Potlatch's CEO Presents At UBS Global Industrials Conference (Transcript)

Potlatch Corporation (PCH)

UBS Global Industrials Conference Transcript

September 12, 2012 3:30 PM ET


Mike Covey - Chairman, President and CEO

Eric Cremers - EVP and CFO


Gail Glazerman - UBS Securities


Gail Glazerman - UBS Securities

All right. So we’re going to continue and finish theme of the conference on housing side of the industry and as Mike Covey, before he could get into the fiber supply dynamics, I think, I’ll let Potlatch management make up our comers.

Just that, so with us today, we’ve got Mike Covey, Chairman and President and CEO of Potlatch; and Eric Cremers, EVP and CFO, for those of you might have missed the press release a couple months go, Eric has recently assumed a few operating responsibilities as well, I believe in-charge of Idaho.

Eric Cremers


Gail Glazerman - UBS Securities

So, with that, and I apologize anyone on the webcast for the delay. We will turn it over Mike and Eric.

Mike Covey

Yeah. Thanks Gail. I know many of you sat through Paul’s presentation few minutes ago. I did and I won’t spend much time on the housing part, since he already covered it very well, painted a pretty active picture.

For those on the webcast there are forward-looking statements in our presentation which you can refer to on the website, as well as our printed material.

Potlatch is actually one of four timber REITs as you probably know. Our enterprise value of about $1.8 billion today, we are the smallest of the four timber REITs, in a very attractive dividend of $1.24 per share with the yield just under 3.5% today. We’re the fourth largest, as I mentioned with ownership in three geographic regions, which I’ll cover in just a minute.

Those are depicted here. We are largest land owner in the State of Idaho, one of the largest owners in Arkansas, significant land owner in Minnesota. We have manufacturing operations in each of those states, as well as in Gwinn, Michigan, the upper peninsula of Michigan.

We make lumber and plywood, ply manufacturing facilities around the country and with the timberland ownership here of 1.4 million acres gives us, we think excellent exposure to different markets both geographically and especially the first diversity mix in each of those areas.

Three business segments of Potlatch the largest and most important component of that is our resource business, our timber business, the growing and harvesting of trees, our small Real Estate business where we sold raw wood, undeveloped recreational land, a very high margin business because Potlatch is a 110 years old. Timber’s been on the -- Timberland has been on the books for the long time at a very low basis, when you sell an acre of land, it’s got an extremely high margin.

And then our wood products business which I mentioned and the cash flows from each those businesses in the last few years are depicted in the lower churn in this graph. And I think, the things that most unique about this is despite the economic downturn through a combination of land sales and timber harvesting, we’ve been able to hold our EBITDA fairly constant through the downturn.

We’ll cover housing starts, Paul just did that a minute ago very well, we certainly feel like recovery is underway and we’ll benefit from that. Interestingly though and I think this is really important distinction for Potlatch.

These are two trend lines on one page, and even true, I can’t see the slide number, is that seven. Slide seven, true really important things here, the trend line in green represents our long-term trend from the early, mid 70s for Pacific Northwest log prices and in the red line is Southern sawlog prices.

The very bottom of the graph are pulpwood prices, you can see pulpwood has been relatively flat, it doesn’t matter, doesn’t change much nor does it matter much, when it does, we don’t saw, we don’t produce much pulpwood.

The log prices in the Pacific Northwest begin to bounce back a couple of years ago as the dynamics started to play out in Canada and with China, and log pricing has come up closer to this long-term trend line in the Northwest.

But in the U.S. South just the opposite it happen, log prices weaken, they continue to be weak and in fact, finally, we think kind of reach the floor but it’s been a sequential period of three or four years here downturn in Southern log pricing.

And for this reason Potlatch decided to reduce our level of harvesting activity in the South, let the trees grow biologically and wait for a strong market to cut those threes and bring them to market in the U.S. South. And that was one of the large drivers behind our decision to reduce the dividend in October of last year.

And this is really what I’m referring to and these next couple of slides cover that, you can see we harvest about around 4.5 million tons of logs and kind of sustainable log market, log period, we reduce that from in mid $4 million ton range all the way down to 3.5 this year.

And on the sawlog component, now I’m striping out the pulpwood piece which is the lower margin least valuable piece, just think about sawlog only. We’re only going to be at about 2.5 million tons this year with a longer term potential to raise that up to about $3.3 million tons.

Read the rest of this transcript for free on seekingalpha.com

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