Plum Creek Timber Co. Inc. (PCL)
Q2 2010 Earnings Call
July 26, 2010 05:00 am ET
John Hobbs - VP, IR
Rick Holley - President and CEO
David Lambert - SVP and CFO
Chip Dillon - Credit Suisse
George Staphos - Bank of America
Gail Glazerman - UBS
Christopher Chun - Deutsche Bank Securities
Peter Ruschmeier - Barclays Capital
Steve Chercover - D. A. Davidson
Mark Weintraub - Buckingham Research
John Tumazos - John Tumazos Research
Laura Sloate - Neuberger Berman
Previous Statements by PCL
» Plum Creek Timber Company, Inc. Q1 2010 Earnings Call Transcript
» Plum Creek Timber Co. Inc. Q4 2009 Earnings Call Transcript
» Plum Creek Timber Company, Inc. Q3 2009 Earnings Call Transcript
Good afternoon. My name is Chanelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Hobbs, you may begin your conference.
Thank you Chanelle. Good afternoon ladies and gentlemen and welcome to the second quarter 2010 conference call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations for the company and today, we have on the line Rick Holley, President and Chief Executive Officer and David Lambert, Senior Vice President and Chief Financial Officer.
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 at 1800-858-5347. I encourage you to visit our website www.plumcreek.com. There, you will find our press release and supplemental financial statements for the second quarter of 2010.
Before we begin, I 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 the call up to your questions.
Good Afternoon. We believe we are in the early stages of a slow recovery and demand is improving for most of the products that we have produced over the last year. Pulpwood markets continue to be strong by historic standards with attractive pricing and good demand levels. This demand is primarily a function of healthy operating rates for many of our pulpwood customers, supplemented by their need at the margin to produce relatively more pulpwood as residual wood chip supply from lumber mills remains constrained. Industrial demand for medium density fiberboard and plywood has improved as well with notable improvements across many industry sectors such as recreational vehicles, marine applications and concrete forms.
Fundamentally, lumber production and therefore saw log demand has improved somewhat over the past year. Industrial end markets for lumber has experienced the most strength. However, the largest end use market for lumber, residential construction remains weak and we expect it to remain so for the remainder of the year.
As we said in the last conference call, we believe a portion of the lumber price rally the industry experienced through the beginning of May was a classic inventory cycle as the lumber industry shifted its stance from inventory liquidation in the late 2008 and 2009 to inventory re-stocking in anticipation of an improved 2010 building season.
Lumber prices have fallen from their spring rally and although ahead of where they were a year ago, are approaching cash breakeven levels for many lumber operators. Lumber customers have been quick to react with many mills slowing production, making temporary downtime to balance supply with the current demand levels.
The demographic underpinnings for residential construction are strong. But we believe the recovery in these markets will be slow. We are taking a conservative stance with regard to the demand environment to the reminder of this year. With the weaker housing permit data that we saw in the first quarter, we expect second half lumber production and therefore, sawlog demand to be lower than our initial expectations. As a result, we expect our harvest levels to come in on the lower half of the 15 to 16 million ton range we planned for the year.
Within our real estate segment, interest in activity levels from families and individuals has improved from the low levels we saw in 2009. We expect activity levels for world real estate in the second half of this year to continue to track above the levels we saw during the same period last year. Dave will review our second quarter results and discuss our outlook for the third quarter with you and I'll come back and talk about some strategic initiatives. David?
We reported second quarter earnings of $0.21 per share above our guidance range for the quarter of $0.10 to $0.15 per share. Fundamental performance within our northern resources and manufacturing segments were better than we originally anticipated and our real estate segment sales were above expectations. $0.02 of the upside is attributable to lower than forecast land basis and income from the sale of equipment from our closed Pablo lumber mill added an additional $0.01 to earnings.
In the Northern resources segment we reported a $3 million profit, down slightly from the first quarter's $4 million profit. Higher sawlog prices nearly offset the effects of seasonally lower harvest volumes. Our Northern sawlog harvest was seasonally low at 484,000 tons as the spring thaw limits logging activity in the Northern regions during the second quarter. Our average Northern sawlog prices increased $7 per tons or about 12% during the quarter. Spot market prices in the Pacific Northwest improved, with saw log prices in the region up 19% quarter-over-quarter.