By: Dylan Sikes - AllPennyStocks.com News

Thursday, November 21, 2013

The US housing market is in a better position than it was last year, but still far below pre-recession standards. Construction starts on new homes are slowing modestly in recent months, which puts pressure on many industries, including North American lumber producers. According to US Commerce Department data, the number of new privately-owned housing units started so far in 2013 hit a high in March of just over a 1 million unit pace. The highest level in the second quarter was a 919,000 rate. For the third quarter, September’s figure has not yet been released, but the best month reported so far was August at a seasonally-adjusted 891,000 annualized rate. Tembec, Inc. (TSX:TMB), a Montreal-based manufacturer of forest products, including lumber, pulp, paper and specialty cellulose, noted the housing market in its earnings release on Thursday, which showed sliding sales and profits in the fourth quarter of fiscal 2013.

For the quarter ended September 30, Tembec reported net sales of $352 million, down 20 percent from the fourth quarter of fiscal 2012. Net earnings totaled $6 million, or 6 cents per share, reversing course from a net loss of $47 million, or 47 cents per share, in last year’s quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $25 million for the latest quarter, versus adjusted EBITDA of $23 million a year ago. The results were in line with expectations.

EBITDA from Tembec’s forest products segment slumped from $7 million in Q4 2012 to $1 million in the recent quarter. Sales dropped by $5 million to $105 million on lower lumber prices. The prices for random lumber declined by $19 per mbf (thousand board feet) and stud lumber dropped $64 per mbf. Stud lumber is closely tied to housing starts in the U.S., so the unforeseen drop in prices, puts a damper on the important segment for Tembec. The combination of a favorable currency exchange and decreases in prices created an $8 million, or $41 per mbf, negative impact on adjusted EBITDA.

The paper pulp business of Tembec generated a negative adjusted EBITDA of $2 million on $73 million in revenue, down from adjusted EBITDA of $3 million on $106 million in sales last year. The majority of the decline in sales came from the company selling its NBSK mill in Skookumchuck, British Columbia.

The bright spots came from the company’s paper and specialty cellulose pulp segments.

The paper segment generated adjusted EBITDA of $8 million, up from $6 million a year earlier, despite sales falling from $86 million to $81 million. Lower sales were offset in part by an increase in prices for coated bleached board.

Compared to the fourth quarter last year, adjusted EBITDA from the specialty cellulose pulp business grew by $3 million to $22 million. Again, sales slipped lower; down to $117 million from $120 million.

The ongoing recovery of the US housing market is likely to remain very slow in coming quarters, especially when the Federal Reserve starts tapering its stimulus package. In May, Mortgage rates started to rise on the thought of tapering starting and when it actually happens, the industry will have to see how banks respond with purse strings that are already been held snug. Concurrent to lending being somewhat constrained, housing prices are climbing, putting additional pressures on the market as people may become more reluctant to try and trade-up houses in a somewhat shaky economy, especially at higher interest rates. This could create a slow grind in improvement for Tembec in its forest products segment.

For the time being, investors are pushing the stock higher in Thursday trading on the fact that the company was profitable amid a tough environment. Shares have held a support in the area of $2.25 again (as they did in August) and are ahead about 3 percent on the day at $2.41 with about two hours left in the trading session.

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