January 2012
Over The Wire Tissue Edition
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Global Forest and Paper Companies Post Lower Earnings

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The majority of Canadian forest and paper products companies posted lower third quarter earnings compared with the same period in 2010, according to PricewaterhouseCoopers LLP (PwC). The results reflect weak lumber demand, sagging pulp prices, and a strong Canadian dollar.

The struggling U.S. economy and housing market, in addition to slowing demand from China, negatively impacted the lumber and solid wood segment of the industry, PwC notes. Northern bleached softwood kraft (NSBK) pulp prices remained strong in the third quarter, however pulp prices continue to come off of the record high levels reached earlier this year. The relative weakening of the Canadian dollar to the U.S. dollar in the quarter provided some support to earnings.

Forest and paper companies in Western Canada reported net losses totaling C$234.2 million for the quarter, significantly below the C$178.8 million profit reported for the same period in 2010. Catalyst Paper Corp. reported a net loss for the quarter of C$205.7 million, which includes C$150.6 million of impairment costs incurred relating to its Snowflake, Ariz., USA, mill. Eastern Canadian based companies posted net earnings of C$31.9 million compared with net losses of C$650.3 million for the third quarter of 2010. Domtar Corp. reported net earnings of C$114.7 million, down from C$198.5 million in the third quarter of 2010. AbitibiBowater’s 2010 results include C$759.6 million (U.S. $731 million) in charges as a result of its recent restructuring.

Ten of the largest U.S.-based forest and paper companies reported net earnings of $1,407.6 million for the third quarter, down from $2,372.9 million in the third quarter of 2010. Comparability of results is impacted by several factors including restructuring charges and impairment/sales adjustments for International Paper (total 2011 Q3 gain of $116 million), Kimberly-Clark’s third quarter pulp and tissue restructuring costs ($95 million), a reversal of deferred taxes by Weyerhaeuser in 2010 ($1.043 billion), a 2010 loss from discontinued operations ($124 million) for MeadWestvaco, a 2010 tax credit reversal recorded for Packaging Corp. of America, and a $96.3 million goodwill impairment charge recorded by Graphic Packaging in 2011. On September 6, IP announced it had reached a deal to acquire Temple Inland for $32 per share in cash.

Ten of the largest European based forest and paper companies reported overall losses of EUR 122.5 million for the third quarter, down from EUR 743.9 million in profit for the third quarter of 2010. Norske Skog reported a net loss of EUR 236.9 million in the third quarter, which included impairment charges of EUR 241.3 million. UPM-Kymmene’s reported loss of EUR 109.0 million includes EUR 290 million in restructuring charges. On August 1, UPM-Kymmene completed the acquisition of Myllykoski Corp. and Rhein Papier GmbH.

Five of the largest forest and paper companies in Japan posted net earnings of $2.3 million for the six months ended September 30, down from $634.0 million for the same period in 2010. Results from a number of companies operating in Japan continue to reflect the disruption to operations from the March 2011 earthquake and tsunami. Nippon Paper’s September 30 loss of $494.0 million includes $367.9 million extraordinary losses related to the direct impact of the disaster on one of its mills.

Four of the largest forest and paper companies in emerging markets reported net losses of $618.0 million in the third quarter, compared with net earnings of $710.8 million in the third quarter of 2010. Included in Fibria Celulose’s reported loss of $681.5 million is a foreign exchange loss of $792.9 million, which is attributed to the appreciation of the U.S. dollar against the Brazilian Real and its impact on Fibria’s U.S. dollar denominated debt.



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