Q4 2022 Potlatchdeltic Corp Earnings Call
[music].
Good morning, My name is Devon, and I will be your conference operator today.
At this time I would like to welcome everyone to the Potlatch Delta fourth quarter 2022 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 followed by the number one on your telephone keypad.
We'd like to withdraw your question press the pound key.
Thank you I would like to now turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer for opening remarks, Sir you May proceed.
Thank you Devin.
Good morning, and welcome to Potlatch don't fix fourth quarter 2022 earnings conference call.
Turning 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 in our press release on the presentation slides and in our filings with the SEC regarding 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'll review, our fourth quarter results and our 2023.
Well. Thank you Jerry we reported total adjusted EBITDA of $574 million for 2022 after the market closed yesterday.
That is the company's second highest EBITDA on record and it marks our third straight year of strong financial performance cumulative EBITDA generated by our leverage to lumber strategy over that three year period was $1 $6 billion.
Our wood products segment contributed $291 million of adjusted EBITDA in 2022 and $861 million over the last three years, we shipped just over 1 billion board feet of lumber in 2022, and we had another strong year in terms of safety performance.
As discussed on last quarter's call. We successfully completed the rebuild of our Ola, Arkansas sawmill and restarted the large log line on schedule in the third quarter.
While the start up phase has taken a bit longer than we had hoped relative to our stretch goal. The mill is on track to reach its 150 million board feet annual capacity on a run rate basis by the end of the quarter.
As a reminder, OLED rebuild also significantly lowers the mills cash processing costs and improves its log recovery.
And 2022 we also announced a $131 million project to modernize and expand our Waldo Arkansas sawmill.
<unk> will increase the mill's annual capacity by 85 million board feet and significantly reduce cash processing costs.
Activity will be focused on site prep in 2023 with equipment delivery and installation to come next year.
Existing mail will continue to operate during the project with just three weeks of downtime expected in 2020 for the tie in the new equipment.
Completion is expected by the end of 2024.
Our timberlands segment generated adjusted EBITDA of $249 million in 2022, which was just below the record. This segment set in 2021, we harvested $6 5 million tonnes.
Which exceeded our planned harvest primarily due to the addition of catch March timberlands in mid September speech.
Speaking of cash Mark we had an excellent year on the M&A front ketch Mark added nearly 350000 acres of high quality timberlands and some of the strongest log markets in the U S. South separately. We also acquired 46000 acres of well stocked timberlands in Mississippi, and Arkansas and three bolt on timberland.
<unk> transactions overall, we added nearly 400000 acres of attractive timberlands in the U S south to our portfolio in 2022.
Our real estate segment also had a strong year contributing adjusted EBITDA was $73 million on the rural side of the business. We sold 20000 acres at nearly $2400 an acre.
Those sales included what we believe is the industry's first solar deal comprising 1700, 60 acres for $13 million or <unk> $7500 per acre.
Real estate has built a backlog of over $100 million of future potential solar deals. We expect that figure will increase as the team finished the stratify them catch marks acres in 2023.
Our team also made good progress on potential carbon credit and carbon capture projects in 2022, while it will take time for these efforts to pay off we are optimistic about growth tied to providing natural climate solutions and we believe these efforts will result in higher returns as well as higher timberland values.
On the development side of our real estate business, we sold 181 lots at an average price of $112000 per lot in our Schnall Valley Master planned community in little rock.
We also closed commercial sales every quarter in 2022, resulting in over $13 million of revenue at an average price of $290000 per acre.
Turning to housing U S sentiment deteriorated quickly in 2022, while a significant decline in affordability has clearly caused the U S housing construction market to slow we continue to believe that the backdrop is favorable over the long term.
This is based on a fundamental shortage of housing stock due largely to the combination of under building after the great financial crisis and favorable demographics in the form of millennials.
It is also apparent that the feds historic pace of interest rate increases has slowed the economy and its causing inflation rates of decline.
Many economists are predicting that the fed could shift into an easing cycle as soon as the middle of 2023.
In fact markets are pricing in this expectation the mortgage rates have dropped over 100 basis points recently.
