PCH - Earnings call transcript Q2 2018 | PotlatchDeltic Corporation

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Operator

Good morning. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Corporation’s Second Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions] Thank you. to call like to now would turn over the Mr. I Financial Vice opening President Richards, Officer and Jerry Chief for remarks. Sir, you may proceed.

Jerry Richards

and our Thank warning the to then Operating over call statements. at the Officer; and slides website covering presentation statements. good SEC Officer. Mike the Covey, Mike to morning. will risks This can call a in room I note reconciliation Cremers, measures statements the Chief comments second our cover call in our please and review press XXXX on www.potlatchdeltic.com. Please webcast and forward-looking Executive and me quarter our for some these release, I quarter concerning be our filings you, and forward-looking found second President results non-GAAP are of will with will associated With the Eric in now contain third outlook. Chairman PotlatchDeltic’s on the and Also, Ian, that investor earnings. the Welcome and with quarter Chief turn

Michael Covey

strongly every given Thanks, generated The was with lumber XX exceeded full closed EBITDA we the our products since adjusted met in in our by We integration Deltic Jerry. quarter the wood merger expectations strength nearly This of quarter XX the February was or accretive first merger and morning. cash market. Good flow has measure. million. the million of contributing

the record we The the Lengths $XXX run a that feet a have on in Our due composite documented. historic went factors expected. has June quarter and board lumber X,XXX peaked framing variety Random lumber which started in to market second pullback been per well the at a of

started are and rates expectations. strong continues and Industry single-family to robust starts that expect fire in do be the has and we capacity and are British bottlenecks housing remodel The U.S. Columbia West. logistics transportation in utilization and XX%, pricing not However, exists repair season line segment fundamentals around with easy, collapse. remain to with

to For believe the deliver about these have we strong results price we for reasons, our our in was year. than well-positioned X% seven the been of lumber declining of the higher last products for Even average the price though July average prices segment realized continue to is the quarter. for weeks, lumber second wood remainder

Northern through to quarter first will to volumes part higher lumber be second prices were We expect lumber our $XXX sawlog to sawlog volumes delivered per operations addition harvest higher our the in higher has in the that average will prices. prices seasonally full-year Southern about higher of full the significantly Resources over board the The index quarter volumes quarter third existed quarter. is XX% also to market lumber Index first Northern increase the relative harvest lower our translated EBITDA quarter reflected just June. quarter. first to feet sawlog due strong this to compared XXXX price the on timberlands, that harvest This is prices. to of was since than log the Idaho third lumber reflect for into X% second thirds or strong be the two of mid-August Deltic through over

plans. also or team resource and southern making progress management will developing genetically Examples cost is fertilization include that practices site seedlings, good Our growth identifying reduce planting increase treatment rates. specific

segment of just real-estate solid acres. XX,XXX the on rural quarter sale closing another over Our had

involving all area Boundary the over Waters to to call, on a land Canoe Total conservation sales near quarter the multiyear the discussed to in sale area. Federal sales of rural This use are could a up conservation purchase As agencies the last the secure second Boundary represents options about that the larger acres funding period fifth add and Minnesota. Canoe land Northern fund million Waters XX,XXX approximate $X and five exercised. year a included of State of earnings option

Deltic, with few that pleased a of integration in the I'm the Regarding really progress we made months. have just

$XX production has run ramped end levels Our of at rate and million harvesting Mill increased June. was have the up. annual synergy

XXXX. the stock. Recall a $XX of that start In earnings with of increasing be and payroll are associated other million in our corporate well in addition, remainder consolidated. to Deltic the quarter, Overall when until annual to profit off on synergies By headcount amount is a to the been of treated approximately cash REIT In are and close overhead not of be achieve some complete will cases and available we the by the all goal end are systems Deltic REIT. our we per estimated and the million least as yearend is $XXX will most we in with by fourth and be to at end a cash XX% paid the affective merger converting great have distribution for way will realized. accounting, complete rationalization

special payout to The once the available late synergies. revisit Our this year, have more markets, we ratio visibility be progress distribution. will and targets to for cost achieve around excluding Board synergies dividend XX% cash expected the year, on our distribution of in is dividend the for our a

of with share our the the on our about is price. authorization in considering in recent a plan weakness share reviewing repurchase share thinking repurchases August. end Board Now We evolving also

then are prospects housing I ordinary quarter will to extra We Jerry take from is to well-positioned up an turn questions. are which market the now shaping and discuss for excited to it XXXX year. the be PotlatchDeltic's benefit and about will U.S. back we to improving

