Plum Creek Timber (PCL)

Q1 2011 Earnings Call

April 25, 2011 5:00 pm ET


David Lambert - Chief Financial Officer and Senior Vice President

Rick Holley - Chief Executive Officer, President and Executive Director

John Hobbs - Vice President of Investor Relations


John Tumazos - Independent Research

Daniel Cooney - Keefe, Bruyette, & Woods, Inc.

Mark Wilde - Deutsche Bank AG

George Staphos

Steven Chercover - D.A. Davidson & Co.

Mark Weintraub - Buckingham Research Group, Inc.

Gail Glazerman - UBS Investment Bank



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Good afternoon. My name is Brian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek First Quarter Earnings Conference Call. [Operator Instructions] Mr. Hobbs, you may begin your conference.

John Hobbs

Thank you, Brian. Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2011 Conference Call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations for the company. Today, we have on the line Rick Holley, President and CEO; and David Lambert, Senior Vice President and CFO.

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 to 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 2011.

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 up the call for your questions.

Now I'll turn the call over to Rick.

Rick Holley

Good afternoon. The first quarters of 2011 and 2010 have really highlighted the local nature of the timber business. Looking back at last year, we saw very strong log markets from our pulpwood and sawlogs in the U.S. South, while at the same time, we experienced weak markets in the Pacific Northwest, particularly in Oregon where sawlog prices were down. This year, the situation is completely the opposite, with stronger markets in the Pacific Northwest and weaker markets in the South.

A geographically diverse timberland portfolio is an advantage. It reduces risks and enhances our operational flexibility. Having such a regionally diverse asset base is showing us value and has given us flexibility. Through the depths of the economic downturn, we had no liquidity issues. We had a strong balance sheet, we maintained an investment-grade credit rating and we maintained our commitments to our shareholders. We've emerged from this period with a stronger balance sheet, a more productive timberland portfolio, lower SG&A cost and lower annual cash obligations. We believe the worst is behind us, but it remains a tough operating environment.

As I said in my letter to shareholders this year, I feel more optimistic about this company, our position and our future opportunities than ever before. As we look at the recovery, we couldn't be happier with how we are positioned to benefit.

Our harvest is growing over the long term in both terms of volume and value. This is the foundation for our sustainable long-term cash flow growth. With residential construction running at approximately 1/3 of the nation's demographic needs, pent-up demand for housing is growing.

Sawlog prices will recover as lumber and wood product demand improves. The current market conditions for softwood and sawlogs in the Pacific Northwest are a witness to that. The structural shifts playing out in the North American market, growing Chinese demand, Canadian harvest reductions and renewable energy demand will further improve log and timberland values.

Some of these factors are impacting markets today. Others will take a few years to fully develop. These changes will occur and form the basis of our outlook and the excitement we have for our assets and our company. David will now review our first quarter results and discuss with you the outlook for the second quarter. David?

David Lambert

Thanks, Rick. We reported first quarter earnings of $0.23 per share, within our guidance range of $0.20 to $0.25 per share. Examining our business segments, performance was mixed versus our initial expectations.

The Northern Resources and Manufacturing segment results were better than we had anticipated, while the Southern Resources segment was weaker than we had expected. The Real Estate segment performed as anticipated.

In the Northern Resources segment, we reported a $7 million profit, $3 million higher than the fourth quarter. The improved results were driven by higher sawlog prices in the Pacific Northwest and seasonally higher hardwood harvest volumes in the northeast. Our average Northern sawlog prices increased $7 per ton or about 11% during the quarter. Market prices in the Pacific Northwest continued to improve, with softwood sawlog prices in the region up 15% quarter-over-quarter and up 40% from the trough levels in the first half of 2009.

Pacific Northwest sawlog supplies remain tight as landowners continue to restrict harvest and China exporters compete for logs. Hardwood sawlog prices in the Northeast and Lake States remain stable at attractive levels. The strength in hardwood sawlogs has been driven more by scarcity within our operating areas than by any significant increase in demand. Northern Segment pulpwood prices improved modestly, up $1 per ton during the first quarter and good demand from customers in New England and the Lake States. Softwood sawlog pricing in the West should continue to advance in the second quarter as mills compete against strong export demand in the Northwest and spring break-up limits timberland supply in the Northeast and Rockies. We expect Northern sawlog prices to continue to improve with average prices up $4 per ton during the second quarter. We expect our average Northern pulpwood prices to be stable during the second quarter.

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