PotlatchDeltic Corporation Q1 2023 Earnings Call
Good morning, My name is Lisa and I will be your conference operator today at this time I would like to welcome everyone to the Potlatch <unk> first quarter 2023 conference call. All lines have been placed on mute to prevent any background noise and 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 and if you would like to withdraw your question press. The Star one again I would now like to turn the call over to Mr. Wayne waste check interim Vice President and Chief Financial Officer for opening remarks, Sir you May proceed.
Thank you Lisa.
Morning, and welcome to Potlatch <unk> first quarter 2023 earnings conference call joining.
Joining me on the call is Eric Cremers, Potlatch Delta ex 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 turn the call over to Eric for some comments and then I will review, our first quarter results and our outlook.
Thank you Wayne.
Start with a few comments about the press release, we issued last week, indicating that Jerry Richards is leaving the company to pursue another opportunity with a larger company in a different industry. Jerry was our CFO for 10 years and did a terrific job. Our press release also stated that Wayne waste check our current principal accounting officer is now.
Our interim CFO Wayne has been with the company for five years, having joined US from Vail resorts Thankfully, we have a deep bench of talent in our finance and accounting departments, we have a search underway and envision filling the CFO position over the coming months.
Turning to the first quarter, we reported total adjusted EBITDA of $58 million after the market closed yesterday.
Wooden products segment had breakeven adjusted EBITDA in the first quarter lumber prices found a bottom in January we are encouraged by the upward trend in lumber prices as we head into a spring building season that has been delayed by winter weather in the northern tier of the country.
Also I am pleased with the team's strong safety performance in the first quarter.
As we have discussed on our last two calls we successfully completed our Ola, Arkansas sawmill rebuilds and restarted the large log line in the third quarter of 2022.
Well the startup phase has taken a bit longer than we had anticipated we are very happy with the new equipment. The mills operating run rate has reached its expected annual capacity of 100 million board feet per year.
As a reminder, always rebuild significantly lowers the mills cash cost structure.
Last year, we announced a $131 million project to modernize and expand our Waldo Arkansas sawmill.
Activity is currently focused on site prep with the majority of equipment delivery and installation to come in 2024.
The project will increase the mill's annual capacity by 85 million board feet and significantly reduce the mills cash costs.
Existing mill will continue to operate during the project with approximately three weeks of downtime expected in 2024 to tie in the new equipment.
Completion is expected by the end of 'twenty 'twenty four.
Our timberlands segment generated adjusted EBITDA of $47 million in the first quarter, we harvested $2 1 million tonnes, which is higher than planned and is also a company record.
With our teams in the north and the South contributed to that result, our harvest plan remains unchanged for the full year.
Speaking of our southern team, we completed the process of in sourcing the management of catch marks timberlands in the first quarter.
As a much larger company, we can conduct the same types of activities internally at a much lower cost in this case in source in sourcing resulted in a synergy of $3 million per year.
Our real estate segment had another solid quarter with adjusted EBITDA of $19 million on.
On the rural side of the business, we sold 6900 acres at nearly $2600 an acre.
In development, we sold 24 lots at an average price of $116000 per lot in our <unk> Valley Master planned community in little rock.
Our team continues to make progress on natural climate solutions opportunities. We're working on a carbon credit project. We are also exploring opportunities to supply mill residuals <unk> pulpwood to pellet manufacturers.
Finally, we have over $100 million of potential future solar land deals and leases in the pipeline.
We expect solar opportunities will increase as the team finishes stratify catch marks acres in the second quarter.
As a reminder, we completed our first solar related rural land sale a year ago.
While it will take time for the carbon appellate efforts to pay off we are optimistic about overall growth tied to providing natural climate solutions and we believe these efforts will result in higher returns as well as higher timberland values.
Shifting to housing we continue to believe there are strong positive tailwind over the long term our.
Our view 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, who have reached prime home buying ages and our view the final element needed for housing construction to rebound as lower interest rates.
To that end, we are encouraged by the recent easing in mortgage rates acknowledging it will take time, we continue to expect that U S. Housing starts will return to levels above the long term average of $1 5 million units per year once mortgage rates eased further making homes more affordable.
There is also a near record low inventory of existing homes for sale in the U S, forcing buyers to look at purchasing a new home versus an existing home.
New home sales data released just this morning was also favorable.
Turning to repair and remodel which is the largest market segment for lumber demand.
