Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PotlatchDeltic Corp (PCH, Financial) reported a solid adjusted EBITDDA of $46 million for the third quarter, despite challenging lumber markets.
- The modernization and expansion project at the Waldo, Arkansas sawmill was completed on schedule and within budget, expected to increase annual capacity by 85 million board feet.
- The Real Estate segment generated $32 million in adjusted EBITDDA, with strong demand for rural properties and record average prices for residential lots in the Chenal Valley community.
- The company is making significant strides in natural climate solutions, with solar option contracts covering over 35,000 acres and a potential net present value of about $400 million.
- PotlatchDeltic Corp (PCH) maintains a strong capital allocation strategy, returning $27 million to shareholders through share repurchases year-to-date, with $98 million remaining under the repurchase program.
Negative Points
- The Wood Products segment reported an adjusted EBITDDA loss of $10 million, impacted by weak lumber markets and start-up costs at the Waldo sawmill.
- Lumber markets hit cyclical lows early in the third quarter, with prices only beginning to recover mid-quarter.
- The company faced challenges in the Repair and Remodel segment, with sluggish activity due to higher financing costs and low home turnover.
- Hurricane Helene caused damage to approximately 2,000 acres of timberland in Georgia, although the financial impact is expected to be minimal.
- The timberland M&A market is currently sluggish, with a lack of high-quality properties available for acquisition.
Q & A Highlights
Q: We've seen a recent uptick in lumber prices. Is this more supply-driven due to curtailments, or are there pockets of improved demand? Also, is there a new cost support level for high-cost producers?
A: Eric Cremers, President and CEO, explained that the recent uptick in lumber prices is largely supply-driven, with significant capacity reductions and hurricane impacts. He noted that the industry is losing money, which is unsustainable, leading to price support. Additionally, duties increased from 8% to 14%, and the Federal Reserve's interest rate cuts are expected to boost demand. Regarding cost support, he mentioned that the median mill in British Columbia has a breakeven around $400, which could rise due to upcoming duty increases.
Q: Southern sawlog prices have been flat despite inflation. Can you discuss the potential for price improvement in the South?
A: Wayne Wasechek, CFO, stated that Southern sawlog prices are expected to improve as lumber markets recover, particularly in regions with more market tension. He anticipates price increases in the Southeast as lumber production rises, driven by an optimistic outlook for 2025.
Q: Can you clarify the Northern sawlog pricing outlook, considering the density component?
A: Wayne Wasechek confirmed that the 2% to 3% increase in Northern sawlog prices is net of the density factor, which accounts for seasonally heavier logs. This reflects an overall increase in indexed sawlog prices, offset slightly by the density factor.
Q: What is the timeline for solar option contracts to impact the P&L, and has there been any change in customer approach due to the elections?
A: Eric Cremers expressed optimism about solar, driven by global net-zero goals. He noted strong demand for solar options, with execution timelines extending to 2028. While some contracts may trickle in earlier, significant P&L impact is expected in 2026. He sees no change in customer approach due to elections.
Q: What are your expectations for manufacturing costs in the Wood Products segment with the Waldo ramp-up? Could we see breakeven EBITDA in Q4?
A: Eric Cremers indicated that processing costs will drop significantly in Q4 as the Waldo mill ramp-up progresses. He is optimistic about profitability in the fourth quarter, driven by improved lumber prices and reduced start-up costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
