The Company expects that full realization of mid-year pricing actions and modest reduction in wastepaper costs will increase operating margins in its Tissue business over the next quarter. Meanwhile, growing order weakness, impacted by a deteriorating economic environment, and a major maintenance outage at its Mosinee, Wisconsin, paper mill, are expected to result in reduced Paper unit profitability. As a result, fourth-quarter earnings are expected in the range of $0.03 - $0.05 per diluted share, excluding timberland sales gains and capital-related expense. Adjusted fourth-quarter earnings were $0.14 per diluted share last year.
The Tissue segment's third-quarter operating profit of $7.0 million declined from $8.7 million in the second quarter and $13.5 million last year. Second- and third-quarter results included pre-tax expenses related to Tissue's expansion project of $0.4 million and $0.7 million, respectively. Net sales decreased 4 percent while shipments declined 3 percent, reflecting reduced volume in the segment's standard product category. While third quarter fiber and energy costs increased $3.4 million on a year over year basis, moderating wastepaper costs and full realization of earlier pricing actions are expected to return operating margins to double-digit levels by the end of the fourth quarter. Progress on the segment's $220 million expansion project at Harrodsburg continues on schedule and on budget as do product development efforts related to the repositioning of Tissue's DublSoft(R) and Dubl-Nature(R) brands to compete in the premium portion of the away-from-home market.
The Papersegment's third-quarter operating profit of $5.6 million increased from $2.4 million in the second quarter and declined from $9.6 million the year before. Prior-year results included a pre-tax gain of $1.3 million from the alternative fuels mixture tax credit. Fiber and energy costs increased $4.7 million year-over-year as net sales and shipments decreased 3 percent and 6 percent respectively, primarily due to the reduced operating schedule at the segment's Brokaw mill and demand weakness in the economically sensitive coated and liner product category. The $27 million rebuild of the paper machine at the Brainerd mill has met all expectations and is now fully qualified with customers in the growing global tape market.
Print & Color Strategic Alternatives
The print & color franchise, which represents approximately 50 percent of 2010 Paper segment revenues, competes in the declining uncoated freesheet market. Faced with continuing margin compression and volume pressures, the Company has undertaken a series of initiatives since 2007 to optimize this business. For more than six months, the Company has evaluated a range of alternatives for this business. The Company is transitioning production capacity at the Brainerd mill from print & color to growing technical markets which will concentrate print & color operations at the Brokaw mill for the benefit of customers and shareholders. The Company is working with its financial advisor in continuing to evaluate a range of alternatives for the print & color business. The results of that evaluation of alternatives are uncertain at this time.
The Company is nearing completion of its current timberland sales program, having sold approximately 37,000 acres since its inception in 2005. A premium value was achieved by selling the lands in relatively small parcels on a highest and best use basis. Approximately 7,500 acres remain in the sales program.
In April 2011, the Board of Directors considered the divestiture of the Company's remaining 72,800 acres of timberlands as a funding source for its Tissue expansion project. During the third quarter, the Board authorized management to commence the sales process and retain LandVest Timberlands, a leading timber advisory firm, to market and broker the sale of these Northern Wisconsin commercial timberlands. There is no assurance as to the terms of the potential transaction or as to whether or not any transaction will in fact occur.