Acknowledging it will take time, we continue to expect the U S housing starts will return to levels above the long term average of one 5 million units per year once homes become more affordable.
In the meantime, the number of housing units under construction remains elevated at $1 7 million units in December we expect that the elevated level of housing units under construction will support lumber demand during the spring building season.
In addition, homebuyers and builders are responding to affordability issues.
Example, remote work opened the possibility to move to less costly parts of the country for a lot of people.
Builder concessions or a shift in product mix to smaller homes or fewer amenities are other examples that are occurring.
Lower mortgage rates and improved consumer confidence are the key remaining ingredients needed to get housing construction back on track.
Shifting to repair and remodel which is the largest market segment for lumber demand the underlying fundamentals continue to be favorable for a variety of reasons existing U S housing stock remains the oldest in the history of the statistic at 42 years on average. This is important because older homes are significantly smaller than new homes on average.
And older homes typically need more repairs.
Higher mortgage rates mean that people are much more likely to stay in their existing homes remodeling is a very attractive option for homeowners given strong levels of home equity cross the U S. A job market that remained strong and the fact that consumer balance sheets remain in good shape.
In addition, higher interest rates, usually have less of an effect than other factors on repair and remodel demand.
Pundits expect repair and remodel spending to continue to grow this year, our roads, leading indicator of remodeling activity report forecast R&R spending growth will remain positive and be two 6% higher year over year in the fourth quarter of this year.
This sentiment is supported by our home center customer takeaway, which remains strong.
We continue to be optimistic about lumber demand and the R&R market segments.
The random lengths composite lumber price reached a bottom recently and has increased three weeks in a row to $412 per thousand board feet.
Lumber futures are trading at a $100 premium to cash prices, we expect lumber prices will continue to improve from current levels as supply chain stocks up for the spring building season.
Moving to capital allocation, we returned $263 million of cash to shareholders in 2022.
That amount included a $76 million special dividend, which was driven by our strong results in the first half of the year.
We remain committed to growing our regular dividend sustainably the key to doing so is by increasing our stable cash flows through accretive acquisitions, such as the Ketchmark merger and a bolt on timberland transactions that we completed in 2022.
We increased our regular dividend to 3% in December are.
Our regular dividend payout represented 43% of our cash available for distribution in 2022.
We also remain committed to repurchasing our shares only when they trade at a significant discount as part of our overall focus on growing shareholder value over time.
To that end, our board approved a new $200 million share repurchase program in August .
We bought back $55 million of stock during the year at an average price of $45 per share, which is well below our estimated NAV.
Our opportunistic approach also applies to our borrowing costs in 2022, we utilize interest rate swaps from 2020 to reduce our weighted average borrowing cost by 80 basis points in a year in which the fed increased interest rates by over four percentage points.
Our weighted average borrowing costs are now two 4% the lowest of the timber Reits.
At the end of the year, we had $344 million of cash on the balance sheet and liquidity of nearly $650 million, our leverage remains low and our financial strength provides a solid platform to continue growing shareholder value.
Shifting gears, our environmental social and governance reporting team had a very busy year in 2022, we published our third annual ESG report in May our first carbon and climate report in September and we launched our ESG website in Q4.
We were also named to Newsweek's list of most responsible companies for the second year in a row.
Finally, we announced our commitment to greenhouse gas reduction goals at the end of the year.
Potlatch Delta has a strong ESG story and we are committed to do our part to mitigate climate change and continue our legacy of responsibility across the ESG spectrum.
In summary, 2022 was another great year for Potlatch Delta that is a real tribute to our employees, who had a lot on their plate their dedication and hard work allowed us to complete the catch Mark merger three bolt on timberland acquisitions, and the older rebuild and start up all while delivering excellent.
Financial results are strong balance sheet liquidity and strategy provide a solid platform to continue increasing shareholder value.
I will now turn it over to Gerry to discuss our fourth quarter results and our 2023 outlook. Thank.
Thank you Eric.
Starting with page five of the slides adjusted EBITDA was $52 million in the fourth quarter compared to $101 million in the third quarter.
The quarter over quarter decline in EBITDA was primarily due to lower lumber prices lower index saw log prices and seasonally lower harvest volumes.
