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The Canadian Press - ONLINE EDITION

Resolute Forest doesn't see rosy signs for 2012 as weak demand leads to Q4 loss

By: Ross Marowits, The Canadian Press

Posted: 02/9/2012 8:11 AM | Comments: 0 (including replies) | Last Modified: 02/9/2012 4:24 PM

The corporate logo of Resolute Forest Products, formerly AbitibiBowater Inc., is shown. THE CANADIAN PRESS/HO

MONTREAL - Resolute Forest Products posted its second quarterly loss since the former AbitibiBowater completed a restructuring a year ago as pulp and paper demand fell short of expectations, the company's CEO said Thursday.

North American newsprint demand decreased by seven per cent in 2011, below the company's forecast of a drop of three to five per cent. Demand was off six per cent in the fourth quarter.

"It was really market demand in North America that has been a lot weaker than I would have forecasted," Richard Garneau said in an interview.

World demand, which has helped to offset headwinds in North America, was off more than five per cent last year.

Even specialty grades of paper saw demand drop by 7.8 per cent last year.

"It's really the economy and the slow pace of recovery that is probably the explanation for the higher decline that we have had last year," he added.

Resolute, the operating company of AbitibiBowater (TSX:ABH) lost US$6 million in the fourth quarter compared with a year-ago profit of $4.2 billion when it recorded massive one-time gains related to its reorganization.

The Montreal-based company, which reports result in U.S. dollars, said sales fell to $1.1 billion from $1.3 billion in the fourth quarter of 2010.

Stripping out one-time items, Resolute said it earned a profit of $45 million or 46 cents per share in the quarter. Adjusting for the reorganization and other charges, Resolute posted a loss of $235 million or $2.49 per share in the fourth quarter of 2010.

"Remove the noise, the stuff that's not going to be basically there in the next quarter, it's pretty good results," Garneau said.

Resolute was expected on average to earn 54 cents per share in the fourth quarter, according to analysts polled by Thomson Reuters.

For the full year, it earned $41 million or 42 cents per share on $4.8 billion of revenues. That compared to $2.6 billion of earnings on $4.7 billion of sales in 2010.

Excluding one-time charges, adjusted profit was $166 million or $1.71 per share, compared to a loss of $831 million in 2010.

Garneau said a slow recovery in the United States doesn't present a "rosy picture" at this point for 2012.

"Unless we start to see improvements in construction, housing starts, it's certainly going to have an impact on spending by consumers and obviously the high unemployment rate that remains in the U.S. is of concern," he said.

Lower demand and weaker pricing for kraft pulp in the quarter had the most significant impact on the results as sales fell 30 per cent to $137 million.

Paul Quinn of RBC Capital Markets said the fourth quarter was a "slight miss" for Resolute primarily due to the drop in pulp pricing and demand for coated and uncoated papers since the third quarter.

AbitibiBowater changed its operating name to Resolute Forest Products, but won't change its legal name until it gets shareholder approval at the company's annual meeting.

The company is in the midst of a $130-million hostile bid for pulp producer Fibrek Inc. (TSX:FBK). An independent analysis done by Canaccord Genuity Corp. pegged the company's value at between $162.6 million and $188.6 million, or $1.25 to $1.45 per share.

Garneau said the company's offer is "fair and equitable" and is supported by sophisticated investors that control 46 per cent of Fibrek's shares.

Resolute owns or operates 18 pulp and paper mills and 24 wood products mills in Canada, the United States and South Korea.

On the Toronto Stock Exchange, Resolute's shares closed at C$15.13, down 79 cents or nearly five per cent.

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