The underlying fundamentals continued 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 remote work means people need more space older homes, typically need more repairs and higher mortgage rates mean that people are much more likely to see.
Day in their existing homes.
Remodeling is a very attractive option for homeowners given strong levels of home equity across the U S. A robust job market and the fact that consumer balance sheets remain in good shape.
Our home center customer takeaway remains strong and we continue to be optimistic about lumber demand and the repair and remodel market segment.
Moving to capital allocation, our top priority is to grow 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 the bolt on timberland transactions that we completed in 2022.
We increased our regular dividend to <unk>, 3% last December .
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, we have an active <unk> five one share repurchase plan in place and in total we have $150 million remaining on our 200 million repurchase authorization we.
We will also continue to carefully balanced share repurchases against other capital allocation options like M&A.
At the end of the quarter, we had $326 million of cash on the balance sheet and liquidity of $625 million.
Our leverage remains low and our financial strength provides a solid platform to continue growing shareholder value.
Regarding environmental social and governance are reporting team is hard at work preparing our fourth annual ESG report, which we plan to publish in May recently, we are also one of six finalists for IR magazine's best mid cap ESG reporting or.
Potlatch Delta has a strong ESG story, and we are committed to doing our part to mitigate climate change and continue our legacy of responsibility across the ESG spectrum.
Wrap up my comments Potlatch Delta remains very well positioned with a strong balance sheet and liquidity to continue increasing shareholder value I will now turn it over to Wayne to discuss our first quarter results and our outlook.
Thank you Eric starts.
Starting with page four of the slides adjusted EBITDA was $58 million in the first quarter compared to $52 million in the fourth quarter.
EBIT increased quarter over quarter as the sale of more rural acres in the first quarter more than offset the effect of lower lumber and index saw log prices.
I will now review each of our operating segments and provide more color on our first quarter results.
Information for our Timberland segment is displayed on slides five through seven the.
The segment's adjusted EBITDA decreased from $51 million in the fourth quarter to $47 million in the first quarter.
Our Idaho team leveraged favorable logging conditions and strong mill demand to harvest 471000 tons of saw logs in the first quarter.
The first quarter harvest volume was higher than planned and the team is off to a good start in 2023.
Our Idaho solid prices were 19% lower on a per ton basis in the first quarter compared to the fourth quarter.
The decline in saw log prices reflects lower index prices and seasonally heavier saw logs.
In the South we harvested $1 6 million tons in the first quarter, which is a record. This reflects our successful completion of the ketchmark merger, along with $101 million of bolt on timberland acquisitions in the south last year.
Also solid execution and flexibility by our southern Southern Timberlands team, coupled with strong demand in Arkansas, and Mississippi were key to achieving the record harvest.
Our southern saw log prices were 3% lower in the first quarter compared to the fourth quarter. The decrease was due to 2% lower pine saw log prices and a seasonally lower mix of hardwood saw logs.
Moving to wood products on slides eight and nine adjusted EBIT declined from $2 million in the fourth quarter to breakeven in the first quarter.
Our average lumber price realization decreased 8% compared to a 10% decline in random lengths framing lumber composite price in the first quarter compared to the fourth quarter. As a reminder, the lag we experienced between booking and shipping orders is not captured by the composite which is a closer to real time indication of price.
Our lumber price realizations increased each month in the first quarter, specifically, our average lumber price realizations per thousand board feet or 413 in January 439 in February and 453 in March.
Lumber shipments increased 2% to 262 million board feet in the first quarter.
Eric mentioned the team has made good progress at <unk> during the quarter higher Ola lumber shipments more than offset the effect of planned maintenance at our other two Arkansas saw mills.
Shifting to real estate on slides 10, and 11, the segment's adjusted EBITDA was $19 million in the first quarter compared to $7 million in the fourth quarter EBIT generated by rural sales increased sequentially due to the sale of more acres.
EBIT generated by our Chanel Valley Master plan community declined primarily due to the absence of commercial lot sales this quarter.
Commercial sales tend to be lumpy and our pipeline of future transactions remains attractive we closed on the sale of 24 residential lots in the first quarter at a lower average price in the fourth quarter due to a different mix of price points.
Turning to financial items, which are summarized on slide 12, our total liquidity was 625 million. This amount includes $326 million of cash as well as availability on our undrawn revolver.