I'll now review each of our operating segments and provide more color on our fourth quarter results.
Information for our Timberland segment is displayed on slides six through eight.
The segment's adjusted EBITDA decreased from $65 million in the third quarter to $51 million in the fourth quarter.
Our solid harvest in the North was 456000 tons in the fourth quarter, which is flat compared to the third quarter.
As we discussed on last quarter's call our harvest volume fell short of plan in the third quarter, primarily due to log in haul contractor availability issues.
Our northern team did a good job securing additional contractors and increasing the harvest in the fourth quarter, which reduced the harvest shortfall for the year.
Northern <unk> prices were 18% lower on a per ton basis in the fourth quarter compared to the third quarter.
The decline in solid prices, primarily reflects lower prices for index saw logs.
In the South we harvested one 4 million tons in the fourth quarter.
The fourth quarter was the first full quarter of operations on Ketchmark stimulants since we closed the merger in September .
Solid execution and flexibility by our southern Timberlands team were key to achieving that result.
Our southern saw log prices were 3% higher than the fourth quarter compared to the third quarter.
The increase was driven by a full quarter of volume and Ketchmark stronger southern markets, which was more which more than offset a seasonally lower mix of hardwood saw logs.
Pine saw log prices in our legacy wood baskets were 2% higher than the fourth quarter than the third quarter.
Moving to wood products on slides nine and 10 adjusted EBITDA declined from $31 million in the third quarter to $2 million in the fourth quarter.
Our average lumber price realization decreased nearly $100 per thousand board feet or 17% in the quarter.
By comparison, the random lengths framing lumber composite price was 23% lower in the fourth quarter than the third quarter.
As a reminder, the lag we experienced between booking and shipping orders is not captured by the composite which is closer to a real time indication of price.
Our average lumber price realizations per thousand board feet were $487 in October $480 in November and $450 in December .
Lumber shipments decreased 7 million board feet from 265 million board feet of third quarter to 258 million board feet in the fourth quarter.
Our planned shipments in the fourth quarter were lower than expected, primarily due to a slower ramp up but OLED than planned.
As Eric mentioned the team is making good progress at <unk> and we are on track to reach our full production run rate by the end of the first quarter.
Shifting to real estate on slides 11 and 12 the.
The segment's adjusted EBITDA was $7 million in the fourth quarter compared to $14 million in the third quarter.
EBITDA generated by rural sales declined sequentially due to the sale of fewer acres at a lower average price in the fourth quarter.
This was expected as both our and <unk> Rural land sales were heavily weighted to the first half of the year in 2022.
EBITDA generated by our Chanel Valley Master planned community also declined sequentially we.
We closed the sale of 24 residential lots in the fourth quarter compared to 48 lots in the third quarter.
We also sold fewer commercial real estate acres in the fourth quarter.
Having said that we have closed at least one commercial sale every quarter. This year for an average price of $290000 per acre.
Turning to financial items, which are summarized on slide 13, our total liquidity was $643 million. This amount includes $344 million of cash as well as availability on our undrawn revolver.
We refinanced the $40 million of debt that matured in December we had previously locked the refinance rate, which reduced our interest rate on this debt approximately 100 basis points and lowered our annual interest cost by approximately $400000.
Overall, we used interest rate swaps to reduce the weighted average borrowing cost on our outstanding debt to two 4% this year.
Including the refinance the ketch Mark set in the third quarter, our annual interest costs run rate has declined nearly $9 million.
We repurchased $50 million of our shares in the fourth quarter at an average price of $46 per share.
We also paid a $76 million special dividend in December .
Capital expenditures were $20 million in the fourth quarter.
That amount includes real estate development expenditures, which are included in cash from operations and our cash flow statement and it excludes timberland acquisitions.
As Eric mentioned, we were the successful bidders on three bolt on timberland acquisitions in Mississippi, and Arkansas earlier, this year for $101 million in the aggregate.
We used cash to close all three transactions, including $14 million to close the last of the three transactions early in the fourth quarter.
Integration of Ketchmark continues to go well and we have now achieved CAD synergies of $19 million on a run rate basis, we remain on track to achieve cost synergies of $21 million versus the $16 million target that we communicated when we announced the transaction at the end of May.