Jerry Richards

Thanks Adjusted first the million of higher XX% quarter which in with or EBITDA the second X quarter. than Mike. is million start slides. the $XX.X $XX.X Page was I will

full first XX quarter. The second from quarter includes operations the only to for the results Deltic's days in period, compared

first moisture due second the harvested quarter, quarter. the in seasonally basis lighter spring increased higher seasonally the on results. second quarter. index XX% segment's The the per through and X. harvested is sawlog was down in our the due million As to adjusted more his quarter resource operations run in prices effect Information X from $XX.X each $X the Slide on the second provide content. quarter, which EBITDA second segments prices in I a first sawlogs volumes Mike mentioned on review quarter the This to This is combined of tons in of ton North strong higher lumber on breakup. for the operating reflects million prices quarter. the XXX,XXX displayed tons we in the from increase now segment historic in and benefited the comments, XXX,XXX logs color second will our than lower of sawlog is in Northern lumber

of Turning the X.X increase the was up result quarter, South, XX% of quarter million harvest harvested to the we to full quarter. tons Most compared timberlands. first was a the a on in the which Deltic

the Arkansas In good second conditions quarter addition, quarter. to the compared extraordinarily logging in wet the in first in were conditions

prices sawlogs Our the assumed The both our X% quarter. second were of better volume the price in than southern sawlog were we to hardwood higher and quarter compared first in forecast.

of $X.X was type in timberlands. compared higher was volumes. quarter price second Southern a sawlogs there Log solely the segment diameter more This flat million from over large first of with quarter net costs and quarter Deltic increase remained the While were mix haul quarter. harvest by in due logs valuable higher to product the Pine the

the wood seasonally to which X. was shift segment's in higher crops Slides covered or X North. is which products, adjusted $XX.X compared I The up first $XX.X on quarter. Forestry will the EBITDA million million, to now and were is XX%

feet $XXX feet anticipated in per shortfall Lumber million XX%, to in primarily shipping increased from average million the second shipping in million the second we feet quarter. X,XXX prices was increased feet to second lower Our the the XXX than lumber quarter. to that This due board quarter first feet challenges. X,XXX and was The in quarter. per truck the shipments rail board XX XXX board board board $XXX

the quarter. We catch for board plant’s in mills contribution MDF plan feet The a I to and volumes. that XX% due belt for EBITDA over $XX $X.X Deltic's lumber plant synergies plant press our our will completed due at Slides in to second two the ship full EBITDA estate in panel is estate's in Deltic just MDF million of included increased mills Cost of not X the Real Improvement shipment on of segment to benefiting in target. and million inclusion now of to ran year. expect MDF lumber a XX. the our XXXX XX for the million and higher the quarter. replacement quarter. related second the was increased increased press Adjusted billion $X.X change year real utilization still cover adjusted half of up from and in the sales to

rural of land $XX,XXX former We to lots conservation $XX timberlands business, the XX,XXX rural rural the this transaction, a listed quarter. reflected for development sold sale properties in quarter, we fourth call, lots Lower real once earnings acres quarter acres at there opportunities sold first in is timberlands lot per per the entity per of the second estate the cycle Deltic development for sale of target. our average acre first $XXX in we weighted Lot price approximately we nonstrategic sales total on next average price million a on In not on a near lot of X,XXX rural are included Deltic that of [Indiscernible] our of heavily the Including of discussed believe in Deltic As completed. closed higher of is estate Valley real the lots solid Sale of an the Chenal of were mix and end to a quarter. June. XX smaller April. quarter. synergies

against occurred in on Slide February. has our merger closed Excellent synergies Turning XX. operational and to progress targets since the efficiencies

run $XX will confident a of $XXX.X of end rate we with remain Mike Shifting to ended and XXXX. $XX on liquidity rate We that XX. presented run million mentioned, a we in the million cash. of at least at are As highlights Slide quarter at June of the achieve

million on our also revolver. available have We $XXX

special to shareholders the to timber in the complete reminder, to we status. conversion operations This a cash as million of of REIT dividend quarter. As fourth is plan distribute Deltic's $XX to a

and return our of contributions increase, re-instituting acquisitions XXXX, repurchase paying We X.X% share are accelerating in high debt a additional our an also including maturing in evaluating the investing plan, other mills, our uses to cash, expenditures down some project we to the accelerating XXXX equipment take projects. to related Capital deposits of second the advantage were higher income tax delivered to in XXXX return $XX.X lock-in plan million high pension are quarter, rates. dividend

