Q1 2021 PotlatchDeltic Corp Earnings Call
Good morning, My name is Celine and I will be your conference operator today at.
At this time I would like to welcome everyone to the potlatch they'll take first quarter 2021 conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer for opening remarks, Sir you May proceed.
Thank you good morning, and welcome to Potlatch <unk> first quarter 2021 earnings conference call joining.
Joining me on the call is Eric Cremers, Potlatch, <unk>, President and Chief Executive Officer.
This call will contain forward looking statements. Please review the warning statements on our press release on the presentation slides and in our filings with the SEC concerning the risks associated with these forward looking statements.
Also please note that a reconciliation of non-GAAP measures can be found on our website at www Dot Potlatch Delta Dot com.
I'll now turn the call over to Eric for some comments and then I will cover our first quarter results on our outlook.
Well, thank you and good morning, everyone. The year's off to an extraordinary start which is saying a lot given our incredible financial performance last year.
Consolidated EBITDA was $195 million in the first quarter of 2021, which is our third consecutive quarter of record financial performance all.
All three of our business units performed well in the quarter.
Our wood products segment generated a record $126 million of EBITDA on the first quarter.
To put that amount in perspective wood products earned nearly as much in the first quarter as it did in all of last year.
Our employees did an excellent job and remain focused on meeting our customers' needs safely. Despite challenges presented by extreme winter weather in the south and lingering effects of the COVID-19 pandemic.
Our timberlands segments EBITDA of $68 million was also a quarterly record the performance highlights the value being added by our index, Idaho saw logs sales contracts, which are unique in the industry.
Our Idaho team took advantage of favorable logging conditions to capture prices that remain near record levels and our southern team did a good job mitigating the effects of extreme winter weather on harvest volumes.
Our real estate segment also had a strong quarter as demand for rural and development land remains robust and on Arsenal Valley Master planned community in Little Rock, Arkansas, We raised residential lot prices, approximately 10% and still sold 51 residential lots in Q1.
Along with completing a $3 million commercial sale.
In Idaho, our real estate team has done a magnificent job capitalizing on the surge in demand for rural acreage. Our team is creating small rural lots for sale about 10% to 20 acres in size and we expect to sell about 40 of these losses this year for about $5 million at a price that.
It's multiples of the underlying timber value.
Looking ahead, we expect housing fundamentals will remain very strong U S housing starts increased to just over one 7 million units on a seasonally adjusted annual basis in March.
Which is the highest level since June of 2006.
Total permits remained above $1 7 million units, which is well above consensus expectations of about 1.5 million units for the year.
On a macro level the stage for robust housing demand was set by massive under building since the great financial crisis record low inventories of homes for sale, historically low mortgage rates and millennials entering their prime home buying years.
On the first point Freddie Mac recently stated that the shortage of U S single family homes has grown to three 8 million units.
These factors all suggest that housing construction will remain very active for the foreseeable future.
The repair and remodel market, which represents about 40% of lumber demand is also expected to continue to grow.
Key drivers include the age of U S housing stock, which is now around 42 years on average high and increasing levels of home equity.
And the work from home trend.
Positive demand signals include recent commentary from the Big box home supply stores like home depot on Lowe's the joint.
The Harvard Joint Center for housing studies, and the National Association of Homebuilders remodeling market index, which hit a new high in the first quarter.
It has been it has been challenging for the industry to catch up to stronger than expected lumber demand. This is evidenced by lumber inventories that remain at historically low levels. Despite lumber production remaining at its highest levels since the great financial crisis.
Truck and rail transportation bottlenecks May also play a role, particularly as we head into produce season in the south.
Absent a significant increase in mortgage rates or a COVID-19 resurgence. It is hard to imagine what could cause lumber demand to drop in prices to moderate in the foreseeable future our leverage to lumber strategy is perfectly situated to continue to drive strong financial performance for the remainder of 2021 and beyond.
