Paper Companies Report Tough Quarter

Abitibi-Consolidated

Abitibi-Consolidated Inc. reported second quarter net earnings of $147 million, compared to $203 million in the same quarter of 2002. Included in the current quarter's results is an after-tax gain of $246 million compared to $211 million in the second quarter of 2002 n translation of foreign currencies, primarily from the company's debt which is mainly denominated in U.S. dollars.

Though not a GAAP-measure, the net loss would have been $99 million before this currency adjustment. This loss is slightly higher than the loss of $90 million in the previous quarter.

The second quarter operating loss from continuing operations was $46 million compared to an operating profit from continuing operations of $94 million for the same period last year

The change in profitability when compared to the second quarter of 2002 is largely attributable to lower prices for the company's value-added papers and lumber, higher costs for wood fiber and energy, a stronger Canadian dollar as well as the $32 million provision reversal mentioned above. Offsetting these elements were higher North American newsprint selling prices and higher wood products volumes.

The Company took 226,000 metric tons of market-related newsprint downtime in North America during the quarter.

Net sales were $1.210 billion in the second quarter of 2003 compared to $1.327 million in the second quarter of 2002.

For the six-month period ended June 30, 2003, net earnings amounted to $328 million compared to $153 million in the same period last year.

Net sales were $2.402 billion in the six-month period ended June 30, compared to $2.522 million in the same period last year. The operating loss from continuing operations was $81 million compared to an operating profit from continuing operations of $135 million for the same period of 2002.

Abitibi-Consolidated foresees a continued recovery of newsprint consumption as the U.S. economy is forecasted to strengthen in the second half of 2003. During the quarter, the company announced a price increase of $50 per metric ton effective August 1, 2003 for its North American customers. Also, effective June 1, 2003, the company adjusted the previously announced price increase of $50 per metric ton, effective March 1, to $35 per metric ton.

Finally, the company announced price increases of between $50-$75 per metric ton for new orders from international markets including South America, Asia and the Middle East that will be implemented in the third quarter of 2003.

Kimberly-Clark Corp.

Kimberly-Clark Corporation reported that sales in the second quarter were $3.5 billion, an increase of 4 percent over the prior year. Sales growth in the second quarter was driven primarily by a 4 percent improvement in currency exchange rates. Sales volumes were essentially flat, reflecting weaker-than-expected growth in a number of key categories in North America, particularly diapers and consumer tissue products.

Thomas J. Falk, chairman and CEO of Kimberly-Clark, said, "While sales volumes in the second quarter trailed our earlier expectations and the cost of energy and raw materials moved higher, we more than made up for these factors with progress on our priority to cut costs this year.”

The company's Consumer Tissue and Business-to-Business segments posted higher sales, while Personal Care sales were even with last year.

Sales of consumer tissue products were up approximately 6 percent, driven primarily by currency effects in Europe and Australia. Overall sales volumes increased nearly 1 percent following strong growth of 13 percent in the second quarter of 2002.

Personal Care sales were flat in the second quarter. Currency-related gains of about 3 percent and slightly higher net selling prices were offset by lower sales volumes of more than 3 percent. Sales volumes were affected by intense competition in the diaper category in a number of key markets as well as a slowdown in category growth in North America.

Operating profit in the second quarter of 2003 was $606.9 million, about 3 percent below the prior year.

For the first six months of 2003, sales of $7.0 billion were up 3.9 percent from $6.7 billion in the prior year. Excluding currency effects, sales were essentially flat. Operating profit declined 8 percent to $1,186.2 million in 2003 versus $1,289.2 million in 2002.

Commenting on the outlook, Falk said, "Clearly, the business environment remains difficult. Despite soft category growth, intense competition and higher raw material and energy costs, we still expect earnings per share before unusual items in the third quarter of 2003 will slightly exceed the second quarter. As for the fourth quarter, we expect further sequential improvement in earnings per share before unusual items.

P.H. Glatfelter

P.H. Glatfelter reported earnings from continuing operations for the second quarter $682,000, compared to $7.6 million, respectively, for the comparable quarter in 2002. The decline in earnings was primarily due to lower non-cash pension income, lower sales volumes and higher costs of products sold. In addition, during the second quarter of 2003, Glatfelter recognized a loss from discontinued operations of $413,000, after tax, primarily related to the write-down of a non-strategic subsidiary in France. Including the loss from discontinued operations, net income for the second quarter of 2003 was $269,000.

