|Spokane, Washington, USA, 26 October 2009 -- (BUSINESS WIRE) -- Potlatch Corporation (NYSE:PCH) today reported financial results for the third quarter ended 30 September 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 USD 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,” Covey said.
Q3 2009 FINANCIAL SUMMARY
- Earnings from continuing operations for the quarter were USD 46.0 million, or USD 1.15 per diluted common share, compared to USD 24.9 million, or USD 0.62 per diluted common share for Q3 2008.
- The timber deed sale was finalized in September 2009, resulting in USD 48.7 million of net proceeds.
- Cash provided by operating activities from continuing operations was USD 78.4 million for Q3 2009 compared to USD 29.5 million for Q3 2008. Year-to-date 2009 cash provided by operating activities from continuing operations was USD 115.6 million compared to USD 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 because of 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 USD 55.4 million, compared to USD 30.7 million in Q3 2008. The timber deed provided approximately USD 41.5 million of operating earnings in Q3 2009.
- Total fee harvest volume decreased 8% in Q3 2009 from Q3 2008, due to the harvest deferral and unseasonably wet logging conditions in Q3 2009.
- Prices for sawlogs and pulpwood remained stable in Q3 2009 compared to Q2 2009, but decreased 7% and 12%, respectively, compared to Q3 2008.
- Total fee harvest volume decreased 22% 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% and 10%, 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 USD 1.5 million in Q3 2009, compared to USD 1.5 million in Q2 2009 and USD 3.2 million in Q3 2008.
- In Q3 2009, the company sold 812 acres of HBU property for approximately USD 1.9 million, or USD 2342 per acre. Rural land sales totaled 2118 acres for which we received proceeds of approximately USD 2.4 million, for an average price of USD 1150 per acre. The company executed one non-strategic timberland sale for 2617 acres in Q3 2009 for approximately USD 1.3 million, or USD 500 per acre.
- In Q3 2008, HBU land sales totaled 327 acres at an average price of USD 2462 per acre and rural land sales totaled 4849 acres at an average price of USD 1172 per acre.
- Year-to-date 2009, operating income for the segment is up 43% 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 USD 1.5 million for Q3 2009 compared to operating income of USD 1.6 million in Q3 2008. Sequentially, the business continues to improve, as the segment reported operating losses of USD 3.0 million and USD 11.2 million in Q2 2009 and Q1 2009, respectively.
- Results for the Wood Products segment continue to be negatively affected by the downturn in the lumber and housing market.
- Lumber sales volumes decreased 3% and sales prices decreased 13% in Q3 2009 from Q3 2008. However, slight improvements were seen sequentially as lumber sales volumes increased 1% and sales prices increased 9% in Q3 2009 over Q2 2009.
- Our lumber mill in Arkansas was shut down for one week in September as wet weather conditions affected log deliveries, resulting in a log inventory shortage. The 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 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 USD 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 USD 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 premerchantable 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 USD 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 nonstrategic timberland sale in the first quarter, coupled with the timber deed sale in the third quarter, demonstrate the continued interest in our nonstrategic 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,” Covey concluded.
Potlatch is a Real Estate Investment Trust (REIT) with approximately 1.6 million acres of timberland in Arkansas, Idaho, Minnesota, and Wisconsin. Potlatch, a verified forest practices leader, is committed to providing superior returns to stockholders through long-term stewardship of its forest resources. The company also conducts a land sales and development business and operates wood products manufacturing facilities through its taxable REIT subsidiary.