Potlatch narrows Q3 net income to US$18.6M from US$25.6M a year ago, on revenues down 0.65% to US$151.9M; wood products revenues climb 25.29% to US$86.7M on improved pricing, increased shipment volumes
October 22, 2012
– Potlatch Corporation (Nasdaq:PCH) today reported financial results for the third quarter ended September 30, 2012.
"We are very pleased with our strong third quarter operating results, which exceeded our expectations. The stronger than anticipated demand for manufactured wood products that began in the first quarter has continued through the third quarter. Our Wood Products segment has now had two consecutive quarters of their highest quarterly operating income in over five years," said Michael Covey, chairman, president and chief executive officer of Potlatch Corporation. "The improved lumber markets are also having a positive effect on prices for our Resource segment, primarily in Idaho. The results from our Resource segment increased in the third quarter due to increased harvest levels related to seasonal factors, along with the improved prices. Our Real Estate segment continues to perform well, having closed 28 sales transactions during the third quarter and 124 on a year-to-date basis," concluded Mr. Covey.
Q3 2012 Financial Summary
Operating income for the Resource segment in Q3 2012 was $23.6 million, compared to $25.6 million in Q3 2011 and $6.7 million in Q2 2012. The year-over-year variance was primarily due to the previously announced harvest deferral, mainly in the Southern region, while the sequential variance was due to seasonality. The third quarter is typically the seasonally strongest production quarter, while the second quarter is typically the weakest quarter.
Wood Products revenues were $86.7 million in Q3 2012 compared to $69.2 million in Q3 2011 and $83.6 million in Q2 2012. Operating income for the segment totaled $15.2 million in Q3 2012 compared to $2.9 million in Q3 2011 and $11.7 million in Q2 2012. The improvement over Q3 2011 resulted from much improved product pricing as well as increased shipment volumes. The improvement over Q2 2012 resulted from improved product pricing and a small decrease in costs.
Real Estate revenues totaled $2.4 million in Q3 2012 compared to $14.8 million in Q3 2011 and $8.7 million in Q2 2012. Operating income for the segment was $1.3 million in Q3 2012 compared to $9.9 million in Q3 2011 and $6.7 million in Q2 2012. The third and final phase of a non-strategic/rural real estate sale in Idaho occurred during Q3 2011, resulting in revenues of $9.1 million.
Corporate expenses, excluding interest expense, were $10.6 million in Q3 2012 compared to $5.0 million in Q3 2011 and $9.2 million in Q2 2012. The year-over-year variance was primarily due to higher pension expense related to the company's legacy plans as well as a charge for the mark to market adjustment related to the deferred compensation plans. The quarter-to-quarter variance was due to higher compensation expense as well as a mark to market adjustment related to the deferred compensation plans. Net cash interest expense totaled $5.8 million in Q3 2012 compared to $6.2 million in Q3 2011 and $5.8 million in Q2 2012.
Potlatch finished the quarter with $62.5 million of cash and short-term investments on the balance sheet.
During the third quarter, Potlatch paid a quarterly cash distribution on the company's stock of $0.31 per share.
In September 2012, Potlatch reached an agreement with Minnesota conservation advocates on an approximately 2,000 acre, $11 million conservation sale of HBU property, which is expected to close in late November 2012.
"We are very pleased with our third quarter and year-to-date results and expect continued strong performance as we move through the fourth quarter. In our Wood Products business, prices have begun their normal seasonal softening, but we expect prices to remain relatively firm. In fact, we anticipate lumber prices will bottom out in October or November before beginning to climb again in December as buyers will then be in the market preparing for 2013 and wanting to get ahead of the strengthening housing market. In our Resource segment, we continue to expect our 2012 harvest to be approximately 3.5 million tons. In general, our Resource segment is benefitting from the improved demand and higher lumber pricing in the wood products industry, particularly in Idaho. However, we expect log prices to decrease slightly in the fourth quarter, primarily due to seasonal factors and product mix. Nonetheless, as we look to 2013, we expect housing starts to continue to increase and anticipate firmer log and lumber prices in that year and beyond. We will provide an update on planned 2013 harvest levels during our fourth quarter earnings call in early 2013. Finally, we expect solid earnings in our Real Estate business for the fourth quarter with the planned $11 million conservation sale in addition to other attractive real estate sales," concluded Mr. Covey.
Conference Call Information
A live conference call and webcast will be held today, October 22, 2012, at 9 a.m. Pacific Time (noon Eastern Time). Investors may access the webcast at www.potlatchcorp.com by clicking on the Investor Resources link or by conference call at 1-866-393-8403 for U.S./Canada and 1-706-679-7929 for international callers. Participants will be asked to provide conference I.D. number 33029859. Supplemental materials that will be discussed during the call are available on the website.
A replay of the conference call will be available two hours following the call until October 29, 2012 by calling 1-800-585-8367 for U.S./Canada or 1-404-537-3406 for international callers. Callers must enter conference I.D. number 33029859 to access the replay.
Potlatch is a Real Estate Investment Trust (REIT) with approximately 1.43 million acres of timberland in Arkansas, Idaho and Minnesota. Potlatch, a verified forest practices leader, is committed to providing superior returns to stockholders through long-term stewardship of its forest resources. The company also conducts a land sales and development business and operates wood products manufacturing facilities through its taxable REIT subsidiary.