We have $40 million of debt that is scheduled to mature in December the decision to repay or refinance this debt will occur later this year, we still have $250 million of forward starting interest rate swaps on our balance sheet that provide the opportunity to issue debt at well below market rates we.
We did not repurchase any shares in the first quarter, we put another <unk> one share repurchase plan in place in connection with our ongoing commitment to repurchase our shares opportunistically at a significant discount to NAV.
Capital expenditures were $13 million in the first quarter that amount includes real estate development expenditures, which are included in cash from operations and our cash flow statement.
For the full year, we are planning to spend $135 to $145 million, excluding any potential acquisitions that estimate includes $74 million for Waldo, Arkansas sawmill modernization and expansion go.
I will now provide some high level outlook comments.
The details are presented on slide 13.
Harvest volumes in the north are planned to be seasonally lower in the second quarter at a level comparable with the second quarter of 2022, we expect northern solid prices declined 5% in the second quarter compared to the first quarter in the South we plan to harvest approximately $1 3 million tons in the second quarter, we expect our southern saw log prices.
<unk> decreased modestly we plan to ship 270 to 280 million board feet of lumber in the second quarter.
Our average lumber price thus far in the second quarter is approximately 6% higher than our first quarter average lumber price.
This is based on approximately 100 million board feet of lumber our lumber prices have been modestly increasing and our spot prices currently about 7% higher than our first quarter average 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.
Shifting to real estate, we expect to sell approximately 2600 acres of rural land and 35 Chanel Valley residential lots in the second quarter additional real estate details are provided on the slide.
Overall, we expect our total adjusted EBIT will be lower in the second quarter due to seasonally lower harvest volume and fewer rural land sales, having said that we are encouraged by the recent improvement in lumber prices, we are well positioned to continue growing share held shareholder value over the long term.
That concludes our prepared remarks, Lisa I would like to now turn the call over to Q&A.
Thank you as a reminder, everyone that is star one on the telephone to ask a question and we will take our first question from Anthony Pettinari with Citi.
Good morning.
Good morning, good morning.
On southern log prices I guess on a year over year basis, they were flattish and I'm just wondering if it's possible to kind of parse out.
<unk> price performance between the legacy southern lands and acquired Ketchmark Lance or maybe just.
Directionally, if you could comment on those two submarkets.
Yes. Good question, Anthony So I think I wouldn't I would characterize it this way.
The legacy markets.
For Potlatch now I'll take a relatively relatively flat.
Kind of year over year.
And I would say the newer ketchmark markets.
So we're talking about Georgia, South Carolina, South Eastern Alabama, we're seeing a little bit more price decline in those markets.
Not not dramatic.
It's modestly more so just to give you a sense of it in the fourth quarter, we were down 3%.
In the leg in the ketch Mark markets. When we were down just 1% in Arkansas quarter over quarter.
And as I reflect on it what I think is going on here is that those more tension log markets.
Youre going to see log prices fall.
Foster and further when youre in a down market down lumber market like we're in today and it kind of makes sense. If you step back and you think about it.
It's harder for mills to make a margin.
And those higher priced log markets.
Like a Georgia South Carolina.
<unk> got weak log markets like in Arkansas, and Mississippi Mills can still make an adequate margin and so theyre going to continue to run hard whereas in those higher priced log markets and those arent good run quite as hard. So I guess, that's the way I would I would characterize log price movements from the various regions in the south so that makes sense.
Yes, no that's very helpful. That's very helpful and.
You reiterated the full year harvest guidance I think <unk> was was a bit.
Higher than expected on harvest volumes <unk>.
Referenced whether I'm just wondering if theres anything else that was driving that in terms of labor availability or hauling or in <unk>.
Maybe pulling forward some volume in some regions I'm just wondering if you could.
Give any color there.
Yes, Anthony so the old expression, you've got to make hay, while the Sun is shining as applicable when it comes to harvesting timber.
We had an extended winter here in Idaho.
And it allowed our resource team timberlands team in Idaho to harvest longer into Q1, then than normal so in Idaho, We got roughly 100000 tons ahead of plan for the year.
And Thats advantageous when you think about how our volumes tend to really peak as you get out into Q3, it really strengthens the contractor pool in Q3.
When that happens.
But when you can get more volume in Q1, effectively youre taken out volume from from Q3 now this particular year that incremental 100000 tons. We got in Q1 is going to come out pro rata.
Our volume that we were planning for Q2, Q3 and Q4.
