Tembec falls to quarterly loss of $4M; sales splinter with U.S. lumber prices (Tembec)

MONTREAL _ Forestry company Tembec Inc. (TSX:TMB) said it needs to take downtime at its pulp and lumber mills in the coming months to help it preserve cash and weather the tough operating environment.

``With the markets at the levels we're seeing right now and going into a seasonal slow period as well, curtailments are required and are going to happen,'' CEO James Lopez said Wednesday in a conference call about fourth-quarter results.

Lopez was referring to Tembec's lumber mills, which he said will see production decrease by 144 million board feet between October and March. He expects competitors will make similar moves.

The economic slowdown in the United States and the financial crisis will delay a rebound in the forest products business as housing starts could still weaken further, he told analysts.

A dramatically deteriorated situation in pulp markets is also forcing downtime at several paper pulp mills. Tembec plans to cut 75,000 tonnes of production in the coming quarter.

It has already announced curtailments at three pulp mills in British Columbia and Quebec, along with idling for at least two months at La Sarre and Taschereau sawmills in Quebec.

``This is a global phenomenon and regardless of the region and regardless of the species between hardwood or softwood we're seeing everybody coming to the reality that right now because of the glut of inventories and the demand environment downtime is absolutely necessary.''

Montreal-based Tembec said it is assessing its business segments to refocus capital resources with a view to improve operating margins and maximize cash flow in light of market conditions. An update of this review is expected Dec. 10.

The pulp, lumber and paper producer said Wednesday that it lost $4 million in the July-September period on smaller sales after turning a profit of $22 million a year earlier.

The loss for company's fourth quarter ended Sept. 27 was four cents per share, compared with year-ago earnings of 25 cents per share.

Sales declined to $629 million from $675 million, cut by ``extremely low'' U.S. lumber prices.

A falling Canadian dollar and lower energy costs were bright signs in an otherwise gloomy operating environment, Lopez said.

Tembec's operating earnings before unusual items improved to $29 million from $23 million a year ago and $9 million in the third quarter.

Despite weakening North American demand, the paper segment performed well in the quarter and is expected to positively contribute to EBITDA in the new fiscal year, Lopez said.

BMO Capital Markets analyst Stephen Atkinson said Tembec is looking for ways to get past falling demand for their products in a time of global recession.

``The key thing for them is to make it through the downcycle without chewing up too much cash because clearly it will be a cash drain,'' he said.

Tembec shares lost one cent to $1.30 in trading Wednesday on the Toronto Stock Exchange.

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