Plum Creek Timber (PCL)

Q3 2011 Earnings Call

October 24, 2011 5:00 pm ET


David W. Lambert - Chief Financial Officer and Senior Vice President

Rick R. Holley - Chief Executive Officer, President and Executive Director

John B. Hobbs - Vice President of Investor Relations


George L. Staphos - BofA Merrill Lynch, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

Mark A. Weintraub - Buckingham Research Group, Inc.

Chip A. Dillon - Vertical Research Partners Inc.

Mark Wilde - Deutsche Bank AG, Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division



Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek Earnings Conference Call. [Operator Instructions] Thank you. At this time, I would like to turn the call over to our host, Mr. John Hobbs, Vice President of Investor Relations. Please go ahead.

John B. Hobbs

Thank you, Christine. Good afternoon, ladies and gentlemen, and welcome to the Third Quarter 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. We ask that other participants please follow up with any questions by calling me at 1 (800) 858-5347 following the call. I encourage you to visit our website, There you'll find our press release and financial statements for the third 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 Holley.

Rick R. Holley

Good afternoon. Economic growth in the United States remains lackluster, and residential construction markets and housing rim remain well below their long-term potential. Business conditions didn't change much for us during the third quarter. Prices were stable in most areas, and harvest volumes increased in typical seasonal fashion.

The areas of our business that were healthy in the second quarter, such as hardwood sawlogs and West Coast sawlogs, remained healthy. The market that was challenging in the second quarter, namely, Southern sawlogs, remains challenging. Our geographic and specie diversity continues to service well. Pulpwood markets throughout the nation remained good by historical standards, and real estate markets haven't changed much over the past several quarters.

We continue to manage the company conservatively, keeping a close watch on all our costs. We're also working closely with our customers and contractors looking for ways to improve upon everything we do. Plum Creek is in a great position to benefit as demand grows and the U.S. economy strengthens.

David will now review our third quarter results with you and discuss our outlook for the remainder of the year. David?

David W. Lambert

Thanks, Rick. We reported third quarter earnings of $0.31 per share in the middle of our guidance range for the quarter of $0.28 to $0.33 per share. Within our Timber Resources segment, performance was much as we expected. Our Manufacturing segment results were slightly weaker than initially anticipated, and the Real Estate's bottom line was a little better.

The Northern Resources segment reported a $7 million profit, an improvement of $4 million from the second quarter's $3 million profit. The improvement from the second quarter was driven by a seasonal rebound in harvest volumes, partially offset by slightly lower sawlog prices. In the Northern Resources segment, our third quarter harvest typically increases significantly from the seasonally low second quarter level as timberland accessibility improves with the summertime weather.

This year was no exception. Our harvest volumes approached 1.2 million tons, up 62% from the second quarter. Our average sawlog price declined about $1 per ton from the second quarter. Here, our geographic and species diversity came into play. Our softwood sawlog prices in the Pacific Northwest were off about $4 per ton as incremental timber supply came onto the market. This is typical of the summer months in the Northwest, where small independent landowners gain access to their timberlands when the road systems dry out. However, this was largely offset by strengthening hardwood sawlog prices in the Lake States and Northeast where prices were up $3 per ton.

Demand for sawlogs in the Northwest was fairly stable during the third quarter. Export log shipments to China accounted for 57,000 tons or about 19% of our Oregon sawlog harvest. Export volumes appeared to be slowing in November and December, and the fourth quarter volumes are expected to be down relative to the third quarter and fall closer to 10% of sawlog harvest. As we discussed last quarter, we expect to continue to see some volatility in the buying patterns exhibited by the Chinese importers. For the year, we expect about 15% of our Oregon sawlog harvest to be sold to the export markets.

Fourth quarter sawlog prices are expected to decline $2 to $3 per ton from the third quarter levels. This is driven primarily by lower export log prices in the Pacific Northwest as Chinese demands slowed a bit during the quarter. Earlier in the year, export logs in the region commanded a premium to domestic logs. As the third quarter progressed, the export premium has narrowed.

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