financial the We month. timberland policies press Their as expenditures of release BBB expect million conservative year. will $XX million minus pricing, in rating be the S&P earlier strong credit for for cited upgraded $XX the this high the upgrade. reasons to range our in grade capital to margins investment coverage, and demand

are S&P investment and grade both rated now Moody's. We by

Before are our I want a we have combined CAD comment I guidance, us we on company. a and behind no longer outlook, that full quarter as EBITDA that point out to now providing

reminder merger. The help the to are a with Slide of moving was on assumptions are embedded third-quarter a while lot As outlook with concluded provided there guidance our XX. model pieces solely calibration, in

expect the the for high-point We as third significantly resource their quarter in up harvest EBITDA to adjusted year. be volumes reached

selling We exceed lumber EBITDA the expect slightly be mostly to real conservation of EBITDA second shipments in the that will the the increased than fewer adjusted the large be lower higher will about in estimate comparable of products quarter. to rural quarter significantly amount half This third We sales acres, second of quarter anticipate estate due assumes the adjusted third quarter. to due segment that by generated quarter. lack in slightly We effect prices. third wood lumber the

lot increase corporate be the far. remainder strong development, were corporate thus has the in to year. occur the to an bonus run results. reflects tremendous to expected The due sales This the the $XX run of million quarter most addition, of for The rate rate adjustment expense to fourth per planned accrual is been quarter. In rate our the year in

would volumes, in expectation increase prices be to levels. our second This to to that than We quarter Idaho concludes open third adjusted harvest like lumber the meaningfully call prepared remarks. due lumber XXXX. settle I shipments and our That higher primarily at to a quarter is our XXXX will seasonal Ian historically now Q&A. expect strong higher

Operator

the from John question Instructions] of Our Merrill is Bank first of Lynch. from line [Operator America Babcock Certainly.

John Babcock

good morning or you afternoon good guys. Hey for

quickly to want the you guidance clarify in. me. step Just Could

and wood missed I kind think XQ? I that of on resources for

Michael Covey

terms log in of So adjusted levels, John?

John Babcock

yes. exactly, Yes

Michael Covey

pretty for we and have seasonally have volumes. meaningful then adjusted think significantly so Yes, increase Idaho, wood EBITDA volumes so quarter second harvest higher QX, be will higher in than meaningfully we resources in a products or we shipment

either more decrease there we up that think lumber we or it's offset so slightly. either slight prices So comparable products than is think will wood a in

John Babcock

great, And clarification. Okay ahead. thanks then the for secondly…go

Jerry Richards

due QX. is half what the real And to conservation about estate was, just fewer of it sales in

John Babcock

I to be I you if pricing kind Okay, collapse then And seem about guys appreciate of lumber wondering the could don’t from a here. was now, in market lumber of expecting that. talk you much

for levels going at and and else from seeing want to lumber stand sense the levels both of for Just are better distributor get where a also get a us here? sense is market the help middle you might that inventory kind what where

Eric Cremers

Eric, Well is John. this

limits didn't sense were price low probably was you those buy on levels. run-up relatively a What out really We in the inventories for so quarter. it to of are lumber Our ton the put in second that dealers is trying pushed lumber networks strong they credit dealer saw think a inventory.

to so come Canada coming Canada bit some off in wood off, trapped pressure in places different or is as was dealer but the little levels now view from inventories. starting a inventory is some that down in are I come low of are inventory the up that to have year, see it of pretty read and earlier that three out You in our now starting that pressure

things be to our the there it would industry. are that of so of I I in have levels. eased. but I own say expect seen those issues comes a QX, business, now QX at know lot and to I at inventories when levels, the typical Now have were we In mills would mean pressures mills, transportation relatively typical across probably

John Babcock

is more on your but related I you. kind per back that wondering confidence the was And the your Okay, China thank having, forth kind worrying or and to you are doesn’t then and on even impact next the impact a seem any to trade I even was with this se, direct of customers if have having of situation perhaps business.

can commentary realized there significant? you any So helpful but be not too may be would provide impact

Michael Covey

point of in not I that the the outside this lumber commentary largely tariff but course continues, been administration. think it’s relatively the mentioned at significant any by Canadian with of situation is

John Babcock

confident your far customers I pretty at Okay point? and as do this mean as they seem still

Michael Covey

Yes absolutely.

Jerry Richards

Yes.

