Potlatch (PCH) announced 4th quarter and 2012 year-end results on January 29. See the results here. Sales were $525.1 million, up 5.5% from 2011. Operating income was $84.9 million, up 18% from 2011, and net income was $42.6 million, up 6% from 2011. Adjusted EBITDA was $114.4 million, up 4% from 2011.
Cash provided by operations for 2012 was $80.0 million, up 3% from 2011. Total long-term debt was $349.2, up 1% from 2011 year-end. Cash on hand is $17.0 million. Cash generation is covering Potlatch's dividend, which was $50 million in 2012, down 32% from 2011. Potlatch's dividend is 2.8% at this time.
When it comes to timber REITs, I prefer looking at EBITDA or cash from operations rather than net income because of the large non-cash expenses for depletion associated with timber. Potlatch did not share EBITDA by segment numbers, so I had to do a little calculating on my own. We will use my EBITDA calculations when talking about Potlatch's different business segments. As I have said in earlier articles, the four timber REITs, PCH, PCL, WY, and RYN, have quite different mixes in their business segments. In 2012, Potlatch derived about 44% of its EBITDA from timber, 22% from real estate, and 34% from wood products.
Housing starts for 2012 were 781,000, up 30% from 2011. Still, this is only about 50% of historic norms so there is much upside for Potlatch's businesses, all of which are housing related, as the housing market continues to improve. Some are predicting another 30% increase in housing starts for 2013.
For 2012, EBITDA from Potlatch's timber segment was down 15% from 2011. Timber generated 44% of company EBITDA. This was with a 14% lower harvest volume. Prices were mostly unchanged or slightly up from 2011 levels. As I have said in the past, log prices have still not benefited much from the improvement in housing. This was true in 2012 but should improve in 2013 as housing starts and demand for lumber continues to climb. Export demand, particularly from China, was soft in 2012. Demand from both China and Japan is expected to improve in 2013, however, Potlatch has no exposure to the export market, with none of their timberland in the Pacific Northwest.
Wood products EBITDA was up 244% from 2011 and represented 34% of Potlatch's 2012 EBITDA. Lumber production was up 8% over 2011. Prices for lumber were up 15% over 2011. The outlook for 2013 in wood products is very positive as housing continues to improve.
Real estate generated 22% of Potlatch's 2012 EBITDA. Potlatch's 2012 real estate EBITDA was down 22% from 2011. Sale acres were down 36% from 2011, however average price per acre was up. HBU and rural residential sales represented about 82% of the acres sold with the remaining 18% being non-strategic timberlands.
For 2012, Potlatch's unit price has gone from $31.11 to $39.90, a 28.3% capital gain return. If you add a dividend of 3.0%, you get a total return of 31.2% for the year. That beats the S&P 500 18.4% gain for 2012.
Using Jeff Williams' "Behind the Numbers Analysis" gives Potlatch eight passes and one fail out of nine tests. Not a bad score!
- Positive net income: Pass
- Positive operating cash flow: Pass
- Increasing year over year ROA: Pass
- Operation cash flow being greater than net income: Pass
- Decreasing total liabilities to total assets ratio: Fail
- Increasing current ratio: Pass
- Shares outstanding growth less than 2%: Pass
- Decreasing Gross Margin to sales ratio: Pass
- Sales growth % being larger than asset growth %: Pass
I generally do not recommend stocks one way or another, I just report on their businesses and financial results. Potlatch has had a decent run-up in price in the last 12 months. With the improved housing market, I think things are looking good for Potlatch in 2013. On the Charles Schwab website, Schwab, Ned Davis, and Reuters rate PCH a "Hold"; Market Edge rates PCH a "Buy".