So again make hay, while the Sun is shining.
Idaho now in the south.
The spring generally has really wet weather in April has been just terrible so our southern team. Similarly got got ahead of plan. There are about 130000 tons ahead of plan and we expect to give much of that outperformance write back in Q2, since we're having such a <unk>.
April .
So really this is all about managing through through weather.
And also making sure that you're utilizing your contractors as best you can particularly in Idaho.
Okay.
Okay. That's very helpful I'll turn it over.
Thanks.
We will take our next question from Keaton Montara with BMO capital markets.
Thank you.
First question, maybe a little more near term oriented.
Either remain or Eric is that a way to ballpark.
Loss cost relief in Q2, and the book product side.
From.
From Idaho log prices easing.
Yeah, Keith So so yes, we had lower log costs both in Q1.
As well as we expect that lower log costs in Q2, so going from Q4 to Q1.
We estimate that our mills in total were favorably impacted by about $2 million So St Marys.
Was favorably impacted by about $3 million and the other mills actually win went the other way down about $1 million. So net were favorably impacted about $2 million now has gone from Q1 to Q2, we think other mills are going to be flat in St. Marys is going to see an additional I don't know, perhaps $3 million benefit.
In Q2.
Got it Thats helpful.
And then.
I was wondering Eric you mentioned in your prepared remarks about some of the art connective streams of revenue in timberlands, but it <unk> carbon.
Yes, as you think about the back half of the 24 one.
What are the mile markers that we should be thinking about.
As we look at.
How this opportunity pans out over the next two to three years.
Yes, that's a great question, Keith and I would I would say so that the two most.
A logical opportunities here will start with the first one which is solar we've already done a solar deal. We did one last year in Mississippi, We have a number of tracks that are under option right now with the solar developers.
They make option payments to us each and every year.
And so they can pull the trigger.
On one of those solar developments when whenever they want.
So it's hard to predict exactly when those are going to happen, but there are several that properties that are that are under option right now so thats hard to predict.
The other one the carbon deal that we're working on.
We want to we want to do this the right way, there's a lot of Greenwashing, that's going on in the world right now.
We want to avoid being one of those companies, we want to keep our reputation intact and so we're very careful with the project that we're working on and it all starts with verifying. The particular track they were talking about how much carbon is there today and put yourself in a position. So that you can turnaround and measure that carbon.
Each and every year thereafter.
So that project is taking some time, we also need to get a private letter ruling from the IRS at this as good REIT income the IRS takes its time.
The key milestone for that carbon deal will be late this year or early next year.
Our current guesstimate as to is the timeline and I think we can just update you on each of these calls with with our expected timing for for that particular project.
Understood.
Thats helpful and just final question from my side.
We did not repurchase any shares in Q1, I'm, just curious kind of how do you approach.
<unk>.
In 2023, especially related goal now kind of share repurchases given the uncertainty in the in the market. Obviously cash flows this year are going to be lower but the stock is also trading below NAV.
So what how do you approach that and also keeping in mind that you've got the volume of project that's ongoing.
Yes, I would I would separate out the Waldo project Keaton, when we planned that that $200 million authorization that we put in place last year, we knew about the Waldo projects. So there are really two separate two separate thoughts.
It really comes down to for US repurchasing shares Opportunistically, we're going to do it when the share price is at a significant discount to NAV. It's a very important part of our capital allocation strategy.
We do believe we've increased our NAV over the past several years and along with that we've increased our share repurchase limit price over time.
But a couple of things here in Q1, we put a new <unk> one plan in place and that takes we call a seasoning you can't be in the market buying when the <unk>. One is seasoning as like a 60 day period.
And then also we're out of the window two weeks before we release our results.
So we were kind of had to be out of the market for much of Q1.
The other important thing to highlight here to comment on is that we are always comparing our capital allocation options one against another.
And so a lot of the stuff that we work on is kind of predictable, but theres stuff like M&A, that's not predictable and.
And so to the extent that we see an M&A opportunity that may or may not be on the market by the way.
And we're looking at it we're thinking about okay is this going to be a user of our capital.
And would this be a better way to use capital than share repurchases. So sometimes we have to go to the sidelines to evaluate.
M&A opportunities and that can take us out of the market too, but the bottom line is we're we're never going to be fast movers when it comes to.
So things like share repurchases, we're going to be very thoughtful very judicious and we're only going to buy when we think we're we're on sale.
