Plum Creek Timber Company, Inc. (PCL)

PCL 
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Plum Creek Timber (PCL)

Q3 2012 Earnings Call

October 29, 2012 5:00 pm ET

Executives

John B. Hobbs - Vice President of Investor Relations

Rick R. Holley - Chief Executive Officer, President and Director

David W. Lambert - Chief Financial Officer and Senior Vice President

Analysts

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Gail S. Glazerman - UBS Investment Bank, Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

Collin Mings - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good afternoon, my name is Jamaria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Mr. John Hobbs, Vice President of Investor Relations for Plum Creek. Sir, you may begin.

John B. Hobbs

Thank you, Jamaria. Good afternoon, ladies and gentlemen, and welcome to the third quarter 2012 conference call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations. Today, we have on the line Rick Holley, President and CEO; and David Lambert, Senior Vice President and CFO.

This call is open to all investors and members of the media. However, the Q&A portion of the call is intended for the professional investment community only. We ask that other participants please follow up with any questions by calling me after the call at 1 (800) 858-5347. I encourage you to visit our website, www.plumcreek.com. There, you'll find our press release and supplemental financial statements for the third quarter of 2012.

Before we begin, I'd like to take this time to remind everyone that certain of our statements today will be forward looking, involving known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our filings with the Securities and Exchange Commission. Following today's prepared remarks, we'll open up the call for your questions. [Operator Instructions]

Now, I'll turn the call over to Rick.

Rick R. Holley

Good afternoon. Before we talk about our third quarter earnings, I want all of you to know that our thoughts and prayers are with everyone who is in the path of this terrible storm that is impacting the East Coast. We carefully considered whether to go forward with our earnings call today given the impact of the storm on our investors. Our first thought, of course, is for everyone's safety. After talking to several of you, we decided it was best to get this information into the marketplace, and John Hobbs, David Lambert and I will put extra effort into being available at your convenience over the next few days for any follow-up conversations. Thank you for your understanding, and be safe.

We are very pleased with our results for the third quarter. Northern sawlog prices were a little stronger than we initially thought, and Southern sawlog prices held steady, as expected, while pulpwood prices were very stable for the quarter. Our Real Estate segment posted revenues in the middle of a range of expectation, while the manufacturing segment continued to perform well with panel demand and pricing particularly strong. As a result, we reported earnings at the upper end of our guidance range.

Now I'll turn the call over to David, who will review our quarter, as well as our outlook for the remainder of the year. David?

David W. Lambert

Thank you, Rick. We reported net income of $0.36 for the third quarter compared to $0.31 for the third quarter of 2011 and $0.22 for the second quarter of this year. As Rick mentioned, business conditions were much as we expected. Northern Resources' $5 million operating dollar profit, improved a $1 million from the second quarter's results. The improvement was driven by a seasonal increase in the segment's harvest volume. Our harvest volume of 1.1 million tons increased about 170,000 tons from the second quarter. Sawlog prices declined sequentially from $71 per ton in the second quarter to $69 per ton in the third. We had been expecting prices to seasonally fall about $4 per ton, so pricing was a bit better than we initially expected.

Strengthening domestic sawlog demand in the West offset some price pressure on logs caused from incremental harvest from state and nonindustrial landowners that often takes place in the summer when these lands are more accessible. Export shipments from our West Coast lands increased during the third quarter, and we directed 51,000 tons or 15% of our Oregon sawlog harvest into this market. Export log prices are currently comparable to the domestic market, but as Chinese markets firm, we would expect to again see a price premium for logs sold into that market.

Pulpwood demand remains solid in the New England and Lake States areas with prices holding steady at $42 per ton. We expect our fourth quarter harvest to be about 100,000 tons lower than the third quarter at about 1 million tons. We expect the sawlog pulpwood mix to be similar to the third quarter's 60-40 mix.

We are seeing our lumber mill customers add hours to their production schedules to meet improving demand. We also see a fairly mixed log inventory situation at our customers' mills. Some have full decks, while others are below target levels for this time of the year and are looking to increase inventories going into the winter. Overall, it's a fairly balanced near-term situation. And as a result, we would expect fourth quarter sawlog prices to be fairly stable in the $68 to $69 per ton range for the Northern segment.

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