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Domtar Profit Drops on Lumber Losses; Shares Fall

Domtar Corp. (UFS), North America's largest producer of office paper, said second-quarter profit fell 78 percent from the previous quarter as losses from lumber and wood products widened. The shares dropped the most since the March merger that formed the company.

Net income plunged to $11 million, or 2 cents a share, from $49 million, or 14 cents, in the first quarter, Montreal-based Domtar said today in a statement. Profit missed the 10-cent average estimate of 17 analysts surveyed by Bloomberg. Sales rose 54 percent to $1.62 billion.

The loss in wood products widened to $20 million from $4 million in the previous three months as housing construction slowed in the U.S. Sales in the division rose to $80 million from $44 million. Domtar said in June it would sell most of the business to closely held Conifex Inc. for about C$285 million ($270 million).

``Wood revenues were below expectations and the operating loss in the segment was bigger on lower average selling prices and volumes,'' Mark W. Connelly, an analyst at Credit Suisse in New York, wrote today in a note to clients.

Shares of Domtar fell 72 cents, or 8 percent, to $8.24 at 4:01 p.m. in New York Stock Exchange composite trading, valuing the company at $4.44 billion. The drop erased a 5 percent gain since March 6, the day before Domtar Inc. combined with the fine-paper assets of Federal Way, Washington-based Weyerhaeuser Co. to form Domtar Corp.

Paper Profits

Operating profit from paper production, Domtar's largest business, rose to $92 million from $71 million. The company expects shipments of office paper to be ``under some pressure'' for the remainder of the year, Chief Financial Officer Daniel Buron said on a conference call with investors and analysts.

Domtar, International Paper Co. and other producers of office paper are trying to reduce costs as demand falls with the growth in the amount of business transacted over the Internet. North American demand for office paper fell 5.4 percent in the first six months of this year, according to the Montreal-based Pulp and Paper Products Council.

Domtar may consider further production cuts, in addition to paper-machine closings announced July 31 that will curb papermaking capacity by 284,000 tons a year, Chief Executive Officer Raymond Royer said on today's conference call.

``We're monitoring closely and we will take such action when we believe it should be taken,'' Royer said. ``We don't want to open the door to outside exporters who may be tempted to come to the market.''

Domtar's maintenance costs in the second quarter were $34 million more than in the first quarter, Buron said. Company executives declined to give details about first-quarter spending on maintenance.

Domtar's sales were $1.05 billion in the first quarter.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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