Plum Creek Timber Co Earnings Call Nuggets: Southern Sawlog Prices and Timber Pricing
Plum Creek Timber Co (NYSE:PCL) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Southern Sawlog Prices
Anthony Pettinari – Citi: Rick in your remarks you emphasized that the recovery in Southern sawlog prices has been slow, maybe a little bit slower than many people had expected at the beginning of year. And I was just wondering if you could share with us, obviously starts have been maybe a little bit weaker than expected in recent months, lumber prices have come down a bit. Has the growth in Southern sawlog prices been weaker than expected, you referenced holding off harvest in some areas in 2Q. What were the factors behind kind of a slower recovery in Southern sawlog prices and in those areas, where you maybe have held back on some harvests, are you seeing those prices pick up or sort of what’s the confidence level around a $1 a ton sequential price improvement into 3Q?
Rick R. Holley – CEO: Well, I guess we have been a bit surprised that sawlog prices in the South have not recovered quicker than they have. But that said, if you look at many of the producers in the South, over the last several years, they suffered mightily in the downturn, lot of them lost money, lot of them had to shut down plants or take downtime, and lay off employees. So they’re very resistant to add back that capacity until they see the recovery really underway, and maybe they’re all from Missouri and they want to see it first kind of the (show me stake). So I think a little bit is that, and as they start to see this recovery translate into prices holding up for lumber and their cash flows holding up, I think you’ll see that production capacity increase and we’ll start to see sawlog prices in South move. So we expect a little bit better in the third quarter, a little bit better in the fourth quarter and certainly better in 2014 than we are going to see this year. So I think it’s just going to be slow. But if you look at the West, you had slower recovery in domestic markets, but you just get that spunk of the increase from demand from the export market and you get back at prerecession levels. So, I think we’ll see it happen. It’s slower than we thought. There’s pockets of opportunities in the South. We’re seeing some of these sawmills start up, well, more demand in the market, people want to make sure they have adequate log supply to serve their customers and we’re starting to see some prices, but it’s really kind of market specific in the South. So it’s kind of something we are focused on every day and spending a lot of time with our customers on that.
Anthony Pettinari – Citi: Along those lines, one of your competitors has recently spoken about export trials with containers of Southern yellow pine from the south and you’ve commented on the opportunity there. I’m just wondering looking at the export opportunity from the south in 2013 to the Middle East, Europe, has that been weaker than expected or is there any way to sort of quantify the opportunities there and how it’s held up against sort of original expectations?
Rick R. Holley – CEO: I think we are looking at about 200,000 tons in 2013 and I think we’re going to come in roughly at that number. That’s what it looks like right now. There is a lot of interest, particularly from China still in southern yellow pine. We do have containers going out of several ports. Fumigation is always an issue, before we have full ship load of logs, we’re going to have to solve that problem. But we’re working in the Chinese and the trading companies are working to solve that. So, we are very optimistic that the southern yellow pine export market is going to grow over time and again, the another source of demand – we’re also tightening up those markets a bit and help with pricing in the domestic market as well. So, we’ve worked really hard at this. So, maybe we’re out in front of everybody else, but we feel very good about it.
George Staphos – Bank of America Merrill Lynch: I wanted just to piggyback maybe one more time on Anthony’s question. Is there a level of demand from a housing standpoint or activity from a housing standpoint that would begin to question, in your view, your forecast of modest sequential improvement in timber pricing in the South? What kind of mile markers would you have us look to either feel better about your forecast or maybe a bit more concerned about forecast and I had a couple of follow-ons.
Rick R. Holley – CEO: Hopefully, our forecast has shown just a slight improvement in third quarter. It’s not much of a – we are not asking have a lot of faith because I think that’s achievable. But I think longer term to see these markets continue to grow as we see a million starts kind of actually come to fruition this year and if we start to see 1 million, 1.2 million move into 2014, I think you are going to see meaningful increase in production capacity in the South and therefore log prices will grow.
George Staphos – Bank of America Merrill Lynch: That’s what I was getting at. Second question I had, you mentioned obviously there are number of pellet plants coming up in the South and also on the East Coast and that ultimately should improve demand for pulpwood. The Company rightly over a number years has significant amount of spending’s in the South as a way of maintaining cash flow during the downturn where there wasn’t a lot of demand for sawlog. Are you in a position given all the thinning that you did to be able to meet that demand from the pellet plants overtime or you might should not be able to hit that market as much as you would like given what you did over the last few years?
Rick R. Holley – CEO: We are wasting a lot of time with these pellet manufacturers and we are attracting them hopefully to the markets where we have the most capacity in the markets that quite frankly are the weakest because they are not a lot of demand in some of those markets. You look at the kind of Arkansas market around across we have a lot of pulpwood coming on in that market. There is not a lot of capacity there. And so a pellet plant going in that neighborhood is going to be a really good thing. If you look at these announced pellet plants in both the Gulf, South and also in the East Coast, the capacity will grow about 8 million to 10 million tons. That’s pellet capacity which you got to double that for the amount of pulpwood that those you will use. So, we are looking at next three years, the pulpwood demand increase in those markets by 15 million to 20 million tons.
David W. Lambert – SVP and CFO: George, as you think about our pulpwood harvest, while we did do some thinning’s in the past. Our overall harvest is going to grow from the 17.5 million to 18 million tons currently to over 20 million tons. It is a good thing that most of the growth is going to be weighted towards the sawlog, but we see pulpwood harvest being stable to up still over that time period and these new facilities will drive a tremendous amount of value to the pulpwood.
George Staphos – Bank of America Merrill Lynch: Last question and I’ll turn it over. If we look at your Real Estate revenue guidance, it suggest they are relatively weaker fourth quarter revenue-wise and in turn from an earnings per share standpoint for Q1 has been a negative year-on-year comp if I’m not mistaken versus 4Q. I think you’ve touched on this before, but is the primary reason for the 4Q EPS negative here just the Real Estate business or are there things we should be mindful of as we model out the rest of the year.
David W. Lambert – SVP and CFO: I think that would be driven more just by fluctuations in our Real Estate business.