I'll now provide some high level outlook comments. The details are presented on slide 14.
We plan to harvest approximately $7 7 million tonnes in our timberlands segment in 2023.
Harvest volumes in the north are planned to be seasonally lower in the first quarter at a level comparable to the first quarter of 2022.
We expect northern solid prices to decline about 30% in the first quarter compared to the fourth quarter.
In the South we plan to harvest approximately one 5 million tons in the first quarter.
We expect our southern saw log prices to decrease modestly assuming customer log inventories remain full.
We plan to ship $1 1 billion board feet of lumber in 2023.
In the first quarter, we plan to ship 255 to 265 million board feet of lumber.
The effect of seasonally lower cut rates in our northern saw mills and a planned maintenance outage in our Warren Arkansas sawmill are expected to offset increased production at our Ola, Arkansas sawmill in the first quarter.
Our average lumber price thus far in the first quarter is approximately 14% lower than our fourth quarter average lumber price.
This is based on approximately 125 million board feet of lumber.
Our lumber prices have been increasing recently and our spot prices currently about 8% lower than our fourth quarter average lumber price.
As a reminder, a $10 per thousand board foot change in lumber price equals approximately $12 million consolidated EBITDA for us on an annual basis.
Shifting to real estate, we expect to sell approximately 18000 acres of rural land and 150, <unk> All valley residential lots in 2023.
Additional real estate details are provided on the slide.
We estimate that interest expense will be approximately $2 million in the first quarter and $9 million to $10 million per quarter for the second third and fourth quarters of 2023.
Interest expense is lower in the first quarter than the other quarters because that is when we receive our annual patronage payments from the farm credit banks.
Also interest income on our balance cash balance has increased due to higher short term interest rates.
Turning to capital expenditures, we are planning to spend $135 million to $145 million in 2023, excluding any potential acquisitions.
That estimate includes $74 million for the Waldo, Arkansas sawmill modernization expansion that we announced last June .
Overall, we expect our total adjusted EBITDA will be lower in the first quarter due to lower lumber index solid prices.
Having said that we believe that lumber prices prices reached a bottom in January and we are optimistic the recent improvement will continue.
Well positioned to continue growing shareholder value over the long term.
That concludes our prepared remarks, Devin now I'd like to open the call to Q&A.
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.
Our first question comes from Mark Weintraub with Seaport Global.
Thank you.
Okay.
In terms of the share repurchase so you've still got $150 million left on the.
That $200 million authorization.
How should we think about the type of pace.
Likely execute recognizing you said that.
We're going to do it when the stock's at a discount but clearly it has been.
But at the same time, you're obviously your cash generation at least in the first part of the year is going to be a bunch of lower so kind of how should we think about it you do have that you do still have quite a bit of cash on the balance sheet and obviously the untapped revolver.
Yes, good good question Mark.
Lying back shares Opportunistically.
When our stock trades at a large discount to NAV like it does today.
That remains a very important part of our capital allocation strategy.
But needless to say there is a lot of uncertainty in the markets right now.
We continue to believe that share repurchases are an attractive use of our capital and we're going to constantly balance that against other capital allocation option.
Options, but at the end of the day, there really isn't a prize for moving aggressively with share repurchases and we think our cautious approach to capital allocation and it served us very well in the past most most companies get share repurchases wrong. So I don't I don't think I can give you a definitive answer on the pace other than we're.
To be constantly evaluating where our stock is at relative to NAV and other valuation metrics against these other capital allocation alternatives that we have and those alternatives they come and go over time.
So it's very hard to predict how the pace is going to play out.
And maybe just as a quick one is there a certain level of cash.
That you want to retain on the balance sheet at that.
You can kind of help us guide and what your thought process might be.
So that's a good follow on question Mark So.
A level of cash I mean, historically I have thought about $100 million kind of a base level, we like to hold and then on top of that and as a reminder, we have $74 million that we're going to spend on the Waldo project. This year. So.
Something approaching $200 million would be kind of the baseline.
Okay. That's that's helpful.
I'll turn it over.