John Babcock

I Thanks. will well jump back Okay, into that. queue. appreciate the I

Operator

from And Raymond our question next Collin is James. of from line Mings the

Collin Mings

good guys. morning Hey

the John's underlying on pricing would lumber as you what First half attribute think normal the last or about of in and some month just seasonality following to fundamentals? you so up just question, decline sort again over versus in shift

Michael Covey

up roughly guess lumber Collin of ran our spring due to third in the Well is was down the transportation issues and Canada. a prices to that half in that

of trend the are across back So border the now wood some us and but get is that to less going those or price some that behind still flowing is more of issues here. given

to trend all and hit Demand right some with the point floor time still continuing bottom, stocks robust will and so back kind Once comes numbers there be announced seeing had in inventory any direction. go of weak, market you prices prices at prices We is is get a prices and recently bit with so play. a you you I like falling. little pretty pricing maybe lumber here here for are thought think those find remains from psychology are homebuilding a really fundamental bottomed to are what you are do again. this and the think started rollover, dealer were at supply robust if just most stayed and more in think still dealer part have before the lumber lumber it back it but be to away in a demand, and to you we

I is your the price if but answers run-up that and characterize we question, don’t know So decline. how that then

Collin Mings

even Maybe directly impact yet, of Idaho? operations any moving impacted just in fires bit is ownership most little on an just the Idaho south, activity any been to if there in fire like looks there indirect of update situation, not your but has further the have an impacted it to

Michael Covey

No.

with risk scale the the rating North and low, So Wardens are by Idaho District extreme, we the moderate, and moderate. rated of is currently in Fire moderate the still today fire as high

a We but in no size, was Idaho burned-up. acre ownership of couple small one they merchantable have inventory fires in our and quickly been had than extinguish less

So of southern fires on weeks to up two us pick far the rating possibilities before been and central think couple and in fire you to weeks that more tell are of those high go we got Idaho they so far, fire good, to as the probably got go. most we have we have and we wardens more mentioned about so the spared, from will still moderate, a they

far question the any really haven't and answer to Western your is, the And are of that D.C half hitting effects seen no secondary so from your and good. of fires so second So U.S. part the we far.

Collin Mings

just Okay alright. turn will I it then one And over. last and one

like timber front maybe we a nominal about from your update that on just know Just went quarterly timberland's cash with this calls, perspective. plan given in the quarter, maybe thinking lot dividend of there, and statement have the the an maybe prepared growing acquisition but the given allocation us or you growing a to activity think during repurchases update just on have flow through But becoming some footprint, you the amount you I'm the cash Mike Board, margin maybe discussed purchase again timberland discussions more pullback just share the capital the the on I it the flexibility prior as stock, a of of looks the have attractive and just on balance. remarks about there. lot but

Michael Covey

are of Idaho. here footprint where in U.S., footprint the to we already the Central grow to geographically and like the areas certainly a in Company South Northwest adjacent have that we have While and

last very in do the the properties more market It’s markets of of to XX,XXX can challenging know us at currently on something the shortage kind billion] advantage hard timber it’s acquisitions has and the find these for with Southern a we about we do with that Northern find in think [X current Mississippi to still Idaho of Alabama, but acres year market, you and Arkansas. that attractive (Ph). is As small returns to but on few been those the bolt-on, of that place also some are level price to bought properties been attractive has acquisitions. have kind try that there bolt-on as

Collin Mings

it guys. for I Okay. you the turn Thank color over. will

Operator

question Glazerman next the Equity our line And from is ROE of Gail from Research.

Gail Glazerman

Hi.

more outlook think Just we back lumber that assumption detail the into is going quarter is little the about little to just end a well, more bit probably you should of and how log in on or rebound to have the going timings that lags and as flows your what a give you the is Northern in assumptions, pricing there color maybe and some are by quarter there? you locked higher expecting are it where stabilize pricing that pricing and can

Eric Cremers

there you mid from so late see our affect that Eric. lag so lumber future, this always effect four we Gail selling prices when business. that our from into is lumber immediate the so weeks out effect so June our are to Yes of to always say anywhere is We feel until we because didn’t two sell forward prices lower peaked in when actually let’s a the July

frankly that were course prices year the have at higher QX. where over finish we the prices coming So than gradually we started will year, the the year of in down we

decline that the will products business. prices, just slow, very in but a in back relatively move of the through So of resulting slow, for prices demand wood high, we are high through margins our move a still as we gradual year, there softening gradual be

answer So on guess your question does that I that part?