Perfect got it that makes that makes a lot of sense I'll jump back into queue. Thank you.
Thanks.
We will take our next question from Kurt Yinger with D. A Davidson.
Great. Thanks, and good morning, everyone.
Good morning.
Just wanted to start off on southern harvest volumes and two questions I mean first pretty big increase in stumpage in Q1, maybe you could talk about the drivers there and then second.
Perhaps stumpage is included in kind of the saw log mix that you've guided for the full year, but if not it would kind of imply youre going to sell 1 million tons of saw logs in the south in both Q3 and Q4, which is.
Pretty.
Pretty significantly above what we've seen in the last couple of quarters, even including Ketchmark. So can you just talk through that and any risks you see.
So it looks like a pretty big half back half on southern saw log volumes.
Yes, so so.
Stumpage prices are going to bounce around quarter to quarter.
Simply simply based upon mix of what the stumpage deal is.
So it's hard to read too much in the stumpage price trends whatsoever.
Stumpage was high in the first quarter, we were very opportunistic with our somebody's deals that we completed in the first quarter.
No.
I don't think we will have a similarly high number the rest of the year most of the quarters or in the two to 250000 ton range.
Q2 through Q4.
The typical saw log harvest fee harvest for us for the rest of the year will be.
Between 600000 tons, and 750000 tons more or less.
And Thats, a relatively stable outlook for our timberlands business in the south.
Got it okay. That's helpful.
And then Eric you touched on home center demand being pretty strong still I guess could you maybe talk a little bit more detail about the trend as the quarter progressed and here through April and whether thats been similar.
In terms of the progression relative to what you've seen in the past or or whether there is perhaps been some delay.
In terms of an inventory build ahead of spring.
Yeah, Kurt I would say that home center demand was probably weaker at the start of the quarter than it was at the end of the quarter, but I think that's also kind of a natural phenomenon.
Matt.
When it's when it's winter weather outside especially in the northern tier of the country home Center demand is a little on the weaker side, just because people arent outside.
New and yard work and fences index and things.
So I wouldn't I wouldn't say that I wouldn't try to read too much into that but I would say the demand probably progressed as we move through the quarter and it's very consistent with what our plan was for the home centers.
Got it okay. Thanks for that Eric I appreciate the color.
Yes. Thank you.
We will take our next question from Mark Weintraub with Seaport Research partners.
Thank you.
First as a quick follow up you had mentioned that it's been very wet down in the south sometimes that can have impacts on.
<unk> get into the woods and that then on pricing itself has that happened yet as well or not so much.
While we struck a really sweet pulpwood deal with one of our large pulp mill customers that manage to get themselves caught short.
So we've seen a little bit of a price response, but not.
Not not entirely across the whole south Mark.
And not really seeing it much and saw logs yet.
Okay, and so no real weather impact, though from the wetness yet.
Yes, I would say no real impact other than we had a really strong deal in Q1 in fact with the pulp mill.
Got it and then theres been a pretty wide divergence during that first quarter and what happened with southern lumber prices versus what was happening.
Out west.
Kind of any thoughts on that and.
What what might happen going forward on a relative basis in those regions.
Yeah.
It's amazing to me, what's what's happened with <unk>.
Lumber prices, depending upon the different regions.
Traditional price premium of southern Pine to SPF is like normally in this 50 to $70 kind of range and today the spread is more like a whopping $150. So it's really really broken out I think theres a couple of different reasons why southern pines outperforming here.
First southern Pine is.
Is proximate to where consumption is in the U S.
I read the other day that something like seven of the top 10 housing markets in the U S or in the south so relatively close to southern yellow Pine Mills think about Florida, I think about Texas I think even even Tennessee is one of the Nashville I think is one of the top 10 markets. So those mills are close to where the demand is and builders. They frankly, they just don't want to be <unk>.
Bose to lumber price swings so they're utilizing increasingly this kind of adjust in time lumber delivery strategy and if youre going to use adjusted time lumber delivery strategy, you can't wait to get it from a railcar from.
The Alberta that takes that takes a month.
The second thing that I would say regarding this price spread is the north had a really long winter.
That impacted home construction in the north and that's of course, the traditional home for SPF lumber. So I think thats, probably also pushing down SPF lumber prices.
And relatively speaking to the benefit of southern southern Pine.
Interesting. Thank you.
And you guys are obviously much more heavy in the south.
