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Potlatch Corporation (PCH)
Q2 2010 Earnings Call
July 29, 2010 11:00 a.m. ET
Eric Cremers - VP, Finance & CFO
Mike Covey - President & CEO
Mike Roxland - Merrill Lynch
Gail Glazerman - UBS
Chip Dillon - Credit Suisse
Steve Chercover - D.A. Davidson
Previous Statements by PCH
» Potlatch Corp. Q1 2010 Earnings Call Transcript
» Potlatch Corporation Q3 2009 Earnings Call Transcript
» Potlatch Corporation Q2 2009 Earnings Call Transcript
I would now like to turn the call over to Mr. Eric Cremers for opening remarks. Sir, you may proceed.
Well, thank you and good morning. Welcome to Potlatch's investor teleconference covering our second quarter 2010 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 and our press release on the presentation slides and in our filings with the SEC concerning the risks associated with these forward-looking statement.
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 and CEO, who will make some introductory remarks. And then I'll review our second quarter results in more detail, Mike.
Good morning. Each of our three core businesses performed very well during the quarter and both sequentially and year-over-year improvement in each segment. The unexpected run-up in lumber and plywood pricing not only help our wood product segment results in the second quarter more than we expected but it also boosted log prices and therefore results in our Resource segment improved more than we expected.
Also our Real Estate business continues to post solid results in spite weak consumer confidence and this sluggish economy. As we announced this morning, we've taken additional steps to monetize both core and non-strategic timberland Wisconsin and Arkansas, the sale agreement announced this morning with RMK Timberland Group in combination with the option agreement for additional land sales in the fourth quarter is expected to provide approximately $63 million of additional cash in our balance sheet by yearend.
This amount, in combination with our current cash balance of approximately $40 million as well as an un-drawn $250 million revolver should provide additional assurance to investors that our current dividend of $0.51 per share per quarter is sustainable. Even in the face of uncertain economic recovery. Moreover, FFO generated in the second quarter, which is our weakest quarter due to seasonal weather conditions that limit harvesting, covered our second quarter dividend and we expect a significant surplus in funds available for distribution in Q3 compared to our normal quarterly dividend of approximately $20 million.
Next I would like to elaborate from a minute on our announced timberland sale timberland sale, the transaction is somewhat complex as it not only is a two-phase transaction but it also involves land in two states. So let me provide some additional details by examining the Q3 transaction. Calculating the average price breaker, in other words, taking the $29 million sales price and dividing it by the 41,500 acres included in the sale for an average of $700 an acre is very misleading.
Wisconsin and Arkansas are completely different timberland properties with completely different timber markets and values. For example, the Wisconsin acreage is primarily a pulpwood and small log, sawlog market and the land is encumbered by a conservation easement prohibiting development. As such, these factors make the Wisconsin partial which is 71% of the total acreage being sold with far less on a per acre basis than the Arkansas acreage.
It's also worthwhile to spend a minute delving into the details of the Arkansas acreage as it is the least strategic of all of our acreage in Arkansas. The Arkansas land being sold in Q3 is less desirable to us both because it is further from markets and is of poor qualities from the rest of our Arkansas acreage. The property is generally on steeper slopes, making logging more difficult and therefore more expensive.
Furthermore, the saw quality is below average compared to our other Arkansas acreage and thus has higher replanting cost and has higher tree mortalities thereby reducing competitive value.
In summary, we estimate RMK value the Wisconsin easement land at around $400 an acre and the Arkansas land is around $1,500 an acre and both reflect a general 15% or so price decline, from the peak of timberland transaction pricing a few years ago. And although we are now exiting Wisconsin market we entered in 2007, we are doing so with a net cash gain. And while we are very satisfied with the valuations we received in these transactions, we believe that the transaction provides us with enormous amount of financial flexibility going forward. I'll now turn the call over to Eric for these remarks and then we'll take questions.
Well, thanks Mike. We reported second quarter of 2010 net earnings from continued operations at $11.8 million or $0.29 per diluted share as can be seen on slide 3 of the slides accompanying this presentation. This compares to net earnings from continued operations of $3.7 million and $0.09 per diluted share in the second quarter of last year and $1.4 million or $0.03 per share in the first quarter of this year.