Our next question comes from Paul Quinn with RBC capital markets.
Hey, thanks very much.
Just a question.
Got it and Eric that you mentioned on your harvest in the North in 2022, just wondering how material that is and whether youre going to make up that volume in 'twenty three.
Yes, actually I'll take that one Paul this is Jerry so in terms of the under harvest, that's primarily pulpwood and ton wood. So theres couple of things going on one we've seen pricing for pulpwood for the last few years have been pretty weak in the region.
And for US historically, thats, a low margin part of our business. So when it doesn't pay to the Hollywood out we don't and then the other thing we've had certainly it was an issue in Q3 as contractor availability, so and our team did a really good job of one securing more contractor availability in Q4, but they certainly prioritized shipping saw logs.
<unk> and pulpwood in ton wood.
So at the end of the day and happy to report that 265 million board feet was the plan for the year and they hit that for the year. So I think going forward I don't know that that pulpwood and ton what gets made up so I think it's I think that's in the rearview mirror.
Okay and then just.
On the wood products side.
Knowing that you get that plywood asset I'm not sure how well it ran in the quarter, but.
Our lumber operation breakeven and where are they affected by the slower than expected ramp up with Hulu.
Well they were definitely affected by the slower ramp up at Ola, we missed our production and shipment targets at all in the quarter.
Because we're not we're not where we want to be from a cut rate standpoint.
From a.
Earnings standpoint, we made money in wood products in the fourth quarter, a couple of million dollars plywood was definitely under some pressure in.
In Q4.
That's to be expected with a good chunk of our plywood mixed competes with with OSB and commodity housing type applications and some of it's more <unk>.
Industrial high end applications that part of the business is surprisingly is holding up reasonably well.
But the other side the non repair side of our plywood business was under some pressure in Q4.
Okay, and then thanks for the detail on lumber prices.
And just wondering we had a big announcement cancel or up in Canada last week and just wondering how much.
<unk> jumped.
Down.
In Idaho as a result of that announcement was that material level.
Oh, yes that was that was definitely material and then you raised a good point, which is our southern prices weren't really impacted by the <unk> announcement. It was really all about.
Idaho lumber prices Emperor in particular, yes, we saw a jump in the 30 40 50 Bucks a thousand kind of range almost immediately from when that announcement was made.
And I suspect you're you're anticipating further further.
Capacity closures in BC in 'twenty three here.
Yes, so so far we've seen.
I don't know roughly 2 billion board feet of either permanent shutdowns or curtailments.
Over the last 12 months, we continue to hear we don't operate up in BC as you know, but we continue to hear that BC is relatively high cost.
And so with these lower prices.
I hear a lot of chatter about mills, curtailing or closing and yes, I think there is an expectation that.
That there could be more curtailments or closures, but that's really up to those producers in that region.
Okay, and then just lastly, with the lower lumber pricing environment.
Is that freed up some of the timberland.
Opportunities ies or more more deals in the marketplace and you anticipate that in 2000.
Yes, the timberland M&A market right now.
Paul it's pretty quiet.
We're coming off a really active 2022, so I guess, it's no surprise the market is going to have a little bit of a pause here but.
Housing starts pulling back and with lumber prices pulling back.
Im guessing that sellers are choosing to wait until there is some signs of a recovery in housing starts in lumber demand to to bring properties to market.
Also we suspect sellers might be holding back as carbon potential is becoming.
A bigger and bigger deal, but so far it looks like it's going to be a pretty quiet year on the timberland M&A front.
Alright, Thats all I had thanks, thanks, guys. Thanks, Thanks, Paul.
Our next question comes from <unk>, <unk> with BMO capital markets.
Hi, Good morning. This is rashly on behalf of COO.
<unk> with BMO.
Let's start off with.
Paul's question here can you talk a little bit about what youre seeing in terms of lumber demand and channel inventory trends have you seen a change in the loss.
Recent weeks with all the curtailment announcements.
Well, we're not quite yet to the to the spring building season, yet so we haven't really seen.
Affirm uptick in demand I think.
Dealers have been running with relatively low inventories all along.
People are wondering how far prices are going to drop so they've been holding off on buying.