Turning to capital allocation, returning cash to shareholders remains a top priority we are positioned well for our board to consider distributions beyond our current annual dividend of $1 64 per share per year.
This discussion typically occurs at our December board meeting each year.
Our strong balance sheet and $761 million of liquidity provide a solid platform as we consider additional investments in our existing mills or accretive acquisitions.
We are interested in acquiring timberlands mills or a combination of the two near our current operating areas.
We are excited to publish our second environmental social and governance reported in the coming weeks, which will add disclosures of scope to greenhouse gases expanded information about our carbon sequestration and storage on climate related analysis Potlatch Delta is a leader in sustainable forest.
Management, and we are committed to environmental and social responsibility and to responsible governance.
To wrap up my comments Potlatch <unk> is very well positioned to take advantage of favorable industry fundamentals and our strong liquidity and prudent capital allocation strategy positions us to continue increasing shareholder value.
I'll turn it over to Gerry to discuss first quarter results on our outlook Jerry.
Thank you Eric.
Starting with page for the slides adjusted EBITDA increased from $164 million in the fourth quarter to $195 million in the first quarter.
This is the third quarter in a row that we have set a new quarterly EBITDA record and we have generated $530 million of EBITDA over the last 12 months.
The effect of higher lumber prices more than offset the 72000 acre, Minnesota land sale completed in the fourth quarter seasonally lower harvest volumes and lower lumber shipments.
I will now review each of our operating segments and provide more color on the first quarter results.
Information for our Timberland segment is displayed on slides five through seven.
The segment's adjusted EBITDA increased from $63 million in the fourth quarter to $68 million in the first quarter.
Our team leveraged good logging conditions and strong markets to harvest 427000 tons of saw logs in the north in the first quarter.
This volume is higher than the 378000 tons that we harvested in the fourth quarter.
Northern saw log prices were 1% lower on a per ton basis in the first quarter compared to the record fourth quarter price higher.
Higher Cedar saw log prices, mostly offset the negative effects of seasonally heavier saw logs and the timing of price resets on the index volume for.
For example index prices were at their lowest recent point in January and saw log shipments seized mid March with the onset of spring breakup right as lumber prices were surging.
In the South we harvested 893000 tons in the first quarter.
As Eric mentioned, our southern Timberlands team did a really good job, making up most of the shortfall caused by extreme winter weather in February.
Our southern saw log prices were 1% lower in the first quarter compared to the fourth quarter, primarily due to seasonally lower hardwood volumes in the mix.
Turning to wood products on slides eight and nine adjusted EBITDA increased from $70 million in the fourth quarter to $126 million in the first quarter.
This is a new quarterly EBITDA record for the segment.
Our average lumber price realization increased 41% from $629 per thousand board feet on the fourth quarter to $890 per thousand board feet in the first quarter.
To provide context. It is helpful to look at our lumber prices by month, our average lumber price realizations per thousand board feet increased from $817 in January to $880 in February and to $961 in March.
Lumber shipments decreased from 274 million board feet on the fourth quarter to 258 million board feet in the first quarter.
We lost a week of production at our three Arkansas saw mills due to the winter storm that hit, Texas and Arkansas in February.
We also had planned maintenance downtime during the quarter.
The lower production hours negatively affected fixed cost absorption.
Higher index log costs in our Idaho Mills also affected margins.
Yes.
Moving to real estate on slides 10, and 11, the segment's adjusted EBITDA was $17 million in the first quarter compared to $57 million in the fourth.
As a reminder, fourth quarter included a 72000 acre, Minnesota transaction for nearly $48 million.
Shifting to financial items, which are summarized on slide 12, our total liquidity increased to $761 million. This.
This amount includes $382 million of cash as well as availability on our undrawn revolver.
We did not repurchase any shares during the first quarter.
As a reminder, we have a <unk> one plan in place.
This reflects our ability and commitment to repurchase our shares at attractive prices as part of our broader capital allocation strategy focused on increasing shareholder value over the long term.