Gail Glazerman

get $XX was you like that? differences mean just the are great composites obviously far better performing head, Random which are Lengths you is there than are are I I that a my from I significantly kind what Yes mean trying of doing, something cry

Eric Cremers

with XX%, QX, business Well up we any to we Random so part the there will line Lengths product our been Random XX% are and XX% have so to most in line we we Lengths differences versus Lengths, were going you are much QX Lengths, Random our Random now I think up to two, very in with were was Random the between Lengths. but track mix given for quarter between see in deviations and

sawlog prices lumber, prices. the Northern XX% to to production prices. got western so relates lumber XX%, drill Yes, you recent was to out the on going is up Idaho indexed prices in price our is it Random I up sawlog Northern as what the of our in sawlog Now index to most you sawlog of northern really what were quarter Lengths find in tell can this with XX%. But Western

the issue difference summer really there between is the and when looks a its flat. like sell density actually dries an per the may X% wood it but wood through it's dimensional be get so into on as MBS, going a about due was ton months So so the you up out, price two lighter, of that entirely to it we basis

Michael Covey

we higher you averages what So you quarter's at we rest price said from one lumber outlook the last was internal lumber QX for on like correction outlook color our That call of that talked for than level call than we not on explicit higher higher of forecasts the mentioned but running higher additional guidance, have if which terms also anticipated. built EBITDA the are with in the the or will as last of about a call. means about we when level, had XX% lumber quarter's into look our that peak price that a earnings providing are we year, I to is the in prices longer we effect piece coming

just products that just probably wood that represents EBITDA XX that through that XX segment. you or million additional when for million represents So pencil for

Gail Glazerman

of up mentioned that upside things being so initial couple your pieces and five to of million about of of starting you you and to HBU any sort of small that quarter, Okay you synergies incremental to MDF script weren’t just synergies, quarter to million during far? there stated have are may you five is to maybe additive in those XX it seven talked seven are see what and given your the million kind on how specifically and add they have were that you part performed million bits last last a that update to million

Jerry Richards

Yes, synergies; so that rate are the yet, million five flow to and one tell there the run of operational Gail starting XX million are are not synergies, you we the so touch eight number because million said quarter half last seven day we I we filing. there to just with is $XXX,XXX on way don’t to with probably the our they would are we we taxes, franchise area these annual saw are have they these subsidiaries through know about I other to P&L every I save now a virtually going XX eight to fewer business. that year probably of

great on they they a are collectively add-up those small, synergies. progress lot but making we to individually capturing So, and are

Gail Glazerman

Okay, Any in sort that should for? and any then new one. just investments your of update, we wood the basket South be one looking in last

Jerry Richards

In and and not? what competitors terms of mills

Gail Glazerman

Yes.

Jerry Richards

I a have year collectively are X of feet those think board increased of to I that they least South, all announced and to but XX like been new mills XX there tons No, not yet are that at log million publicized. is driving in demand well think XX million operational that the amount something

Michael Covey

wood is pretty of kind which Alabama new there. that the which but in Alabama, are announced hasn’t been our yet, in we the the for this basket are pine an GP most central to several fall and we us start the have improving of basket wood for either which we well starting market have see mills will is in as exciting cited those Talladega, think built our including signs as all seen their [Indiscernible] advantageous market logs I

Jerry Richards

jump very coming. point Mike's just to in so ton to $X here sawlogs Pine two area rivers have We a that recently a saw where in increased just price see Southern demand Talladega. and as central Yes Alabama people you taking the Yellow

Gail Glazerman

Very helpful. Thanks so much.

Operator

question from next Ketan Markets. Mamtora BMO from is Capital our of And line

Ketan Mamtora

that for all, saw know your in basket in view that how past timberlands you recover, are also sawlog first question Southern logs you Thanks business mentioned of so growth think investments term? wood my Southern the I pricing how time or saw mill the My you in in M&A is it taking buyers have further you is a question. versus South. changed at of relative long pieces those How attractiveness in about take in some change the think of will net that your your to two mill

Michael Covey

No, really Ketan.

focus mills the improving on the and We in continue and got particularly to that expanding mills attractive plant. the new three we pine own investments, capital have we Southern MBF and

on than focus that We will activities. standalone any rather M&A

expanding. business internally and organically We will than kind REIT, continue to focus products wood on timberland opportunities as a rather timber but the we grow of

Ketan Mamtora

investments kind you any focused count? REIT saw in on mills that do it's status of M&A on whether enough way complicate M&A further have and headroom do in it your Got mostly or

