Plum Creek Timber Co Earnings Call Nuggets: Southern Saw Timber Prices and Contractor Constraints
Southern Saw Timber Prices
Mark Wilde – Deutsche Bank: Rick, you are sounding a little more confident about kind of southern saw timber prices in ’13 than we’ve heard from some other companies. Can you put a little more color around exactly what you’re seeing and how you think this may play out as we move through 2013?
Rick R. Holley – President and CEO: Clearly, assumption is that we’ll see 950 million to 1 million housing starts next year and we believe for that demands be met you’re going to have to see an increase in production in U.S. South. Southern production right now is about 14 billion board feet and we expect that you’ll see an increase in production in North America about 3 billion board feet about half of it should come from the U.S. South. If you see that you’ll have to add shifts and certainly you’re going to see some price improvement. Clearly, in the first quarter we’re already seeing a $1 to $2 and we believe again if you see that kind production increase, you’ll see more than that for the year. So, it’s heading the right direction.
Mark Wilde – Deutsche Bank: Then a question for Dave Lambert. Dave, can you give us some sense of what type of volume and what type of income you reported on that timber deed in 2012?
David W. Lambert – SVP and CFO: Yes, the income was much as we had expected. We said that it would be pretty much neutral to earnings. I think we had a modest $0.5 million of reported income from the deed and the total volume harvested was 650,000 tons.
Mark Wilde – Deutsche Bank: Can you just walk us through real quickly how does the accounting work on a timber deed as you roll though it?
David W. Lambert – SVP and CFO: We put the asset on our books and as harvest the timber, we simply deplete it. It does have a discrete basis to it, and so, that’s why we are not reporting much income. Cash flow from the timber deed for the year was just over $11 million.
Mark Wilde – Deutsche Bank: So, you are going to have a lot of sensitivity there just as you would on your own timberland to sort of what price does, is that correct?
David W. Lambert – SVP and CFO: Yes. As we see prices growing as the economy recovers then that timber deed will start becoming accretive to earnings and we’ll see higher cash low.
Mark Wilde – Deutsche Bank: Then the last question I had, just, it seems like as we see housing pick up and these wood products markets pick up, we are starting to see more transactions as people make kind of longer-term strategic decisions about whether they want to be in wood products or they don’t. Can you just refresh us on what your stance is toward your wood products operations?
Rick R. Holley – President and CEO: Yeah. Our stance is, clearly that they’ve done very well throughout the downturn in the economy. They’re doing very well now in 2012 and should do better in 2013. It’s very strategic to the timberlands that we own in the State of Montana and they are very well positioned in the marketplace, so we see those as a whole. But we have no plans to increase our capacity in other regions of the country.
Anthony Pettinari – Citi: Regarding the outlook for stronger Southern sawlogs, we continually hear about constraints on contractors and loggers, and I guess as you look to 2013, what’s your level of confidence that assuming we have some price improvement that that really translates into earnings improvement, or are these kind of a higher contractor costs and fuel costs and road costs, are they going to kind of eat away at that margin, or how should we think about that for the year?
Rick R. Holley – President and CEO: Well, clearly, as we start to see capacity increase, there’s going to be – there is a constraint and that’s contractor capacity, and anytime you have a constrained supply which is going to be contractors; that cost is going to go up. We think we’re in very good position to have an access to the contractors, but it’s likely as the constraint is going to cost more, but we don’t think clearly it’ll still be a net margin based on the price increases we expect to see in the market. Fuel really has been pretty stable, so we don’t expect diesel fuel cost to eat into margins whatsoever in 2013.
Anthony Pettinari – Citi: And then, I apologize if you mentioned this before, but exports in the quarter, can you just recap how many tons you exported for the full year? And looking forward to 2013, do you have any particular view on export tonnage?
David W. Lambert – SVP and CFO: Yes, for the quarter, from Oregon, we exported about 60,000 tons of sawlogs and for the year we exported just over 200,000 tons from Oregon. We’ve talked to you a little bit about how we’re trying to improve dynamics in the Southern wood basket. We’ve been doing trials and log shipments out of the South, and we exported about 35,000 tons out of the South. We would expect these volumes to be growing as we move forward.
Anthony Pettinari – Citi: Did the Oregon sale – did that impact your kind of export footprint at all, or was that timber going domestically mostly?
David W. Lambert – SVP and CFO: It’s where it could go to the highest value market, but that was just about 4% of our land base there, so it’d be proportionate to the land base and not really a material driver.
Rick R. Holley – President and CEO: Most of that was in the Northern part of our holdings whereas most of the exports out of Oregon are in the Southern part of our holdings.
A Closer Look: Plum Creek Timber Earnings Cheat Sheet>>