Capital expenditures were $14 million in the first quarter.
Note that the amount I just mentioned includes real estate development expenditures, which are included in cash from operations on our cash flow statement and excludes timberland acquisitions.
We continue to expect that our total capital expenditures will be in the range of $55 million to $60 million excluding acquisitions in 2021.
Yeah.
I will now provide some high level outlook comments. The details are presented on slide 13.
We expect to harvest one one to $1 3 million tonnes in our timberlands segments in the second quarter.
Harvest volumes in the north are planned to be seasonally lower due to spring breakup.
We expect northern solid prices to increase in the second quarter due primarily to higher index saw log prices.
Harvest volumes in saw log prices in the south are expected to be comparable to the first quarter.
Our lumber order file is currently three to four weeks depending on mill.
Our average lumber prices, thus far in the second quarter, including orders booked but not yet shipped is approximately 18% higher than our first quarter lumber price.
As a reminder, a $10 per thousand board foot change in lumber price equals approximately $12 million of consolidated EBITDA for us on an annual basis.
We plan to ship 275 to 285 million board feet of lumber in the second quarter.
Shifting to real estate, we expect to sell approximately 2500 acres of rural land and approximately 15 should all value lots in the second quarter.
What demand remains strong, but there will be a pause in the second quarter as builders Digest recent lot purchases.
We continue to expect to sell approximately 145 lots for the year.
Additional real estate details are provided on the slide.
Corporate expense is expected to be higher than the typical level on the second quarter, primarily due to bonus accruals related to our strong results for.
For the year, we expect corporate expense to be $45 million to $50 million.
We also expect our consolidated tax rate will be approximately 20% in the second quarter and for the full year.
Overall, we anticipate second quarter total adjusted EBITDA will be higher than the first quarter, which would establish a fourth consecutive new quarterly record for the company.
We remain very bullish on industry fundamentals and we believe that our integrated operating model and leverage to lumber prices are aligned with those fundamentals, we are well positioned to continue growing shareholder value over the long term.
That concludes our prepared remarks xylene, we'd now like to open the call for Q&A.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad.
Pause for just a moment to compile the Q&A roster.
We have our first question coming from the line on Keeton Ventura with BMO capital markets. Your line is open.
Thank you and good afternoon, good morning over there congrats on a very strong quarter.
Maybe first question.
Probably start off net.
The capital allocation priorities Eric.
You alluded to it and you're on.
Ill prepared remarks around.
Kind of distributions beyond your regular dividend.
And recognizing you don't want to jump before the board, but I mean, what are the different options on the table as you think about these distributions is it.
More like a special dividend are you thinking about kind of a variable dividend, perhaps any thoughts that would be helpful.
Yes, so so keeping good morning or afternoon, I guess, depending from where you are yes. The dividend is an important issue you know, we we've got a history of raising our dividend on a sustainable basis slowly, but surely over time, and we've increased that dividend, 30% since 2012 on a per share basis, including.
The recent two 5% increase in Q4, so we're very mindful not to let the cart get a get ahead of the horse here.
Slow on sustainable.
Is the strategy that we want to employ here.
Or just beginning to have those conversations with our board. So it's probably a little bit premature as to what that dividend increase might look like later in the year, but certainly it's something we'll be exploring along with all the other.
Capital allocation opportunities that we have so I guess.
To answer your question, it's still a little bit of a to be determined.
Understood.
Is it fair to then say that at this point the way you are thinking about it is still kind of on in fees.
In regular dividend.
But not kind of considering things like a special dividend or a variable dividend is that a fair characterization.
No I don't I Wouldnt go that far.
I'd say were exploring it.
On the.
On the notion of a steady increase to the dividend, but we're also going to have to think about the extraordinary amount of earnings that we're making in our REIT right now.
May force us into a larger dividend distribution.
The more than we're used to.
It's still early in the year, and we really haven't gotten into those discussions yet with our board. So it's too soon to say, how it's going to play out.
Understood.
