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PotlatchDeltic(PCH) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported total adjusted EBITDA of 30millioninQ12024,downfrom30 million in Q1 2024, down from 41 million in Q4 2023, primarily due to fewer rural real estate sales, partially offset by improved wood products results from higher average lumber prices [55][68] - Adjusted EBITDA for the Wood Products segment was breakeven in Q1 2024, compared to a loss of 6millioninQ42023,drivenbyhigheraveragelumberpricesandlowercashprocessingcosts[43][82]Thecompanystotalliquiditywas6 million in Q4 2023, driven by higher average lumber prices and lower cash processing costs [43][82] - The company’s total liquidity was 479 million, including 180millionincash,afterutilizingcashfortimberlandacquisitions[58]BusinessLineDataandKeyMetricsChangesTheWoodProductssegmentsawaveragelumberpricerealizationsincreasefrom180 million in cash, after utilizing cash for timberland acquisitions [58] Business Line Data and Key Metrics Changes - The Wood Products segment saw average lumber price realizations increase from 405 per thousand board feet in January to 443inMarch,withtotallumbershipmentsof271millionboardfeetinQ12024[57][82]TheRealEstatesegmentgenerated443 in March, with total lumber shipments of 271 million board feet in Q1 2024 [57][82] - The Real Estate segment generated 6 million in adjusted EBITDA in Q1 2024, down from 22millioninQ42023,duetofeweracressoldandalackofcommerciallandsales[70][83]TheTimberlandsegmentsadjustedEBITDAincreasedfrom22 million in Q4 2023, due to fewer acres sold and a lack of commercial land sales [70][83] - The Timberland segment's adjusted EBITDA increased from 33 million in Q4 2023 to 35millioninQ12024,benefitingfromimprovedlogandhaulcosts[96]MarketDataandKeyMetricsChangesSouthernsawlogpriceswere335 million in Q1 2024, benefiting from improved log and haul costs [96] Market Data and Key Metrics Changes - Southern sawlog prices were 3% lower in Q1 2024 compared to Q4 2023, primarily due to a seasonally lower mix of hardwood sawlogs [56] - The company expects Northern sawlog prices to increase approximately 6% in Q2 2024, reflecting improved lumber prices and seasonal factors [59] - The overall demand for high-quality timberland remains strong, despite a relatively quiet M&A market with 3 to 4billionoftimberlandtransactionsexpectedannually[13][15]CompanyStrategyandDevelopmentDirectionThecompanyisfocusedoncompletingtheWaldosawmillmodernizationproject,whichisexpectedtoincreaseannualcapacityby85millionboardfeetandgenerateapproximately4 billion of timberland transactions expected annually [13][15] Company Strategy and Development Direction - The company is focused on completing the Waldo sawmill modernization project, which is expected to increase annual capacity by 85 million board feet and generate approximately 25 million in incremental EBITDA annually [44][69] - The company is committed to a disciplined capital allocation strategy, evaluating opportunities to grow shareholder value while maintaining investment-grade status [48][88] - The company is exploring natural climate solutions, including carbon credits and solar land sales, which are expected to enhance the value of its rural land [94][121] Management's Comments on Operating Environment and Future Outlook - Management expressed uncertainty regarding the economic environment, noting that the outlook for interest rate cuts has shifted from multiple cuts to potentially none this year, complicating market predictions [16][18] - The company remains optimistic about lumber markets improving as demand is expected to rebound, particularly in the repair and remodel segment, supported by strong consumer balance sheets and home equity levels [53][78] - Management indicated that while the current lumber market is weak, they anticipate a recovery as supply constraints and demand dynamics shift [90][159] Other Important Information - The company completed the sale of 800 acres of rural land at nearly 3,100peracre,withexpectationsforsalestoaccelerateinQ22024[39][70]Thecompanyhas3,100 per acre, with expectations for sales to accelerate in Q2 2024 [39][70] - The company has 125 million remaining on its $200 million share repurchase authorization, with share repurchases being a key component of its capital allocation strategy [50][75] - The company harvested 1.9 million tons in Q1 2024, achieving the upper range of its harvest plan, with expectations for a slight decrease in harvest volumes in Q2 due to seasonal factors [120][85] Q&A Session Summary Question: What is the outlook for capital allocation and share repurchases? - Management indicated that protecting the balance sheet and maintaining investment-grade status is a priority, with share repurchases becoming more attractive as stock prices decline [88] Question: How is the company addressing the current lumber market conditions? - Management noted that many mills are operating below breakeven, leading to potential curtailments in the industry, and emphasized the importance of running mills efficiently despite current challenges [90][117] Question: What are the expectations for timberland pricing and sales? - Management expects timberland values to increase as demand for high-quality timberland remains strong, despite current pricing stability [15][156]