AbitibiBowater Q2 loss $251M, more cuts possible
MONTREAL - Forest products firm AbitibiBowater Inc. (TSX:ABH) is prepared to cut production and take a tough line on labour negotiations next year as the world's largest newspaper producer attempts to further reduce costs amid continuing quarterly losses.
"Newsprint consumption is down in 2008 more than we anticipated and costs are higher than we anticipated," CEO Dave Paterson said during a conference call.
"Recognizing those challenges, we are ready to take the actions necessary, including elimination of unprofitable production."
For the quarter ended June 30, AbitibiBowater lost $251 million, up from a year-ago loss of $248 million.
AbitibiBowater suggested it will take a tough stand at next year's contract negotiations after workers refused last year to agree to wage and pension concessions the company said were desperately needed to lower operating costs.
"These contracts will be coming up for renewal next year and will be a significant part of our go-forward strategy," Patterson told analysts.
During a first wave of cuts last year, Abitibi closed or idled mills in Quebec, New Brunswick, Ontario, British Columbia and Texas, affecting 2,600 jobs.
The Montreal-based company, formed by the merger of forestry giants Abitibi-Consolidated Inc. (TSX:A) and Bowater Inc. last year, said its quarterly loss amounted to $4.36 per diluted share, compared with a net loss of $4.32 per share in the year-ago period.
Sales for the combined company were $1.7 billion in the quarter. Reporting for Bowater alone in 2007, as per U.S. accounting regulations, quarterly sales were $798 million.
Excluding special items, the combined company said its loss would have come to $150 million, or $2.60 per diluted share. That was slightly above analyst expectations. A survey of analysts by Thomson Financial anticipated losses of $2.37 per share.
Although the company said the results were "unacceptable," it posted a significant improvement in its operating performance in the quarter as the realization of synergies was coupled with higher prices.
Abitibi has achieved $270 million in annualized synergies and expects to achieve its goal of $350 million by the end of 2009.
"The synergies are real and we believe are providing a competitive advantage," Paterson said.
The company is increasingly attempting to export its newsprint, especially to the Middle East, South America and Asia, despite facing shipping challenges and higher ocean freight costs. Exports can fetch significantly higher prices amid flat demand.
U.S. consumption of newspaper decreased 10.4 per cent during the quarter, while production fell by nine per cent.
Demand for coated mechanical papers decreased by four per cent in North America as a sluggish American economy caused magazine publishers to reduce page counts in light of reduced advertising.
Meanwhile, uncoated paper demand increased 6.2 per cent and pulp were up 1.4 per cent in the quarter. Wood sales remain weak as U.S. housing starts fell by 27 per cent to 1.1 million in June.
During the quarter, Abitibi gained $17 million from the sale of 11,000 hectares of U.S. wood lands. It hopes to sell 600,000 hectares of Canadian lands within the coming year.
It also took a $17-million charge for severance payments, a $13-million charge for closures and sustained a $16-million hit from converting the U.S. dollar.
Kim Noland of Gimme Credit said the second-quarter results marked a "nice sequential improvement in EBITDA along the lines predicted by the company last quarter."
Adjusted operating earnings (earnings before interest, taxes, depreciation and amortization) was about $140 million, a $100 million increase since the first quarter.
Newsprint earnings were $80 million compared to $14 million a year ago.
AbitibiBowater, the eighth-largest publicly traded pulp and paper manufacturer in the world, produces newsprint, commercial printing papers, market pulp and wood products.
On the Toronto Stock Exchange, Abitibi shares lost 27 cents to $8.01, a decrease of 3.26 per cent.
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