Eric Jeremy is that a way to think about.
So on what is the kind of cash cushion you want to build I mean, obviously.
On an extraordinary times, given how strong lumber prices are and you are unique positioning with Idaho log prices you already kind of just <unk> seven times levered by the end of Q2, you may be less than half for times Levered.
Do you think about kind of having that cash cash cushion.
Good afternoon Peyton this is Gary so on so.
In terms of our cash cushion I mean, one as you know we tend to manage the balance sheet fairly conservatively now having said that with cash.
Generation really haven't kicked into gear with these higher lumber prices were accumulating cash well belong beyond any any sort of cushion that we normally would want to hold through a cycle.
And what that does is it creates certainly opportunities as Eric mentioned to think about a full suite of capital allocation opportunities on priorities to drive shareholder value but.
To answer your specific question, we like to hold enough cash to make sure that we can opportunistically buy shares on that tends to happen when when business conditions arent very good just like a year ago. In March we were actively buying shares when markets panicked over COVID-19 and Fortunately, we have that strong balance sheet allows us to take advantage of that on.
Opportunity. So there is a base level.
Certainly not 382, its something thats, probably well below 182.
Understood. Okay. That's helpful and then.
Is there any change in thinking around kind of maybe versus buy for sawmills.
Well, we look at the economics of Greenfield Mill construction, you know from time to time, and frankly, keeton historically spending our capital on discrete projects in our existing mills that is true whether they increase production or lower costs or improved grade yield those projects tend to have higher returns and are therefore more.
Attractive than the Greenfield option.
The current environment it costs around 700 Bucks a thousand of capacity to build a new mill and it takes about two years to get it built.
In addition, their staffing challenges and there is a lengthy startup curve. So I think to answer your question, we're going to continue to explore and think about the idea of a greenfield mill, but frankly, our preference is to is to go to low risk route that's proven very successful for us.
And make incremental improvements to our existing mills.
Got it on the same team what does it that you could.
Potentially produce this year Assam is if demand were to remain strong.
Customers are asking for it.
When you say what could our mills produce in terms of volume or yes, sorry, yeah in terms of volume, Yes, I think this year, we're probably looking keating at about I don't know, what a 2% increase in volumes compared to last year about 20 million feet. We've got we've got a history here over the last several years of increasing.
Production and shipments anywhere from 1% to 4% per year, just depending upon the timing of capital projects and weather events and things like that last year, we got hit with COVID-19 debt.
Impacted production, 3% to 4% will now this year, we're lapping that which is great news, we're not having big impacts from COVID-19, but on the other hand, we just had a storm hit in Texas, and Arkansas that debt.
It is back 10 million feet, but I think over the long haul youll see us increase our shipments this 1% to 4% range or like this year, it's going to be about 2%.
Got it very helpful I'll jump back into queue, but luck for the rest of the year.
Yes.
We have our next question coming from the line of John Babcock with Bank of America Merrill Lynch. Your line is open.
Hi, everyone. This is cash and killer sitting in for John Babcock today.
Returning to the discussion on the outlook for the rest of the year just wanted to get your take on kind of the current view of how do you expect on lumber market to play out and the balance of the year and then Relatedly how are inventories in the channel right now.
Versus how they were at the end of the quarter.
I'll answer the second one first which is that inventories are at absolute rock bottom levels.
Just it's incredible how can I can tell you a story about offense that blew down in my backyard.
On my landscape construction Guy had to drive 100 miles outside of town to find new fence post to put it in but.
Anyway inventories are incredibly low levels.
So back to the first part of your question on on lumber prices are Q2 lumber prices to date it was <unk>.
You mentioned there are about 18% higher than Q1 based on shipments and prices included in our order files that stretched into into late may at this point.
Prices frankly have continued to increase the last couple of weeks I think our spot prices there may be up 19% today compared to where we finished Q1.
So the full year for the full year demand indicators. They are expected to remain strong both for new homes and for repair and remodel market segments Bill.