"Our second quarter operating results reflect a very difficult global economic climate," said George Glatfelter II, chairman and CEO.

Net sales totaled $129.6 million for the second quarter of 2003 compared to $136.7 million for the year-earlier quarter, a decrease of $7.1 million, or 5.2 percent. The decline was primarily attributable to weaker demand together with price competition in the Printing & Converting business unit. The company's Engineered Products business unit experienced solid sales growth in the quarter-to-quarter comparison. The Long-Fiber & Overlay business unit also experienced a quarter-to-quarter increase in net sales; however, this increase was primarily due to the impact of a weaker U.S. dollar on translated results of international operations.

Gross profit for the second quarter of 2003 totaled $18.3 million compared to $28.8 million in the comparable quarter of 2002. The decrease in gross profit reflects the impact of higher pulp, waste paper, and energy prices and lower non-cash pension income, which was partially offset by the favorable effect of a weaker U.S. dollar.

During the second quarters of 2003 and 2002, the company completed its annually scheduled maintenance shutdown of its Spring Grove, PA mill. In addition, due to soft demand, the Company took market-related downtime at the Spring Grove, Neenah, WI and Gernsbach, Germany mills. Further, in the second quarter of 2003 the Company commenced the scheduled shutdown and rebuild of a long-fiber & overlay paper machine in Gernsbach. Shutdowns result in reduced production leading to unfavorable manufacturing variances that negatively affect costs of products sold.

For the first six months, earnings from continuing operations totaled $27.4 million, compared to $18.7 million for the comparable period in 2002.

Net sales totaled $271.9 million for the six months ended June 30, compared to $268.0 million for the year-earlier period, an increase of $3.9 million. Gross profit for first half of 2003 totaled $48.6 million compared to $63.2 million in the comparable period of 2002.

Wausau-Mosinee Paper Corp.

Wausau-Mosinee Paper Corp. reported second-quarter 2003 net earnings of $3.2 million, compared with 2003 first-quarter net earnings of $1.3 million and second-quarter 2002 net earnings of $5.7 million. Net sales increased 2 percent to $242.8 million, from $237.8 million last year, while shipments increased 1 percent.

Net earnings for the first half of 2003 were $4.6 million, compared with $9.1 million for the first half of 2002. Net sales rose 4 percent to $482.7 million from $463.7 million reported last year.

"We are encouraged by our continuing ability to achieve market share gains and volume growth in our target markets despite very difficult industry conditions," said Thomas Howatt, president and CEO. "However, weak market conditions have made it extremely difficult to raise prices and recoup increased costs.

The Specialty Paper Group reported an operating profit of $0.1 million versus a $2.9 million loss in last year's second quarter. Net sales increased 1 percent while shipments declined 4 percent. "Despite significantly higher market pulp and energy costs, the Specialty Paper Group reported its fourth consecutive quarter of profitability, reflecting an improved product mix, higher selling prices on select products, and cost reductions. Our success in developing new products allowed us to substantially reduce the volume of lower-margin products in the current quarter," Howatt said.

The Printing & Writing Group reported operating profits of $2.7 million in the second quarter compared with $10.5 million last year. Driven largely by a 28 percent increase in laminated roll-wrap volume, total shipments increased 5 percent. "Our first-quarter acquisition of the production assets and customer base of Laminated Papers, Inc. has allowed us to further solidify our position as the leading supplier of laminated roll wrap in North America," Mr. Howatt explained. "We are also encouraged by shipment gains of 26 percent in consumer products and 5 percent in our premium grades despite declining demand for uncoated freesheet papers. Our year-over-year profit decline was largely attributable to market pulp and natural gas cost increases of $7.0 million compared with year-ago levels, and weak market conditions prevented any recovery through higher selling prices."

The Towel & Tissue Group reported an operating profit of $8.4 million in the second quarter, including pre-tax income of $4.2 million as a license fee in settlement of a patent lawsuit, compared with $6.3 million last year. "Our strong service platform and innovative dispensing systems have allowed us to achieve continued growth in shipments despite soft demand and intense competition," said Howatt.