Michael Covey

mills wood by go of much our acquisition and and we capital would standalone and focus to in terms those. to flush unlimited We into our REIT practically on evaluate. is how put which products just standalone test A existing re investments is to that almost fine mills, practical against what in want certainly we of have our to

of headroom today. as plenty have we sit We

Ketan Mamtora

a of about it density just out northern that’s question. prices, log Got QX helpful. Jerry move in does QX? it the to to QX, X% like couple was play And Idaho issue in X% seemed as versus how from clarification it, QX then you

Eric Cremers

QX see equally, a Yes Eric. so, from this in you all is will The Ketan density the so issue about impact X% X% QX. is price another lighter, things about rise versus

Ketan Mamtora

increase, okay Well And got another X% then… it.

Eric Cremers

dry August Idaho. The pretty logs you hot and out can QX be in July to September, and get continue when into in

Ketan Mamtora

that move QX when does how see And you play to I historically? that’s typically then from helpful. QX

Eric Cremers

It the outside, to probably other other goes snowfall, to its’ the you get it X% the denser, a start X% get way. direction, gets cold logs

Ketan Mamtora

sawlog that timberlands within of something you linked response it is lumber And pricing, then that it to would prices at to is earlier questions specific is able in mentioned be one it. or composite Idaho that, Northern us? a the rate tell western Got to Western your you

Jerry Richards

broken happen really at is I of species, it’s quite mean, is down an by you going complicated it’s by with in Lengths. Random sawlogs so looking No can estimate our to start view Northern what

If into Hem-Fir the index want want lumber accurate and a accurate is get you you a and really compare what bit to little Doug-Fir. you then can drill you Western which is if get more it really with index, on to to going WWPA

Ketan Mamtora

noticing that Inland held just curious the Western I SPS even the than than are Southern Because Hem-Fir contracts kind your was significantly has skewed more Yellow so whether of towards on Hem-Fir better index. broad up or I’m pricing Pine either

Jerry Richards

Yes.

have consideration of Cedar into part You also too. mix is take the to

Ketan Mamtora

okay. Yes,

very Okay, over. I perfect. will turn it That’s helpful,

Operator

Dillon Vertical our question And is the from Chip line next of from Research.

Chip Dillon

Hi afternoon. yes and good morning, good

real the bit sales might quarter third a first how could thought that second and land little we you maybe fourth that talk you If it on basis, the the do the about and quarter? a sales, than the you land expect it what estate in looks see on have little like was lower in

Jerry Richards

Richards. This is Jerry

in the comments has probably that any the the or basis would have sale, sale terms that QX. in the in Minnesota QX QX in code zip of In why lower; then land and basis, sales, is correct in was second when land So conservation you trend X,XXX we lowest XX% my and are mentioned near we spaced of so acre I you land of Minnesota, land saw. somewhere be our basis guided it the of quarter

Chip Dillon

I your prices in gave million Okay have also assumptions, lumber think doing Eric additive indexing to math wood that on some XX products, have resources the the that’s helpful. X also that? up little also versus could you And topping to million the a - in would Idaho but just but XX and the you good very mentioned add given you another for

Jerry Richards

to that’s million somewhere corollary index think I fair Chip XX five the based effect sawlogs. in I range the mean be the million on would

Chip Dillon

positive housing to everything you at or point see from what the versus you and the with back the seeing buying deals? It timberland Okay. in seems Southern terms And on timberland are in preferable course especially just and tied of having given stock the is south question of situation. returns what the guess your for buying then offered like I come in more incrementally last Would about this stock take. comments building January with else

Michael Covey

Sure Chip.

that more I sawlog prices going call that stock that in at to fair back that have significant discount buying are NAV buying a is increase prices it level price justified. think Southern our to attractive estimates than price of it's that most Southern which embedded say in that our analyst fully at own an $XXXX make and are Pine has timberland to to assumption overtime, acre these

buying timberland more So would these in Board discuss our from quarter. going be satisfied stock our with that we to the I next levels at think we and are

Chip Dillon

that of keep are you I guess the that that and any have one does chairman in faith, in. not more are I ground on based understand the years virgin jump there one the On I hasn’t maybe process XX mind quick been because what the company mills that a in one just in haven't there cleaner don't many permitted have consulting hand tried. involve could they the other if is Chinese that permit hand, just thoughts permitting gotten we I on maybe seen the know if regarding former Sunbio know Arkansas. you I with Deltic's

Michael Covey

the and state the administration hold Well including helpful they we are to in standpoint pulp with of delegation a that take would in up permit to investments for mill have Arkansas going state a how another wood these time. have had conversations project. the Governor be supportive continued the it of from about imagine paper allow Arkansas I Sun extremely in think things I is process, forestry Paper but employment, to in the can’t the market in

hopeful So the a be built. we optimistic to Paper gets plant Sun continue with and

Chip Dillon

Thank Okay. you.