Builders are reporting record home sales and theyre going to need debt that wood to build those homes.
In addition, as I just mentioned field lumber inventories remain at historically low levels. So as we talked about absent an unexpected large increase in mortgage rates are a resurgence in COVID-19. It's just hard to imagine what can cause lumber prices to correct in the foreseeable future fact, risi just raised their 2021 north.
Erika lumber demand by $1 3 billion board feet in their April forecast compared to their March forecast and it is now expected to be $3 3 billion board feet higher that as demand than last year.
So we think we're in unprecedented territory here in <unk> recent price forecast for full year prices to average just about $1000 doesn't seem out of the realm of realistic.
Got it that's.
Helpful. Good luck in the quarter.
Thank you.
We have our next question coming from the line of Mark Weintraub with Seaport Global Your line is open.
Congrats on great quarter, Erik I'm sure you are enjoying.
On the CEO role here.
Yep.
So firstly the timberland acquisition pipeline can you.
Give us some color on what Youre seeing and.
Whether theres been any change in the pipeline in the last 612 months.
Yes, Mark we've seen a market increase in.
In M&A opportunities in the timberland space.
Last year was there was a dearth of deals to be done.
With COVID-19 people Couldnt get out and travel was hard to to kick the tires on stuff and so very little activity last year, and I would say starting in the fourth quarter of last year.
Activity started to pick up we started to hear things and now as we get into the first quarter in the second quarter.
Activity is really picking up we're looking at about five different deals right now.
And we missed one in south Alabama.
Somebody paid a little bit more than we were willing to pay.
But we're optimistic those five deals that were looking at that we're going to we're going to get one or perhaps two of them done remains to be seen but I can assure you of one thing, which is we're not going to do a transaction unless it creates shareholder value.
Each one of our deals we will we will determine what's fair price that creates value and we will draw the line at that price.
And that's how we missed that one in south Alabama.
Understood.
Are you seeing any any change.
In.
The way folks are thinking about pricing timberlands and kind of Relatedly is there any sign yet of this remarkable run in lumber in the U S. South in particular translating into higher timber pricing and <unk> and any color on your thoughts.
If and when that might happen.
Yes, Mark so there's those those log prices in the south they have just been flat for over a decade now.
And every time, maybe there's a weather event, maybe theres a mill startup that kicks prices up a buck or two but it quickly receipts. So we're seeing no no price tension and logs across the south for any measurable period of time.
When do I think that that could change it.
What could cause that to change, we obviously, we need there needs to be more capacity in the U S South.
Put more pressure on timber inventories.
I think the data that I see suggests that timber inventories in the south won't peak for another four to five years and there is more there is more mill construction theres more steel going up in the south for sure, which will eat into that timber inventory, but there's still not supposed to peak for yet another for five years. So they continue to increase every year.
I think maybe at that point in time, there could be a little bit of price pressure, but for how long can you have a disparity $45 saw logs in the south and $160 saw logs in the Pacific Northwest.
That is just a huge a huge GAAP and thats going to continue to drive.
New capacity in the south.
No.
To answer your question is we're not seeing any price tension in the south and maybe that'll start change in four to five years.
Great and then debt that first part and on timberland valuations themselves, obviously, not seen much in timber or discount rates changing or anything like that or are the price levels youre seeing.
For timberlands pretty similar to what they had been.
Yeah, Mark I would say if you look at the history of southern Timberland prices, which is where the majority of the activity is.
Been about 1800, $18 50, an acre over the last decade, Hasnt really changed a whole lot.
And thats, probably consistent with prices not changing a lot.
So I don't I don't think people are really thinking about the different ways of valuing that ground. It's based on the same 45% to 50 bucks of EBITDA per acre.
And.
You do the math you wind up at $18 50, an acre.
Great I appreciate it good luck with the coming quarter.
We have our next question coming from the line of current Kinghorn with D. A Davidson your line is open.
Great, Thanks, and good morning, Eric and Jerry.
