Potlatch Corporation (PCH)

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Potlatch Corporation (PCH)

Q4 2008 Earnings Call

February 12, 2009 11:00 AM ET


Eric J. Cremers - Vice President and Chief Financial Officer

Michael J. Covey - Chairman, President and Chief Executive Officer


Hamzah Mazari - Credit Suisse

George Staphos - Banc of America

Zachary Turnage - Harbert Management

Steve Chercover - D.A. Davidson



Ladies and gentlemen, thank you for standing by and welcome to the Potlatch Fourth Quarter and Full Year 2008 Results Conference Call with Michael Covey, Chairman, President and Chief Executive Officer; and Eric Cremers, Vice President and Chief Financial Officer. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Mr. Cremers. Please go ahead sir.

Eric J. Cremers

Thank you and good morning. Welcome to Potlatch's investor teleconference covering our fourth quarter 2008 earnings.

Before we begin, let me remind you that this call may contain forward-looking statements within the meaning of the U.S. Securities laws. These statements include statements about the company's future business prospects and anticipated performance in upcoming quarters.

These statements are not guarantees of future performance and the company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call.

For a discussion of certain factors that may cause actual results to differ from the results anticipated, please refer to Potlatch's recent filings with the SEC. Also, please note that segment information as well as the 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, President and CEO for opening comments.

Michael J. Covey

Thanks, Eric and good morning.

2008 marked the most significant change in Potlatch's strategic direction since the re-conversion in January of 2006. With the spin-off of Clearwater Paper on December 16, 2008 Potlatch is now a pure play timber REIT with 1.6 million acres and three attractive geographic markets.

We completed the tax-free spin-off of Clearwater Paper, which was the first spin-off ever done by a REIT in a very challenging market. Although Potlatch is much smaller today than it was about two months ago, our revenue has shrunk by more than $1 billion and the employee base has decreased by 75%. We believe the company is more valuable today. Going forward, the earnings stream for Potlatch will be less cyclical with the crisper focus on the long-term management of our superior timber and land assets.

As such, we expect Potlatch shares to trade at higher multiples of earnings and cash flow and in fact that has been the case. At the same time, through the spin-off, we delivered value to shareholders with the distribution of shares in a new public company that has competed successfully in the paperboard and tissue market.

As planned, during 2008, we increased the harvest of financially over-matured timber by 11% or 400,000 tons. Although log pricing late last year was weaker than we anticipated, we elected to complete planned deliveries to customers and modestly reduced overall harvest levels in the first quarter of this year, which we've done.

We sold 18,000 acres of HBU and rural recreational land in 2008 at prices that were inline with our 2007 sales. We also sold 43,000 acres of non-strategic timberland in Northern Minnesota in a tax-efficient like-kind exchange following the purchase of 179,000 acres in Central Idaho in 2007.

On January 9, 2009 we announced the sale of 25,000 acres of non-strategic predominately immature timberland on the eastern periphery of our Arkansas ownership approximate to the Prescott sawmill which we closed in April last year. The transaction price of $1,745 per acre validate that the timberland asset class continues to be attractively valued by private investors.

2009 was not without some disappointments. Our Wood Products business lost $13.7 million for the year, including an $11.4 million loss in the fourth quarter. On a cash basis, this represented an EBITDA loss of $3.5 million for 2008.

Clearly we need to return our Wood Products business to profitability and at least breakeven on a cash basis in the near term. While we certainly expect to earn an economic profit in this business throughout the business cycle, it is unrealistic to expect that to happen in 2009, given the severity of the downturn in housing starts and the weak demand for building materials.

We began 2009 with a strong balance sheet and a $250 million revolver, which was renewed in December of 2009, excuse me, 2008. Outside of the $100 million credit-sensitive debt obligation which we expect Clearwater Paper to retire, we have less than $1 million of total debt maturities in the next 24 months.

After Eric covers our fourth quarter results and our outlook for 2009, I will comment on our dividend policy at the conclusion of his remarks.

Eric J. Cremers

Thanks, Mike.

Let me begin by reviewing our fourth quarter results. We reported net income from continuing operations in the fourth quarter of 2008 of $5.4 million or $0.14 per fully diluted share as can be seen on page three of the slides accompanying this presentation. This compares to net income from continuing operations of $24.4 million or $0.61 per fully diluted share in the third quarter of 2008 and $7.5 million or $0.19 per fully diluted share in the fourth quarter of last year.

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