RICHMOND, BC, July 30 /CNW/ - Catalyst Paper (TSX:CTL) recorded a net loss of $1.9 million ($0.01 per common share) on sales of $291.5 million for the second quarter of 2009. That contrasts with net earnings of $21.0 million ($0.06 per common share) on sales of $352.5 million in the first quarter. Earnings were impacted by further deterioration in already extremely challenging market conditions across Catalyst's product lines, as well as by a strengthening Canadian dollar.

Catalyst posted a net loss before specific items in the second quarter of $25.6 million ($0.06 per common share), compared to net earnings before specific items of $8.6 million in the first quarter ($0.02 per common share). Specific items in the second quarter were restructuring costs and a foreign exchange gain on the translation of long-term debt. The company had an operating loss during the second quarter of $29.7 million, in contrast to operating earnings of $24.2 million in the preceding quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter were $6.1 million, down from $61.1 million in the first quarter; while EBITDA before specific items was $18.4 million, down from $65.3 million. Specific items consisted of restructuring costs, which were $12.3 million compared to $4.2 million in the first quarter. Free cash flow was negative $6.4 million compared to positive free cash flow of $35.9 million in the prior quarter.

"We are seeing a deep cyclical downturn in our industry as well as demand shifts and structural changes that will have a lasting impact on our business model," said Richard Garneau, president and chief executive officer. "Cost management and cash conservation is the key in the short-term. At the same time, it is essential that we continue to take steps that will make us competitive in a leaner and more agile industry in the future."

Catalyst curtailed 33 per cent of its paper and 100 per cent of its pulp production capacity in the quarter while leveraging machine flexibility to maximize returns on remaining production. All three paper machines at Elk Falls and NBSK pulp production at Crofton remained indefinitely idled throughout the second quarter and the Snowflake mill continued to take significant periods of curtailment. However the Crofton No. 1 paper machine was restarted in late May to match production with customer orders.

Newsprint demand was impacted by weak advertising and circulation, and saw a 29 per cent year-over-year decline. Catalyst's specialty printing paper business was also impacted as weak retail advertising in particular resulted in reduced demand. Year-over-year demand declines amounted to 27 per cent for coated mechanical, 24 per cent for high-gloss, 17 per cent for standard-grade uncoated, and 24 per cent for directory. Oversupply in printing paper markets saw prices drop in the second quarter for all grades.

Demand for chemical pulp remained weak, although reduced inventories and continued purchases on the part of Chinese producers did result in a price improvement.

Responses to the liquidity pressures associated with lower production and declining prices included capital-spending restraint and pro-active cost management.