Good morning.
So you started the year I think pointing to flattish kind of harvest volumes and it looks like in Q1, you ran a little bit ahead of schedule, but if we kind of factor in the Q2 guide. It seems like you got to make up some ground versus last year to get there. So could you maybe just talk about how youre thinking about the full year harvest plan.
At this stage and what factors might impact that going forward.
Yes, good morning, Kurt So in terms of full year harvest levels I'll start by saying, we still plan to harvest about 6 million tons for the year and as you noted we got a bit ahead in Idaho, we had favorable conditions in good markets in Q1 so.
We got off to a real good start in Idaho, and ultimately made up some good ground in the south. So we're pleased with the harvest levels for Q1, but to get to your question.
In terms of how the year plays out if you look at our guide of $1 one to $1 3 million tonnes that would suggest that year on year were down about 100000 tons.
And some things to some things to lay out there on Q2, one Idaho, probably looks the same year on year. So the decline really is in the south and when you go back to last year, a key part of that.
Reason why the south is down this year versus last year as timing of stumpage contracts. So some of those push out later in the year the.
The other dynamic that we had is coming out of the kind of the COVID-19 pandemic window in the quarter saw log demand was extraordinarily strong last year. So saw logs were probably a bit higher than our plan in Q2 of 2020, So you'll see something that's more normal this year and then a partial offset is pulp.
Wood demand was really weak last year and in fact, we ended up guiding that we were going to be down for the year because of shortage of pulpwood due to mill outages.
So you probably have a little bit of an offset there in Q2 of this year and then when you roll that to get to a 6 million ton harvest level for the year that suggests that when you think about Q3 in particular, which is our best seasonal quarter typically.
Ends up being a pretty robust Q3 versus last year.
Got it Okay. That's helpful color I appreciate that and then just on the cost side can you talk about any inflationary pressures you are seeing within wood products and timberlands that are kind of worth calling out and then I.
I guess remind us for wood products, specifically, how we should be thinking about.
Handicapping the cost impact from those higher saw log prices in Idaho.
Yeah, So I'll take the first part and on Jerry I'll take the second part yes on the on the cost inflation in wood products I mean, I would say the biggest thing that we're we've got our eye on right now where transportation issues were.
We're managing through that right now but.
Our rail and truck transportation is getting increasingly challenging to find and we're having to pay more for it.
Usually this happens to us in the south in the summertime.
When the produce crop is moving.
But it is happening happening earlier this year now we've still been able to pass those costs through its not significant its not material.
But we've got our we've certainly got our eye on it.
And I would say that's really the only real cost pressure that we're that we're seeing.
At this point Jerry you want to talk about yes, you bet prices. So in terms of log prices in Idaho on that cost pressure I mean.
We provide really good insight on.
Kind of log prices with our timberland segment in Idaho and just to.
Put it in context year.
A year ago log prices were running about 100 Bucks a ton.
Whereas Q1, we just reported $178 per ton.
And moving moving up from there in Q2, so that provides kind of the price part of that equation and the other important part from a modeling standpoint is about 40%.
Of our harvest in Idaho goes into a mill complex. So that'll give you the proportion.
Kind of the volume that effects. So now you have you have both sides of that equation. So it's a pretty significant lift lift from a cost standpoint. The important thing is to keep in mind that again, only 40% of those logs go to our complex.
So there is another 60% in the timberlands segment that were certainly benefiting from these high prices for the drop to the bottom line.
Right right. Okay. Yeah. That's helpful. All right and then.
I guess my last one.
I guess started to see some anecdotes about southern yellow pine kind of shipping further out as a substitute for.
I guess products coming out of Cana and other western species could you just talk about some of the dynamics there and what significance. If any you think that could have for the market going forward.
Yes your observation is.
Correct.
Recently, Western SPF is trading at a premium to southern yellow pine.
Bit of an anomaly from a historical standpoint, usually southern yellow pine tends to tends to trade at a premium.
