Potlatch Corporation (PCH)

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Potlatch Corp. (PCH)

Q1 2009 Earnings Call

April 28, 2009 11:00 AM ET

Executives

Eric J. Cremers - Vice President and Chief Financial Officer

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

Analysts

Gail Glazerman - UBS

Chip Dillon - Credit Suisse

Mark Wineplut - Buckingham Research

Steve Chercover - D.A. Davidson & Co

George Staphos - Banc of America

Presentation

Operator

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 First Quarter 2009 Earnings Conference Call featuring Eric Cremers, Vice President of Finance and Chief Financial Officer' and Michael Covey, Chairman, President and Chief Executive Officer for Potlatch Corporation.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (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 J. Cremers

Well, thank you and good morning. Welcome to Potlatch's investor teleconference covering our first quarter 2009 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, anticipated performance in upcoming quarters, harvest levels and future dividends.

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 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 discuss our first quarter results. We reported first quarter 2009 net income from continuing operations of 28.8 million or $0.72 per fully diluted share as can be seen on page three of the slides accompanying this presentation. This compares to net income of $23.3 million or $0.59 per fully diluted share in the first quarter of last year.

As a reminder, our financial results have Clearwater Paper operations moved to discontinued operations. Including corporate administrative costs directly associated with Clearwater, and interest expense for the debt assumed by Clearwater.

I'd now like to review our first quarter results broken down by segment. Our Resource segment results for the first quarter of 2009 were much weaker than the first quarter of 2008. Operating income in the first quarter totaled $10.8 million compared to 17.2 million in the first quarter of last year. The primary driver behind a negative variance was lower selling prices somewhat offset by lower costs.

Page four highlights volume and pricing trends for the Northern region. sawlog fee volumes were down 17% comparing Q1 '09 to Q1 '08, as we began to scale back our harvest to match demand caused by sawmill curtailments in the region.

Sawlog pricing in the Northern region was down 25% year-over-year and down 21% sequentially with the decline in pricing occurring quickly between December and mid January. Pulpwood volumes in the Northern region were down 27% year-over-year, but pricing was actually up 1%.

Page five highlights volume and pricing trends in the Southern region. Sawlog harvest volumes in the first quarter of 2009 increased 27% over the first quarter of 2008. Several factors drove the increased harvest level, including the shift of harvest activity from the North to the South, excellent weather, which made logging activity relatively easy and our desire to harvest in sawlogs to a receptive customer base.

Sawlog pricing in the Southern region held up better than the Northern region, but prices down 15% year-over-year and only 5% sequentially. Pulpwood volumes in the Southern region were up 48% year-over-year, while pricing fell 12%.

Our strong pulpwood harvest volume in the first quarter came as a direct result of the higher sawlog volumes combined with some higher than normal planned commercial pendings.

As we move into the second quarter, it's important to note that harvest activity in our Resource segment slows dramatically, due to the spring break up in the Northern region we typically experience this time of the year.

I also like to discuss two other opportunities for our Resource business that we're now beginning to capture. First, biomass appears to be a real emerging opportunity for our Resource business. And while it's too early to discuss the magnitude of the opportunity, we currently have long-term supply discussions going on in all three regions of our Resource operations.

Second, we continued to work to lower our supply chain costs and expect savings of 4 to $5 million this year. Some of which is the direct result of lower fuel costs.

Next, I'd like to review our Real Estate business. As shown on page six, our Real Estate segment closed sales totaling $48 million during the first quarter, resulting in operating earnings of 41.5 million. Included in these results is a relatively large 24,500 acre non- strategic timberland sale for $43.3 million. Excluding this large non-strategic timberland sale, we had 37 other real estate transactions in the quarter.

Page seven highlights our Real Estate sales by product type, and as you can see, we sold over 2000 acres of rural recreational real estate in the quarter.

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