margins. A total of $78 million has been spent on the Temiscaming specialty cellulose project to the end of the December 2012 quarter. The project schedule and total estimated costs are currently under review.
Tembec also has several other smaller capital projects, which are either in start-up mode or nearing completion. These projects will begin to positively impact manufacturing costs and adjusted EBITDA in the coming quarters. As noted in the quarterly disclosure material, the assets and liabilities of the Skookumchuck, BC, NBSK pulp mill have been classified as held for sale. Tembec is currently in discussions with potential buyers and any future developments will be disclosed as they occur.