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Plum Creek Timber Company, Inc. Q1 2010 Earnings Call Transcript

Plum Creek Timber Company, Inc. Q1 2010 Earnings Call Transcript

Plum Creek Timber Company, Inc. (PCL)

Q1 2010 Earnings Call

April 26, 2010 5:00 pm ET


John Hobbs – Vice President of Investor Relations

Rick Holley – President, Chief Executive Officer

David Lambert – Senior Vice President, Chief Financial Officer


Chip Dillon – Credit Suisse

Gail Glazerman – UBS

Christopher Chun – Deutsche Bank

George Staphos – Bank of America Securities

Claudia Hueston – JP Morgan

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Mark Weintraub – Buckingham Research

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Welcome everyone to the Plum Creek first quarter earnings conference call. (Operator Instructions) Mr. Hobbs, you may begin your conference.

John Hobbs

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Thank you. Good afternoon ladies and gentlemen and welcome to the first quarter 2010 conference call for Plum Creek. I am John Hobbs, Vice President of Investor Relations for the company. Today we have on the line, Rick Holly, 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 1-800-858-5347. I encourage you to visit our website, There you will find our press release and supplemental financial statements for the first quarter of 2010.

Before we begin, I would 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 will open the call up for your questions.

Now, I will turn the call over to Rick.

Rick Holley

Good afternoon. We are pleased with our first quarter results. Sawlog and pulpwood prices were better than expected, particularly in the U.S. South. We increased our Southern pulpwood harvest above our initial plans to take advantage of very attractive spot market pulpwood prices.

Real estate segment sales were $4 million above the top of our guidance for this segment. Manufacturing posted better than expected results. Our business has continued to do a very good job managing costs. Our customers have experienced some significant improvement in end-product prices. For example, first quarter structural panel index prices were up 22% from the first quarter of 2009. Framing lumber prices rebounded 51% over the past year. These gains have extended into the second quarter. Structural panel prices are now 51% higher than the first quarter of 2010 average and premium lumber prices are 23% higher. Pulp and paper product prices are on the rise as well.

These improved prices have increased our customers’ ability to pay for logs and that has translated into higher prices for both sawlogs and pulpwood. We appear to be in the early stages of an economic recovery but risks remain. We believe a portion of the lumber and structural panel price rally we are experiencing is a fairly classic inventory cycle as the inventory shifted its stance from inventory liquidation in late 2008 and 2009 to inventory restocking over the past several months.

However, the efforts to rebuild inventories have been hampered by constrained log supplies in the U.S. South due to wet winter weather. Additionally the Chilean earthquake on February 27


further increased spot demand for certain finished products as shipments from that country abruptly halted. In total these factors created a tight supply environment for lumber, structural panels and market pulp. We are assuming the rally in end-product prices may correct as the supply chain is replenished but we do not expect prices to return to the low levels we saw in 2009.

Our customers are well aware of this potential dynamic and as a result have been very disciplined in their response to increased demand levels. Most have responded by adding incremental overtime hours rather than adding new shifts.

Dave will review our first quarter results and discuss our outlook for the second quarter with you now. David?

David Lambert

We reported first quarter earnings of $0.54 per share. This included an $11 million below the line gain on the sale of certain natural gas assets. As a result, we reported income from continuing operations of $0.47 per share, above our guidance range of $0.34 to $0.39 per share.

Performance within each of our segments was better than we had originally anticipated. In the Northern Resources segment we reported a $4 million profit, an improvement from the fourth quarter’s $1 million loss. The improved results were driven by higher sawlog prices and lower seasonal road expenses. Our average Northern sawlog price increased $3 per ton or about 5% during the quarter. Spot market prices in the Pacific Northwest continue to improve with sawlog prices in a region of nearly 15%. Pacific Northwest sawlog supplies remain tight as landowners continue to restrict harvests and sawmills increased production in response to increasing demand and higher lumber prices.

Hardwood sawlog prices increased during the quarter, up an average of 9% during the quarter as hardwood sawlog customers entered the year with very low inventories and increasing concerns about the near-term availability of logs. Northern segment pulpwood prices were stable at an average price of $38 per ton. Pulpwood harvest volumes were slightly lower than fourth quarter’s level.

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