Weyerhaeuser

Weyerhaeuser Co. reported second quarter net earnings of $157 million on net sales of $4.9 billion. This compares with $72 million on net sales of $4.9 billion for the second quarter of 2002.

"Our ability to achieve our synergy goal more than one year ahead of schedule, despite challenging market conditions, is a tribute to our employees," said Steven Rogel, chairman, president and CEO. "They have embraced the concept of increased frugality and have made substantial progress in improving the overall efficiency of our manufacturing systems. Through their hard work, we are positioned to take advantage of future improvements in the economy.

"Late in the second quarter we saw some promising signs in the prices for wood products, a trend that should continue into the third quarter," Rogel said. "Unfortunately, the markets for pulp, uncoated free sheet and containerboard are expected to remain challenging."

A seasonal increase in the demand for packaging resulted in higher second quarter earnings compared with first quarter results. This increase was partially offset by lower prices for corrugated boxes and higher costs for old corrugated containers. During the quarter, Weyerhaeuser took 70,000 tons of market and maintenance downtime.

Norampac

Norampac Inc. reported net earnings of $1 million for the second quarter, compared to $21 million for the same quarter in 2002. The results of the quarter include unusual items of $20 million related to the recent refinancing of the company and also include a $5 million foreign exchange gain after taxes on long-term debt of compared to $4 million for the same period in 2002.

For the six-month period ended June 30, 2003, Norampac reports net earnings of $13 million compared to $36 million for the same period in 2002.

Net sales for the second quarter were $301 million, compared to $324 million for the same quarter in 2002. The reduction in net sales for the second quarter is attributable to lower selling prices on both containerboard and the corrugated products segments. Shipments in containerboard were down by 16,000 tons in the second quarter compared to the same quarter in 2002. Shipments of corrugated products excluding recently acquired facilities were down 3 percent in the second quarter compared to the same quarter in 2002. For the six-month period ended June 30, 2003, net sales were $592 million compared to $599 million for the same period in 2002.

Bowater

Bowater Inc. reported a net loss of $25.7 million on sales of $664.1 million for the second quarter. These results compare with a net loss of $53.7 million on sales of $646.8 million in the second quarter of 2002.

"Improvements in pricing were offset by cost increases as well as lower pulp shipments," said Arnold Nemirow, chairman, president and CEO, "As a result, the recovery in our financial results has been slower than anticipated, but we do expect continued improvements for the balance of the year."

The company's average newsprint price was $18 per metric ton higher in the second quarter than the first quarter of 2003. Bowater's average operating costs per metric ton for newsprint in the second quarter were flat compared to the first quarter of 2003. The company curtailed approximately 53,000 metric tons of newsprint production in the second quarter, of which 35,000 were market related. The Company has informed its North American customers of a $50 per metric ton newsprint price increase effective August 1, 2003.

Bowater's average transaction price in coated and specialty papers increased $17 per short ton compared to the first quarter, while average operating costs per ton for coated groundwood and specialty papers decreased by 4 percent. Shipments increased by 16 percent with the start-up of the recently converted Catawba, South Carolina newsprint machine to lightweight coated groundwood. The company expects its operating costs per ton in these grades to decline for the balance of the year due to the start-up of the Catawba machine and reduced labor costs.

Temple-Inland

Temple-Inland Inc. reported second quarter net income of $156 million, compared with second quarter 2002 net income of $15 million, and a first quarter 2003 loss of $18 million.

The corrugated packaging operation reported income of $1 million in second quarter 2003, compared with income of $29 million in second quarter 2002 and a loss of $4 million in first quarter 2003. The decline in earnings in second quarter 2003 compared with second quarter 2002 was primarily attributable to $13 million in higher energy costs, $7 million in higher pension expenses and lower box volumes. Income was up in second quarter 2003 compared with first quarter 2003 due to improved mill operations and higher box volumes.

Average prices for boxes in second quarter 2003 were flat compared with second quarter 2002 and down 2 percent compared with first quarter 2003. The cost of OCC was down 7 percent compared with second quarter 2002, but up 16 percent compared with first quarter 2003.

Shipments of corrugated containers were down approximately 3 percent compared with second quarter 2002, but up 4 percent compared with first quarter 2003 levels. Mill downtime in second quarter 2003 was approximately 21,000 tons.