But I think with all of those mill closures that have happened up in BC and now we're getting into kind of the spring summer months when building activity in the north and the west really starts to pick up.
Those high Western SPF prices.
Are causing builders to substitute with southern yellow pine, so southern yellow pine <unk> reach.
As probably as far as it has ever been and I mean, this really should come as no surprise to anybody if you think about like again getting back to those $45 logs in the south compared to 150, <unk> hundred 60, whatever a ton in the north and the west.
Southern lumber production as a percent of North American production is now increased over the past 10 years 12 years from roughly 26% market share now all the way up to 35%. Meanwhile, BC has gone from 20, <unk>, which is of course, a western SPF producing region has gone from 25% down to 15%.
So, yes, so southern yellow pine is slowly moving occur.
Across the country.
The farther territory than it has previously and I frankly expect that trend to continue.
Yes.
Got it got it appreciate that Eric Alright, well, thanks for all the details and good luck here in Q2 guys.
Thanks.
We have our next question coming from the line of Buck Horne with Raymond James Your line is open.
Hey, Thanks, Good morning, guys. A quick question just maybe help explain in.
More color maybe re explain if you will.
On understanding the latency of how they Idaho index.
Log contracts in terms of.
Your price realizations for those.
They track.
What's happening in the spot market for lumber prices of course.
Northern.
Pricing in the first quarter was kind of flattish versus the fourth quarter. So how does that set up for the remainder of the year in terms of how we should think about.
How current lumber price conditions will affect the timing of the realization on those contracts.
Good morning Buck.
So in terms of the most important thing to keep in mind in terms of those Idaho index log prices as they get the price gets reset on about a four week lag.
So when you see our reported lumber price today that won't show up until.
In the form of a solid price until about four weeks later so.
That's probably the most important thing and in fact, when we take the random lengths lumber.
On pause it and we offset it by them by a quarter.
Or by a month excuse me.
The pattern of the spin and the kind of the slope of the line looks very similar to what's happened in our Idaho saw logs. So that's probably the most important thing in terms of modeling and then certainly we have density.
So in the winter logs absorbed more water. They are heavier customers don't pay us for water. So that so the reported price per ton will go down in that season. So.
Generally in Q1, you see about a 5% headwind.
In terms of the density factor Q2 that turns around as a bit of a positive and then probably the other third thing to keep in mind is cedar So cedar as you can.
Normally about a <unk>.
That's worth probably three times, a normal mix saw log so kind of the mix the volume of Cedar in the mix is usually other factor, but the most important of all of those as to kind of take that lumber price reported a lumber price and lag it by by about a month.
Hey, guys very helpful.
And.
Last thought process on thought was.
With the excess cash and I understand you got the 10 <unk> one plan in place for stock repurchases now.
But with this.
Extra buffer that you've got in place now do you think that there is the opportunity to.
Maybe establish some some programmatic or more consistent level of stock repurchases for the capital allocation plan.
Yes, I'll take that one as well Bakken.
Our strategy around share repurchases really been more opportunistic.
As I mentioned.
A bit earlier on the call.
A year ago, when our stock price got down to the $30 per share on the low level.
He has got big and we started we started aggressively buying shares.
We tend to look at it we have a strong view and conviction on our what we think the intrinsic value of this company is in and we really look for a wide discount and the reason for that is we have a number of investment opportunities to think about.
Certainly we've talked about mill capex discretionary projects can generate returns north of 30%. So that's a pretty attractive you know you've heard Eric talk about earlier on this call. How we're excited about some of the opportunities the M&A opportunities that we're looking at and we can grow shareholder value through that.
On an attractive level, then that certainly makes sense and then.
Cadence questions around kind of.
Dividend on how we're thinking about that so we have a number of options to think about and I would not expect that we moved to a programmatic approach.
I think we will stick to.
Opportunistic share repurchases and that's really because it all goes back to our overall strategy, which is we want to grow shareholder value as much as we can over time and we think the opportunistic approach is much better suited.