I think we haven't seen a little bit of a pickup in demand here lately people are starting to think okay prices have reached the bottom they are probably not going to go any lower so it's time to.
To step up by now how that how that translates into end user demand. It's really hard for me to say is we don't really sell to direct users and I will say that on the R&R side, we sell to a number of home centers and that side of our business has stayed remarkably strong.
We're really happy with the R&R segment right now and so we're feeling good about that segment. There is no doubt housing starts are coming down this year relative to last year, that's going to hurt overall lumber demand but.
As we look out into 2024, we think the fed is going to be cutting rates. Later this year and we think starts will be will be back at it again as we get out to 2024, we have started to see a few.
Positive signs in housing the homebuilder confidence is moved up off the lows.
I have seen mortgage rates come down 100 basis points, or so and I read articles about homebuilders buying down mortgage rates. Some I think I read somewhere that one of the builders is offering a 5% mortgage rate to try to entice buyers. So it's not it's not like it's a complete disaster out there like it was after the great financial crisis, but it's.
But we're not yet to the spring building season.
Thanks for that color and then can you tell us what the right way to think about declining log prices in Idaho. In Q1 is how do you how do you think about that.
Yes, it's a great question I mean, certainly.
Idaho, and when you talk log costs at certainly the logs that were buying from ourselves to.
Lumber and plywood.
No question as lumber pricing has come down and we index the price of those logs were going to see some early if that's probably around a $3 million or so dollar number for the first quarter.
Then additional relief.
It can be significant actually as the year plays out.
Okay. Thank you and then.
You also talk about your log cost benefit and lift products like jet and UC, Idaho filings.
That primarily in Idaho are you seeing anything on the southern side as well.
No our southern prices they are actually up a little bit in the fourth quarter. They may be down a little bit in the first quarter, but not much.
One of the benefits of having a timber business in the south as log prices tend to be relatively stable.
So we're not we're not seeing any any real decline in the south.
Okay and then just last one for me how much is left side <unk> real estate development and Chanel Valley, both in residential and commercial.
Yes.
That's a great question.
I'll start with a high level of SaaS just to frame the context. So that's a 4800 acre Master plan community spent since the late 19 eighties was one adult <unk> started that project and a little over 5000 total residential lots about 1400 remain.
And then we also have about 300 acres of commercial real estate, that's available for sale as well.
Thank you I'll jump back in the queue. Thanks.
Thanks.
Our next question comes from George Staphos with Bank of America.
Hi, guys. Good morning, Thanks for all the detail.
With all of them.
You mentioned that it was coming up the curve a little bit more slowly than perhaps you'd wanted was that.
Gary or Eric sure running to demand ranked the market or was it true learning curve issues.
As you are coming up the curve with all of what and why was the cut rate not where you wanted it to be.
Yeah George Good good question now it clearly was not related to the demand.
Starting up a mill is not it's not just an on off switch when we started when we started back in late September early October .
Cut rate was around 13000 14000 feet in our as we sit here today last night on the night shift we ran 31000 board feet per hour.
We've over doubled production volumes now since when we first turned the mill on.
We're still not to where we want to be we want to get to 40 and our that's our that's our goal that's our target that's where we think.
We're going to we're going to be at the end of the quarter.
This is two steps forward one step back when you startup a lumber mill like this we had residuals handling issues at the very start we had vibration issues that we had to deal with and we had alignment issues from right. Now we are grappling with optimization software control issues.
But.
We're bird dogging those issues and well.
Like I said two steps forward, one step back and we're moving up the ramp up curve and we think we'll be there by the end of the quarter.
Harder probably than putting numbers in a spreadsheet so.
Thank you Craig.
I appreciate it.
Capex is.
Got it a little bit higher than where we're at and I think the street and obviously you have Waldo but is there anything else in there that we should be at least tracking progress on or asking a bit over the course of the year.
That you would point out yes.
I'll start with a high level and Eric May want to add something from promoter wood product standpoint, but you nailed. It I mean overall June $35 million to $145 million spend includes $74 million of Waldo.
The rest of it I would say is kind of normal business.