And so I mean is it reasonable to expect and I think the numbers you provided suggests that up.
So your average pricing <unk> versus <unk> at least at this point is better than like the random lengths composite is that is that fair.
Yes, we're doing a little bit better than the random lengths composite and.
Our southern mills are doing better than that our northern mills, and I think pricing if you compare the spread it's like.
Versus our plan. The South is ahead by like 40 Bucks a thousand and the north is behind like 40 Bucks a thousand so it's interesting how.
That's the stuff that you read about is actually speeding right through to our mills.
Okay, Great and then one last one for me is and where are we in process in terms of <unk>.
New capacity or new saw mill, starting up in regions, where where you produce.
And sort of Relatedly.
Cause your you're actually at least historically have bought.
A bit more than you've sold I don't know if thats changed in the U S. South in terms of timber I mean are there certain.
Sub markets, where you are along versus where Youre short, which are worth highlighting as we think about the possibility of timber prices going.
Moving up in the in the future.
Well all of our mills in the South are in Arkansas.
So if you think about outside of Arkansas.
So the acreage we acquired from Ketchmark for example, our acreage in Mississippi or Alabama all of that.
Is so that's roughly 600000 acres, that's not going to our to our own our own mills.
So I would say that if you step back and look at the mills are mills, where we operate at.
There were internal.
At the three mills in the South we're using about 50% internal logs and 50% external logs and there really hasnt been much of a change in that regard.
Okay. That's helpful. Thank you.
We will take our next question from Paul Quinn with RBC capital markets.
Yes, thanks very much good morning.
Guys just.
To see outperformance in real estate was interesting in the guidance.
<unk> 18000.
Acres of rural lands in 2023, with a little bit of a surprise I thought it was a couple quarters ago that you were saying now that you've sold Minnesota is going to go to about half that run rate.
Of what Youre doing at the time, which was about 23000.
So just wondering if that 23 here with the 18000 incident.
And then 24 will go back to something.
Lower.
Just sit on that.
Yeah.
Yes, Paul this is Wayne.
I think when we Youre right I mean, when we look at in 'twenty, two we sold over.
10000 acres of land in Minnesota, and so we've essentially completed that process to liquidate our munis, Minnesota Holdings.
I think now are our regional mix shift in 23 years and along with the Ketchmark merger.
Provides new opportunities in new markets. So we're really excited about that gap markets in South Carolina, Georgia, and Eastern Alabama. So.
I think we'll see that kind of shift more to the south and I think moving forward over time I think we've now have a proven track record of say approximately 1% of our holdings that will.
1% of our acres that we've been able to find opportunities for so.
Think about that and that's about 20000 acres or so we're slightly below that this year, but rural rural sales can be lumpy and the others. It.
It takes time to develop some of these opportunities but over time, we have a track record of finding these opportunities. So I really think this is sustainable and we kind of look to that 18 to net.
20000 going forward.
Okay. So that is sustainable at that level, Okay, and then just flipping over to.
Some of the things you're doing on the carbon side in the solar up lots of companies are announcing these things no company is yet to come forward on any kind of economic or financial metrics around them. Maybe you could just sort of help us understand what the potential upside could be on similar.
Well I think that's it.
That's a tricky one Paul we had a solar deal last year as you may recall that.
One was done for $7500 an acre.
And that was in Mississippi, It was $13 million transaction more or less I.
I think that that's representative of what.
The potential is for solar.
Every deal is going to be a little bit different and the economics are going to be a little bit different.
But I think thats representative of where of where the market is.
Okay.
That's great color and then what are you expecting on the carbon side.
That said that's the that's the million dollar question here.
So this first project that we're going to do it's exploratory it'll.
It'll be meaningful but it'll be exploratory.
We're taking our time to make sure that we do it right.
We think the carbon value that we're going to get is I don't know somewhere between 50 and 100%.
Higher than what the value would be had we harvested these trees.
So it's it's it's meaningful.
But we still have several quarters to go to get it across the goal line.
Still don't think carbon values.
Our high enough in the forestry sector to cause us to change our harvesting practices on our plantations.
So basically southern yellow pine saw log.
Worth far more to a lumber mill than it is to somebody looking to buy carbon offsets.
It's in these weaker timber markets, where suddenly the opportunity for carbon those values are higher than what stumpage is worth.
Two to a mill.
It's going to take time to prove this out.
Work.
We got our start.