To fulfill that leg of the strategy than doing something programmatic.
Very helpful. Thank you guys.
Thank you.
We have our last question coming from the line of Paul Quinn with RBC capital markets. Your line is open.
Yes, thanks, very much guys.
Great quarter, but I suspect, we're going to see a lot of that in this in this earning season.
Maybe start with Eric on on the M&A deals that Youre currently looking at right now and you sound pretty bullish on it.
Any of these deals include tunnels.
I don't want to get to down into the weeds, Paul but yes.
Okay and.
And then just back to capital allocation because on a little confused there I mean, the share price does potlatch spent most of the quarter around the $50 Mark year over 60 here just wondering why you didn't repurchase any shares in the quarter.
Yeah, So Paul it goes back to I mean.
The answer to the <unk> question is we tend to be very opportunistic.
There's no question that NAV and intrinsic value moves up I mean every load of lumber we ship today is creating value.
We certainly have accumulated a lot of cash on the balance sheet, which is obviously, adding adding value. When you think about this company and market cap et cetera.
But it really comes down to the other we have all kinds of we have other alternatives and using that cash and like I said at the end of the day.
We.
We're very excited about the M&A opportunities.
Good good mill, Capex returns et cetera, so and there's and there's nothing to be gained by doing things aggressively or quickly as well.
His proven last year, and we held some cash and we took advantage of that in March and bought our shares kind of around $30 level. So.
The end of the day 50, certainly on the hindsight looks like a steep discount to today.
But again.
Take the long term view here and we tend to be more of a deep value type investor when it comes to buying our shares.
Yeah.
Okay, and then if I could flip it over on just the dividend the options around that I mean, I can understand that I'm not trying to get too far ahead of your skis and have that slow steady approach for the annual but would you also consider I mean, some of your peers have looked at and warehouses doing a supplemental dividend just given the extraordinary nature of the cash flow that you'll generate this year.
You're obviously pointing to a record Q2 on the record Q1 here in the balance of the year and given your commentary is also very bullish.
Yes, Paul I mean, I think we're going on we're going to have to take a closer look at the dividend as you know our dividend.
It's a very important part of our proposition to our investors to return capital to them.
We're not going to waste this capital that we've that we've generated and we got really three different tools as I think about capital allocation, it's either the dividend its wood products capex or its M&A.
Unless our share has collapsed, which that's not going to happen anytime soon or is highly unlikely to happen anytime soon it's going be hard for us to buy back shares we're not going to pay down debt. We're already way under Levered as is so that doesn't seem viable. So it's those first three alternatives.
On the dividend certainly is at the top of the list. So we'll be looking at the dividend very closely as we move through the year, but nothing is likely to get announced until we get to Q4.
Why is that just on the timing I mean, I understand a permit historical perspective.
We've just got to.
Cash is building up on our balance sheet credit rapid rate here it sounds.
It sounds reasonable to be able debt.
Signal to investors.
Little bit earlier that this is what we intend to do with it with the cash balance.
Well.
This industry can be volatile at times things can go up things can go down I don't expect things to go down we're as bullish as we've been with this company for 14 years I've never been as bullish as I am today and.
And we've just got a track record of doing our analysis as we move through the year on it culminates.
In depth discussion to the board in December.
And I'm sure, we're going to be talking to the board about this as we move through this year.
With more energy and enthusiasm than we have in prior years, but.
Given the volatile nature of the industry, we're probably going to wait until the end of the year to decide what to do but that remains to be seen to it's really a board level decision.
Alright fair enough I look forward to that.
Thanks.
At this time Im showing there are no more questions I'll now turn the call back over to Jerry Richards.
Thank you <unk> and also thank you everybody for your interest and participation on the call. This morning.
Certainly we'll be available for the detailed modeling questions from from.
From the analyst as well as shareholder conversations.
Once we wrap up here. So again, thank you have a good day and we'll talk soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
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