UPDATE 1-Domtar profit holds up as diaper business grows

Fri Jul 27, 2012 9:32am EDT

July 27 (Reuters) - Canadian paper maker Domtar Corp posted a 9 percent rise in second-quarter profit as a shift in focus to its personal care segment, which makes adult diapers, begins to pay off.

Domtar, one of North America's largest producers of uncoated freesheet papers used in office stationery, has been expanding its personal care business through acquisitions to counter weak prices at its core business.

Weak pulp prices have hit paper makers hard in the past few quarters as demand in China dropped. The prices, however, stabilized in the second quarter.

Larger rival International Paper Co's quarterly profit met estimates as the company managed to offset a drop in sales of printing paper by higher packaging sales.

Tembec Inc on Thursday posted its fourth straight quarterly loss as it continues to expect paper pulp markets to remain challenging.

Domtar, which sells adult diapers under the Attends brand, said second-quarter earnings rose to $59 million, or $1.61 per share, from $54 million, or $1.30 per share, a year earlier.

Personal care business continued its growth, reaching annualized sales of over $425 million in the second quarter

Total sales remained flat at $1.4 billion.

"So far this year, our shipments have declined due to softness in market demand for paper but our average pricing and margins are holding up well," Domtar Chief Executive John Williams said in a statement.

The company expects paper shipments to continue to decline with market demand.

Domtar's shares, which have fallen 25 percent in the past four months, closed at C$74.05 on Thursday on the Toronto Stock Exchange.

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