Growing trees for mills, so we like plantation forestry.
And so.
Were there will be a subset of our acres I think that in time, we are going to have more value carbon versus versus producing logs for mills.
But thats totally dependent upon what the carbon prices.
Okay, and then just lastly, I was kind of surprised that no share repurchases in Q1, given the go ahead.
And I think you were saying late last year on the ability of that you've had to increase your net asset value. Just wondering if you were fully restricted in Q1 from buying that back, especially early in the quarter.
No. We were not we were not fully restricted there was a period of time, where we could step in and buy but it wasn't a very long period of time.
But.
You've known us for many years, Paul we're we're cautious we're looking for deep discounts.
And Theres a lot of a lot of uncertainty that's in the market right now.
And so we're looking for those big dislocations to step in and buy.
Alright, Thats all I had.
Thanks.
We will take our next question from George Staphos with Bank of America.
Yes, Hi, guys. Good morning, just a couple of quick ones from me. So I want to go back to home center demand and what you are saying I think Eric you mentioned that demand was more or less as you expected in the first quarter, but what were your expectation that you could put a bit more card rail or two around that and when you talk to your customers and.
You outlined.
Yes.
Secular trends are in terms of why you're optimistic on first of all new constructions as well as repair remodel what concerns you the most or what concerns your customers. The most about the repair remodel outlook. When you talk to them what would if we saw it in the journal Tomorrow.
Cause maybe start to lower our forecast there.
George I, Yes, I would I would say we never you go back over the last couple of quarters. We can all see that the fed was jacking up interest rates.
There was a little bit more economic uncertainty.
We never expected, our repair and remodel business to fall off.
Others other pundits had been expecting it to fall off and we never thought that it would and in fact, it hasnt or it didn't.
So it kind of it kind of met our planned.
If you look at the home center comp store sales numbers, they havent fallen off a cliff either they're like I don't know zero to minus one or something like that but remember all along the way lumber has gone from 1400 Bucks a thousand to 400 Bucks a thousand so yes prices have come off but they are in their comp stores are flat to slightly negative but.
<unk> prices have just completely collapsed so and so.
From a volume standpoint.
That means volumes across store are hanging in there right.
And I listen to what the home centers say they don't they don't have a dire outlook. They just talk about business is kind of flat and that's kind of that's kind of how we see it but I think flat.
<unk>.
Market, where housing is in a recession generally speaking flat is good on the repair and remodel side.
So what what would cause R&R to.
Go backwards here.
I don't know maybe credit availability for some of these larger projects I mean, certainly you see banking stress across the country Silicon Valley Bank in signature Bank and whatnot does that feed into limited credit availability for a large remodeling projects I suppose it's possible, but there is so much home equity that's been built up over the past couple of years.
And there is so much.
Demand for labor in this country unemployment rate is still at $3 six last I saw.
It's it's it's hard it's hard for me to see.
That that being an issue, but it's but it is certainly a possibility.
But it sounds like and I appreciate all of that it sounds like the risks are skewed to the upside from what you see what kind of bump along here unless there's some sort of other yes.
Credit issue that horizon, hopefully not but otherwise.
We're flat to up overtime from what Youre seeing over the next couple of quarters not trying to put words in your mouth and obviously no guarantees in life.
Yeah, I would I would say my expectation as we kind of just keep bouncing along here steady demand in R&R and I think we've got probably two or three quarters to go a kind of a little bit of rough sledding here on the new residential construction, but we get out to 2020 for almost every report I read says lumber demand is going right back up for new residential.
Construction is housing starts come back.
D. R. Horton had very favorable things to say on their recent earnings release Pulte, just said some great things.
<unk>.
Home sales are home starts were up some data released by the government. This morning.
Showing month over month.
Starts with no sales new home sales were up 10% so.
I think.
To summarize I think R&R is stable and I think the opportunity is for new residential construction to really pick up the pace as we get out a year from now.
That's great.
You showed in your waterfall, obviously manufacturing costs and wood I think benefited results overall diverse couple of million dollars.
From where you sit and given what you kind of lay what would you if youre NRC be building into our waterfalls over the next two or three quarters on the manufacturing side for the West segment.
Well I think what youre going to what Youre going to find George is we will continue to ramp up our volumes at our Ola sawmill.
As we ramp up that volume in that older than that and that saw mill will get better fixed cost absorption.
And inflation was a huge deal for us last year.