Operator

is Buckingham And of from our next line Weintraub Mark from question Research.

Mark Weintraub

pricing variables would there the actually - all that are didn’t you want resources, follow-up XXX given point. Thank products and guidance maybe of wood this or you XX but highlight that in to the that on I you. in give would the another from prior want and outlook should to that anything you be lumber we indicated, on highlight add think you I your any cost to other else at XX significant it appreciate strength wanted color versus just given to

Michael Covey

have we No more… a I think covered

Eric Cremers

and a QX on card matter do well we we we wild a of shipments will biggest and track that that. to from sure the The have to QX can in really execute ship are some making catch up that is we increase - on significant as we is that of that

Jerry Richards

tell off is have Yes. challenging pressure now that boogie The what the and transportation we were trucking QX, and man were August. of everywhere come rail July and would into virtually late I you move real is lot in - as issues

Mark Weintraub

order guidance if a million place fair so a Okay. of take your XX million say XX it's bit we magnitudes things can reasonable add prior always that's that recognizing differently play to your out perspective? and from starting to

Eric Cremers

Mark is answer short The yes.

Mark Weintraub

much might is if the in I the what then I'm to what much to costs, money not South that saw out seeing continue the play any are the are given the have making really we dynamics the imagine West you pricing and of that it? curious is how the a just sawmill as in South. relative maybe whereas still versus Okay, curious in money there, they mill log making implications in pressure. I’m if And have as at profitability how higher West ton

Michael Covey

to lots ton compared for mills that say logs. logs Mark, making Western to $XX that right are of $XX, at fair a I and Mills think Southern paying lots it's are who $XX a money Yes ton knows now,

are profitable a mills Southern Western more than mills. think lot I yes, So

are at Western good said prices. being mills high that making still Now these margins pretty

Mark Weintraub

are seeing any large work an the equalize are arbitrage South, capacity to in region next? working might Okay fair are on which to I differential other new tend you on that which any from looks to the And dynamics what out, guess coming profitability enough. the one unusually there be to overtime we getting these are things

Michael Covey

is Well seeing seen it that its have Canada China. and see Denver, market you up now to in U.S. Pine yes, it starting are into see species Lake what across to taking in we are are States. share find Southern other It’s Yellow the California, we lumber, starting way Pine Southern to from gradually being exported you Yellow is

So supply really demand at natural taking seeing cheap of advantage you Southern and some Yellow are dynamics, play just here Pine logs.

Mark Weintraub

Okay. And then one small just one.

contribution have by of a I tax pension that, mentioned rate, in little terms advantage could potential I clarify? maybe of of confused you just think uses XXXX income taking in reference, was you capital,

Michael Covey

bet You Mark.

far on So, tax weed, XXth in allow we IRS and that rates. the have the voluntary Corporate pension until be September too yet actually higher to the XXXX the rules should which contribution a deduct make at the not to plan, to Federal return us

Mark Weintraub

great. Okay you. Thank

Operator

is from A. next our Davidson. from And Chercover of question D. Steve line the

Steve Chercover

morning good Thanks everyone.

going off interest view given futures I’m you more that lock lumber first is lumber and start stabilizing sure really of down, are a the contracts, not level it’s but in now, to So right of your back the to subject way would where there volume?

Michael Covey

don't on they hedging we they for party any contracts. is you lumber have to offer principal do Steve. I want the tell with table told enough that so to Yes the more year, risk the us our would What got has

year. any looking So back lumber the we are to not production half the for hedge

Steve Chercover

you And it. local see on small the are got the that there of or in kind the I then sales gears. radar? that national builders the when the are Chenal we of will switching any log bulk Okay builders is QX targeting understand Valley, are

Michael Covey

has Little Chenal markets been for community, the larger is the tertiary builders. kind national Valley homebuilders. local local. of more traditionally so it’s Rock been That always

Steve Chercover

that the And to E&P authorize it. purge? of expect will the capable it in Got repo, August, finally, later July then I the you respect but are in on to prior with Board but actually acting

Michael Covey

Yes.

