Potlatch Corporation (PCH)

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Potlatch Corporation (PCH)

Q4 2012 Results Earnings Call

January 29, 2013 12:00 PM ET


Michael Covey - Chairman, President and CEO

Eric Cremers - Executive Vice President and CFO


Gail Glazerman - UBS

Mike Roxland - Bank of America Merrill Lynch

Chip Dillon - Vertical Research

Collin Mings - Raymond James & Associates

Joshua Barber - Stifel Nicolaus

Mark Weintraub - Buckingham Research



Good morning. My name is Stephanie, and I will be your conference operator today. At this time I would like to welcome everyone to the Potlatch Yearend and Fourth Quarter 2012 Earning Conference Call, featuring Eric Cremers, Executive Vice President and Chief Financial Officer and Michael Covey, Chairman, President and Chief Executive Officer for Potlatch Corporation. (Operator Instructions)

Thank you. I would now like to turn the call over to Mr. Eric Cremers for opening remarks. Sir, you may proceed.

Eric Cremers

Thank you and good morning. Welcome to Potlatch's investor teleconference covering our fourth quarter 2012 earnings. Before we begin, let me remind you that this call may contain forward-looking statements with regard to our business and operations. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also please note that segment information as well as a reconciliation of non-GAAP measures can be found on our website, www.potlatchcorp.com, as part of the webcast for this call.

I would now like to turn the call over to Mike Covey, our Chairman and CEO, who'll make some introductory remarks, and then I'll review our fourth quarter results in more detail. Mike?

Michael Covey

Good morning, everyone. We're very pleased to report fourth quarter results and total earnings for 2012 that were both well above our expectations. Our Wood Products division continues to perform exceptionally well bolstered by a significantly higher demand and pricing as the housing market recovers. Furthermore, the division finished the year with its best annual performance in the nearly a decade.

Our Resource segment performed as expected for the quarter and the year, with lower earnings driven by our intentional decision to defer harvest volume in order to preserve our trees for better market conditions, which we believe are rapidly approaching.

Note that we harvested just 3.6 million tons in 2012, roughly 1 million tons lower than our potential of 4.6 million tons. Earnings from our Real Estate segment were robust for the fourth quarter and solid for the year as a whole especially considering that we didn't execute any large non-strategic timberland sales.

Over the past year we have witnessed numerous industry developments that we feel have set us up for a very strong 2013 and beyond. First and foremost, lumber demand in North America is gaining significant momentum, demand this year is expected to increase by about $4 billion board feet, buoyed by a markedly improving housing starts.

Further, repair and remodel activity is also expected to improve as higher housing prices strength in consumer confidence, and spur in repair and remodel activities. Several other factors, Chinese demand, the mountain pine beetle in Canada, limited dealer inventories are still recovering manufacturing base, are all contributing to higher lumber prices.

As a result industry experts are forecasting lumber prices to increase, roughly 5% to 10% comparing full year, 2013 to fully year 2012 which will further increase our wood products earnings. As is typical improved lumber pricing eventually finds its way back to the stump. This year, this past year we saw log prices in our Northern region, continue to move higher along with lumber prices as one would expect, but prices on the south remain at relatively low levels in-spite of sharply higher lumber prices.

We believe at higher sawlog prices in the south are inevitable, and this may take a little more time. Consequently we are modestly increasing our harvest level in 2013 to 3.8 million tons. Although sawlog prices have begun to improve we continue to believe our shareholders are best served if we patiently wait for even better sawlog prices, which we believe is only a better of time.

I'll now turn the call back over to Eric to discuss the quarter, a bit of our outlook for 2013 and then we'll take questions.

Eric Cremers

Thanks, Mike. As displayed on page 3 of the slides accompanying this presentation, we reported net income of $13.9 million or $0.34 per diluted share for the fourth quarter of 2012. This compares to a net loss of $1.5 million or $0.04 loss per diluted share in last year's fourth quarter. And net income of $18.6 million or $0.46 per diluted share from the third quarter of this year.

As a reminder our fourth quarter 2011, results were impacted by a $1.2 million pre-tax charge, relating to EPA proceedings regarding clean-up of one of our properties in Northern Idaho, and we had no additional charges in 2012. I'll now review our fourth quarter 2012, results broken down by segment.

Operating income and margins trends for our resource segment are displayed on page 4. Operating income totaled $10.5 million for the quarter, which compares to operating income of $23.6 million for the third quarter and $12.6 million for the fourth quarter of last year. The negative income variance from the prior quarter is primarily attributable to lower harvest volumes related to typical seasonality, particularly in our Northern Region.

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