Potlatch reports Third Quarter 2009 Results
Tuesday, October 27, 2009
Press release from the issuing company
SPOKANE, Wash. -- Potlatch Corporation today reported financial results for the third quarter ended September 30, 2009.
"We continued to make improvements in several areas during the quarter," said Michael Covey, chairman, president and chief executive officer of Potlatch Corporation. "With the closing of the timber deed sale in September, we significantly improved our balance sheet and provided additional liquidity as the $48.7 million of net proceeds were used to pay down a portion of our credit facility. Additionally, the performance of our Wood Products business continued to improve as the division produced positive cash flow during the quarter. Finally, we are optimistic about our Resource business because log prices appear to have bottomed, so, as housing continues to improve, so should log prices," concluded Mr. Covey.
Q3 2009 FINANCIAL SUMMARY
* Earnings from continuing operations for the quarter were $46.0 million, or $1.15 per diluted common share, compared to $24.9 million, or $0.62 per diluted common share for Q3 2008.
o The timber deed sale was finalized in September 2009, resulting in $48.7 million of net proceeds.
* Cash provided by operating activities from continuing operations was $78.4 million for Q3 2009 compared to $29.5 million for Q3 2008. Year-to-date 2009 cash provided by operating activities from continuing operations was $115.6 million compared to $46.4 million for the same period in 2008.
Q3 2009 BUSINESS PERFORMANCE
The Resource segment had an excellent third quarter as a result of the timber deed sale in September. The third quarter is seasonally the Northern region's strongest production quarter, but harvest levels remained relatively low as a result of the previously announced harvest deferral due to weak market conditions. Sequentially, prices for both sawlogs and pulpwood increased slightly in the Northern region and remained stable in the Southern region.
* Operating income for the segment in Q3 2009 was $55.4 million, compared to $30.7 million in Q3 2008. The timber deed provided approximately $41.5 million of operating earnings in Q3 2009.
* Total fee harvest volume decreased 8 percent in Q3 2009 from Q3 2008, due to the harvest deferral as well as unseasonably wet logging conditions in Q3 2009.
* Prices for sawlogs and pulpwood remained stable in Q3 2009 compared to Q2 2009, but decreased 7 percent and 12 percent, respectively, compared to Q3 2008.
* Total fee harvest volume decreased 22 percent in Q3 2009 from Q3 2008. In Q3 2008, Idaho experienced very favorable logging conditions, resulting in higher harvest levels for that period. In Q3 2009, the Northern region experienced significantly lower log production due to depressed softwood lumber markets that contributed to weak log demand.
* Prices for both sawlogs and pulpwood increased slightly in Q3 2009 compared to Q2 2009, but decreased 29 percent and 10 percent, respectively, compared to Q3 2008.
Results from the Real Estate segment were lower in Q3 2009 compared to Q3 2008, primarily due to a higher cost basis for land sold in 2009. The demand for property has continued at a fairly steady level, particularly for rural recreational property. Real Estate segment results depend on the timing of sales transactions, and are often uneven from one reporting period to another.
* Operating income for the segment was $1.5 million in Q3 2009, compared to $1.5 million in Q2 2009 and $3.2 million in Q3 2008.
o In Q3 2009, we sold 812 acres of HBU property for approximately $1.9 million, or $2,342 per acre. Rural land sales totaled 2,118 acres for which we received proceeds of approximately $2.4 million, for an average price of $1,150 per acre. We executed one non-strategic timberland sale for 2,617 acres in Q3 2009 for approximately $1.3 million, or $500 per acre.
o In Q3 2008, HBU land sales totaled 327 acres at an average price of $2,462 per acre and rural land sales totaled 4,849 acres at an average price of $1,172 per acre.
o Year-to-date 2009, operating income for the segment is up 43 percent over the comparable 2008 period, primarily due to a single sale of approximately 24,500 acres of Arkansas timberland in January 2009.
The Wood Products segment posted improved results for the third consecutive quarter. The segment operated at positive cash flow during Q3 2009.
* The segment reported an operating loss of $1.5 million for Q3 2009 compared to operating income of $1.6 million in Q3 2008. Sequentially, the business continues to improve, as the segment reported operating losses of $3.0 million and $11.2 million in Q2 2009 and Q1 2009, respectively.
o Results for the Wood Products segment continue to be negatively impacted by the downturn in the lumber and housing market.
o Lumber sales volumes decreased 3 percent and sales prices decreased 13 percent in Q3 2009 from Q3 2008. However, slight improvements were seen sequentially as lumber sales volumes increased 1 percent and sales prices increased 9 percent in Q3 2009 over Q2 2009.
o Our lumber mill in Arkansas was shut down for one week in September as wet weather conditions impacted log deliveries, resulting in a log inventory shortage. Our particleboard plant in Idaho was shut down for two weeks in August due to a lack of orders and a build-up of finished goods inventory. All of our other lumber mills operated at full production levels during Q3 2009.
During the third quarter, Potlatch paid its regular quarterly cash distribution on the company's common stock of $0.51 per share.
Timber Deed Sale
In September 2009, Potlatch completed the timber deed sale with Forest Investment Associates, a timberland investment management organization, for $49.0 million. The transaction is considered a sale of stumpage, which is qualified REIT income. The sale, which does not include the underlying land, was for 49,536 acres of pre-merchantable timber located in south central Arkansas. The age class of the trees ranges from 1 to 10 years, with the average age being just under 7 years. Full use of the land reverts back to Potlatch after a full harvest cycle is completed, which is no later than 30 years after the trees were initially planted. The basis of the timber sold, which is classified as depletion, totaled $7.1 million. Potlatch used the net proceeds to pay down its revolving credit facility.
"Our outlook for the next several quarters remains unchanged from the prior quarter. Softwood lumber prices remain relatively depressed due to the weak housing market, which is putting pressure on our Wood Products business. We expect that the business will not be a meaningful contributor until housing improves. Similarly, the outlook for our Resource business remains subdued due to relatively weak end-use markets. Nonetheless, we are encouraged by the recent price stabilization in our Resource business and look forward to significantly increasing harvest volumes when the pricing environment improves, which we expect to happen in the second half of 2010. Regarding our Real Estate segment, we expect continued interest in our HBU and our rural recreation properties. The non-strategic timberland sale in the first quarter, coupled with the timber deed sale in the third quarter, demonstrate the continued interest in our non-strategic timberland.
"In spite of today's weak environment, we are encouraged about our long term prospects. We believe our business will grow once the housing market begins to recover, which we are starting to see. In the meantime we will continue to closely monitor raw material and other costs," concluded Mr. Covey.