Integrated forestry company Gunns Ltd (ASX: GNS) today downgraded its full-year earnings guidance.

The company said it now expects full year underlying EBIT in the range of $40-$50 million with approximately 65 per cent of earnings reported in the second half.

On 18 August 2010, it advised the market that its underlying EBIT for the 2011 financial year was to be in the range of $50-$60 million with a stronger second half result based on the progressive effects of cost savings and market improvements.

However, a number of significant events have occurred since that time resulting in a revision to earnings forecast.

"Although we acknowledge that the full year guidance is a wide range, timing uncertainty around significant potential developments across our business in what is a year of transition precludes a more precise forecast," Gunns statement said.

"The strength of the Australian dollar versus the US dollar has significantly impacted the competitiveness of hardwood chip exports into our key markets of China and Japan. Japanese demand in particular remains depressed. We do not expect any currency relief in the period to June 2011 and have adjusted our forecast accordingly."

"The high Australian dollar has resulted in an increase in imports and further margin pressure in our timber distribution business where housing driven demand remains inconsistent."

Gunns said the announcement that is a party to the Tasmanian Forest Statement of Principles agreement was the most significant matter considered in the Company's outlook for the current year.

"As a party to this agreement we are committed to prompt action to demonstrate good faith."

The company said this will result in restricting its woodchip export business to plantation woodchips as soon as possible, reviewing all of its Tasmanian operations involved in processing timber from native forests and, as a priority, exiting the processing of timber sourced from High Conservation Value Forests.

Gunns added cost reductions have been implemented across its business and plans further reductions to ensure that costs are consistent with its simplified business model.

Shares of Gunns fell sharply, losing more than 7 per in early trading. The stock shed 6.2 per cent to 69 cents by late morning against a 0.2 per cent decline in the S&P/ASX 200.