Planting trees in our timberlands business, it's a little up a little bit because we now have more acres.
In a higher harvests.
That would be part of it real estate is a little bit of timing and thats conscious as we we always stay a step ahead of demand. So we kind of slowed down development a little bit at the end of 2022 and right now we're planning to potentially pick that backup that pace back up a little bit.
And then you think about what products are at a certain level of maintenance, but theres also discretionary projects there as well in the discretionary we try to always think about a return greater than 15% for.
For those discretionary projects.
Thanks, Sorry last question from me and this is probably more for us than for you folks, but aside from British Columbia is there any other.
Markets, where you think the.
The cost curve is such that it could.
Passenger you are going to be strained and we could see potential at least we should be watching for potential curtailments or shutdowns.
Yes, George I think.
Civic northwest the west side is vulnerable here.
Those mills are competing for logs with export market logs.
And.
The price of logs on the west side.
Mills have to make a profit if theyre going to stay open.
But I think the west side is vulnerable in large part because harvesting volume that's available to mills.
Has been coming down standing timber inventories have been coming down over the past several years, we had a bunch of fires theres been controversial conservation measures that have been taking taken so I think there is the potential for further reductions over on over on the west side it'll be nothing like what's happened up in BC, but that's that's probably the.
The next most vulnerable region in North America.
Okay. Thanks, that's all I got to turn it over thank you guys.
Our final question comes from Mike <unk> with <unk> Securities.
Thanks, Eric and Jerry Jerry I appreciate taking my questions.
Just first one anything from a cost perspective that affected wood products in the quarter you did mention obviously the slower ramp at all so I'm just wondering if there's anything else because the margins seem to be getting on an EBITDA basis. It would be relatively are pretty weak.
And I'm just wondering if there's anything outside of price that all of that if that affected that margin.
Well, we're in a relatively inflationary environment, Mike so.
That's part of it I can't think of any one thing in particular that jumped out at us in the in the fourth quarter.
Certainly having overrun it.
Its run rate of <unk> 40, an hour would help.
Leverage the cost structure, but I can't think of anything else that really hurt us in the fourth quarter in particular.
Okay got it I appreciate it Eric just one last question.
Repair and remodel.
I made the comment that home center customer takeaways remained strong which is.
So looking fairly fairly well, which is great. But typically there is if you look back historically, there's been a few quarter lag between the decline in housing single family starts and a decline in repair and remodel so any sense that you are going.
I understand that Youre seeing right now is still a strong takeaway Budd.
If you look out a couple of weeks do you see that abating at all do you see takeaway from home centers and dealers professional declining and the reason I'm asking is is not only do you see it.
Not only does our typically lag starts but the consumer itself, we could see as we can tell you look at the rising unemployment you look at type of wage growth and then you have to look at the fact that R&R has been relatively elevated the last couple of years, particularly given the work from home.
So I'm just trying to get a sense of whether the what youre seeing right now with home Center takeaway is something that you expect to persist and if there are signs of any cracks.
Yes, I don't I don't see any signs of any cracks I do think youre right I do think it will slow led by by slowing I still think I would point to growth even out to the fourth quarter.
There is there is the other side of the coin here, which is yes, you are right during COVID-19 people sit around the house do home repair projects, but the other side of it as we were in a really high price lumber market environment over the past couple of years and as those prices have come down anybody that was deferring a home repair project.
Now now is the time for them to pull the trigger on because <unk> got low low lumber prices theres a whole bunch of other issues that are that are out there that are favorable you still got these really high levels of home equity you've got.
There's not much inventory for sale that's out there.
So people are stuck in their homes.
And so if youre stuck in your home Es unemployment has ticked up but it's still at three 5%, there's still a lot of cash floating out there.
So there's so many other more favorable factors at play here that.
I don't see it slowing down maybe maybe at the end of the rate of growth will slow, but I don't see it turning negative put it that way.
Got it. Thank you very much good luck in the quarter.
Thanks. Thanks.
At this time I am showing there are no more questions I'll now turn the call back over to Jerry Richards.
Alright, Thank you Devin and thank you everybody for your questions and your interest in Potlatch Delta that concludes our call.
Yes.