Potlatch Corporation (PCH)

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Potlatch Corporation (PCH)

Q2 2009 Earnings Call Transcript

July 28, 2009 11:00 am ET

Executives

Eric Cremers - VP and CFO

Michael Covey - Chairman, President and CEO

Analysts

Gail Glazerman - UBS

George Staphos - Banc of America/Merrill Lynch

Mark Weintraub - Buckingham Research

Mike Wakelin [ph] -Banc of America

Chip Dillon - Credit Suisse

Steve Chercover - D.A. Davidson

Peter Ruschmeier - Barclay Capital

John Curran [ph]

Mark Marbart - Ramsey

Presentation

Operator

Good morning. My name is Sandrel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch second 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.

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

Eric Cremers

Thank you, and good morning. And welcome to Potlatch’s investor teleconference covering our second quarter 2009 earnings. Before we begin, let me remind you that this call may contain certain forward-looking statements within the meaning of US 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 in the supplemental materials on our Web site, www.potlatchcorp.com, as part of the webcast for this call. I would now like to discuss our second quarter results.

Despite a challenging economy in the second quarter, we made significant strides in several areas. Our balance sheet has now improved as Clearwater Paper completed the refinancing event in the second quarter, effectively retiring the credit sensitive debentures from Potlatch’s balance sheet. Further, we recently entered into a $50 million timber deed sale agreement that we expect to close later in the third quarter that will further bolster earnings and cash flow and help de-lever the balance sheet. Finally, our wood products business improved considerably in the second quarter, which I’ll talk about more in just a minute.

We reported second quarter 2009 net income from continuing operations of $3.7 million or $0.09 per fully diluted share as can be seen on slide three of the slides accompanying this presentation. This compares to net income from continuing operations of $18.9 million or $0.48 per fully diluted share in the second 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 retained by Clearwater.

I’d now like to review our second quarter results broken down by segment. Our resource segment results from the second quarter of 2009 were weaker than the second quarter of 2008. Operating income in the second quarter totaled $4.5 million, compared to $12.2 million in the second quarter of last year. The primary driver behind the negative earnings variance was the planned lower harvest volumes and lower log selling prices, somewhat offset by lower costs.

Slide four highlights volume and pricing trends for the northern region. Saw log feet volumes were down 47% comparing Q2 ’09 to Q2 ’08, as we executed on our previously announced plan to scale back our harvest levels to match the lower demand caused by sawmill curtailments in the region. Saw log pricing in the northern region was down 33% year-over-year, but actually increased 2% sequentially. Pulp wood volumes in the northern region were down 31% year-over-year, and pricing was lower by 7%. Fortunately, as Michael will discuss in a moment, we are now seeing signs of price stability both in the northern and southern regions.

Slide five highlights volume and pricing trends in the southern region. Saw log feet volumes in the second quarter of 2009 increased 18% over the second quarter of 2008, and increased nearly 4% sequentially. Saw log pricing in the southern region is holding up better than the northern region, with prices down 9% year-over-year and only 4% sequentially. Pulp wood volumes in the southern region were up 1% year-over-year, while pricing fell 6%.

Next, I’d like to review our real estate business. As shown on slide six, our real estate segment closed sales totaling $4.7 million during the second quarter resulting in operating earnings of $1.5 million. In total, we have 38 real estate transactions in the quarter, coincidentally, the same as in Q1.

Slide seven highlights our real estate sales by product type. And as you can see, we sold nearly 3,000 acres of rural recreational real estate in the quarter, up from the 2,000 acres we sold in Q1.

Slide eight highlights price trends for our real estate business broken down by product type. The second quarter is generally a slow quarter for our real estate business. So in fact, we are encouraged by these results. Furthermore, our real estate business continues to be relatively stable, and while demand for HBU property is relatively soft, the demand for rural recreational real estate and non-strategic timber land remains relatively firm.

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