I would tell you that inflation those inflationary pressures are rolling over a little bit.
Some processing costs for us for the full year, we expect them on a per thousand basis with the higher volumes coming out of <unk> to be up just 1% full year over full year.
Log costs are going to be down in total.
Roughly 12% full year over full year.
And total cash cost of our mills, we expect to be down around 7% full year over full year. So we're going to get a lot of benefit from that Ola sawmill running running harder.
Got it and then last one for me and I'll turn it over and then recognizing that you said earlier I mean land sales are lumpy and all that but when I look at the rural realizations that youre targeting a slight erosion from current trend to the end of the year. The average whats driving that if anything recognizing its mix, but if you had any.
Points that you want to relate to us we take it thanks guys.
Thanks.
Yes on the on the rural side we.
We definitely plan probably to larger tracks in 'twenty, three and so they just happened to fall in Q1 so.
So a real no change in our 18000 acres for the year, it's just timing and definitely the lumpiness of rural sales. So.
Okay I'll turn it over thank you guys.
Thanks.
We will take our next question from Mike <unk> with <unk> Securities.
Thanks, Eric.
Thank you taking my questions.
Just two quick ones here, Eric going back to your question your comment on the home Center.
Customer takeaways you know you mentioned the homebuilders, obviously seeing improved activity. There is better optimism you have the home centers that are doing that of tour activity has picked up again.
Inventories still seem to be tight BC issues that could see curtailing lumber into the U S.
If all that's true why do you think we haven't seen a more pronounced improvement in lumber prices I realize that theyre up versus earlier in the year, but given all of these issues given more can scale give us some of the builders Tulloch until you say, the Horton and Pulte talking about increased construction activity given BC now producing as much.
Whats, what's constraining breakout in lumber pricing right now.
So I think its two things one it's so demand for new resident residential construction has softened considerably I mean were off I don't know 300000 starts 400000 starts per year.
So.
Youre right Theres been a lot of curtailments, mostly up in BC, that's taken supply off the market, but demand has also dropped here. So that's the first thing is that demand has in fact come down quite a bit but the second thing and this is really important as imports coming in from Europe .
Or at a really high run rate right now I think I read somewhere they are approaching 10% of U S consumption.
So Europe has got this spruce beetle issue they got dead trees dead and dying trees, They got really cheap logs to their mills.
And so we've had a really strong dollar here over much of the past year due to rising interest rates.
So in Europe has been relatively weak so they've been a lot of lumber they've been producing with these really cheap logs has been has been on a boat headed to the U S.
Typically that would only finds its way into like the north eastern Seaboard.
But recently, we've seen it in markets like as far away as Houston.
So we've seen a ton of imports coming into the U S from from Europe .
We're expecting that to be flat full year over full year.
And then we expect it to come back down again, as we get out to 2024.
European demand comes back basically, it's because less Russia, and Ukrainian and Belarusian lumber finds its way into Europe .
European Wood will tend to stay home and not coming to the U S.
So another favorable thing coming our way next year is less European imports.
Got it that makes sense and then just one quick one on.
Southern sawtimber prices recently.
Recent data from <unk> publication showed mid single digit.
And year over year decline in southern sawtimber prices one <unk>.
Appears that youre doing better than that any reason as to why there would be.
A difference versus that.
The publication is where your assets are located is the mix. So let me try to get a sense of why there is such a why the outperformance.
And in Europe .
With your timber relative to what the obligation is showing for the broader <unk> yourself.
Yes, I mean, it's it varies by location, we're going to be down I guess, we were down 1% in Arkansas for southern Pine.
Fourth quarter due to the first quarter and we were down 3% over in those more tension wood baskets over and in Georgia, and South Carolina.
We were down 4% in Mississippi.
Over quarter. So it just it just varies my outlook for Arkansas, and Q2 is flat compared to Q1.
So it just it bounces around depending upon the specific location I think the good news is it's not completely going into the ditch number one and then number two you know anytime you have a weather event.
Can that can that can turn prices around so so fast so it's hard to read too much into these numbers.
Got it thanks very much.
Thanks.
Okay.
And at this time Im showing there are no more questions I'll now turn the call back over to Wayne Please check.
Thank you Lisa Thank you for your questions and your interest in Potlatch Delta that concludes our call. Thank you. Thank you.
Thank you that does conclude todays presentation. Thank you for your participation and you may now disconnect.
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Yes.