Steve Chercover

there get want price the of assume is I you share words because guess up lack to that better correct? to Okay, I diminish that would dilution,

Michael Covey

Yes, at what mean of it I and think we on we when here. share repurchases I the mean will return use potential cash based look the Steve, be relative

sure with not tie direct a So I'm the that we [E&P] see (Ph).

Steve Chercover

you. Thank Okay.

Operator

our Paul from question from And the is of RBC Quinn Capital line next Markets.

Paul Quinn

guys. morning Yes, much. so thanks Good

even are the Timberland Deltic perspective Just that on inactive marketplaces right a do and few I why know or still transactions. so active in guys that question think marketplaces probably for wondering few properties still I'm your at on sale is are so from now? there you transactions why you there just integrating

Michael Covey

Yellow that's know that wait of would timber on going or maybe them all life causes of the will to XX in opportunity fund from money. that guess Southern as see may of. investments Pine to a speculated that and come really It’s I I I really know could are - If don’t to property market I I prices, could and Paul, if due improve get more to the that months the a only they XX it. timber property an answer see lot if maybe mills they a prices don’t they the the markets their window answer. next to others the pull thinking think hold the

Paul Quinn

I head scratch too. my

you value. a cost that versus say of Northern variability saw based the region the between when on guys and are the the lumber side saw maybe of as and in How thinking profitability investments big consideration mill? Southern Just about given is mills CapEx various budgets off mill something

Michael Covey

years make capital to at pricing, we look years a mills, our lumber on our we So six, Paul we investment whenever don’t in seven, go message five, eight average. spot multiple pricing use averaging

So we to that we are for a but our looking And range. up XX% are rationalize pricing XX% I in to never looking at the always minimum at spot returns often would probably XX% say will go are the range, into CapEx.

years in lumber we average Deltic auto prices and older our the I million, or We going as install up so. would seven $X grader XX% Using merger project it, million imagine. to that sawmill have $X it's just new going a back IRR we to know the those at are going attached to picked

don’t use each. and that mills Southern think the of versus mills same we our I know for Northern our differently. So approach kind methodology in any We of really capital investments

Paul Quinn

say five because Deltic last Northern your Okay. It wouldn’t to in the assets years? safe the plus investment be that have mills more have for Southern just opportunities say mills got as over specially you you reinvested capital to

Michael Covey

an areas correct. little a South. resource, that's operating we bit whereas of have in Absolutely, that the on don't issue are in of North resource we constrained is some There more abundance in our

Paul Quinn

amount product and i.e. limit former might you guys Have it or it's the capital really this to once want because you all hinders flow. doing mill of Deltic's machine put you of work the stagger operation. can affects the some that Okay. like down projects in really just to your mills a before

Michael Covey

equipment vendor or What I tightening or have definitely installations cost. is productivity for a community real seen that capacity would in mills, Paul say saw we our improved into

until won’t So projects a at put and that XXXX installed get now won't on the looking just one some we of XXXX. until are deposit go we

happened We St. we as a Mary's new this new so very quickly tightened time. mill, considerably to That being can. are times trying considerably after has our stacker and at lead said, period that's putting the over are we market short uncover opportunities as have and constantly lengthened and of get

Paul Quinn

is everybody the incentivized though going going be is on just constraint making even that maybe and given some off, the profitability to right those of the suspect point, it, of important money an everybody add to equipment raised come side lots would forward, and you now the I Well installation? therefore lumber making is prices of capital,

Michael Covey

Yes.

continue a three those three years, that now to to more where fed two to milling margins put the is saw becoming basket the and who but lead that right highest going think next it is no I issue flow gamble, got two rates two three and it’s wood times raising years, the while is pushing to more in or years, now, of way. economy is why I capital for is world’s mean shouldn’t reason know, U.S. into there be south the and

Eric Cremers

they and [Comax] to sawmills, standalone get I a mills, companies more just hard great brand-new with are turnkey leader like building (Ph) understandably. projects in for that on than the others they extension Paul opportunities one-off focused think those are their are the

Paul Quinn

good Yes, I guys, very good Thanks point. all had. That’s luck.

Operator

gentlemen back to ladies questions. remarks. now for time any out turn it and I presenters we are And will of I am the afraid closing for

Michael Covey

would available Alright ends you your certainly on soon and call Ian for you here. we focus PotlatchDeltic; as interest for everybody thank be thank as this and almost questions

Operator

call. earnings and for and PotlatchDeltic’s participation this Ladies disconnect. you you your may gentlemen thank greatly second conclude We now does quarter

PotlatchDeltic (PCH) 31 Jul 182018 Q2 Earnings call transcript