Plum Creek Timber Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.27.14 | About: Plum Creek (PCL)

Plum Creek Timber (NYSE:PCL)

Q4 2013 Earnings Call

January 27, 2014 5:00 pm ET

Executives

John B. Hobbs - Vice President of Investor Relations

Rick R. Holley - Chief Executive Officer and Executive Director

David W. Lambert - Chief Financial Officer and Senior Vice President

Analysts

George L. Staphos - BofA Merrill Lynch, Research Division

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Chip A. Dillon - Vertical Research Partners, LLC

Mark Wilde - Deutsche Bank AG, Research Division

Daniel Rohr - Morningstar Inc., Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Collin Mings - Raymond James & Associates, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to Plum Creek's Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. John Hobbs, Vice President of Investor Relations. Sir, you may begin.

John B. Hobbs

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter and year end 2013 conference call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations for the company. Today, we have on the line Rick Holley, Chief Executive Officer; and David Lambert, Senior Vice President and Chief Financial Officer. This call is open to all investors and members of the media. However, the Q&A portion of the call is intended for the professional investment community only. We ask that any other participants please follow up with questions by calling me at 1 (800) 858-5347. I encourage you to visit our website, www.plumcreek.com. There you will find our press release, supplemental financial statements and any reconciliations to non-GAAP financial measures for the full year and fourth quarter of 2013.

Before we begin, I'd like to take this time to remind everyone that certain of our statements today will be forward-looking, involving known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our filings with the Securities and Exchange Commission. Following today's prepared remarks, we'll open up the call for your questions. Rick?

Rick R. Holley

Good afternoon, and happy new year. Our financial results in 2013 were very good, and we are seeing continued improvements in all of our markets as we enter 2014. Our timber, manufacturing and non-timber resources businesses all delivered improved results. This, combined with the results from our Real Estate segment, produced improved earnings in 2013 that were within the range of expectations we gave you for the year.

Excluding the expenses associated with December's timberland acquisition from MeadWestvaco and the $4 million fire-loss charge we recorded in the third quarter, our 2013 earnings were $1.39 per share. Importantly, we achieved our goal of growing the adjusted EBITDA from our non-Real Estate business segments by approximately $50 million during the year.

Our adjusted EBITDA for 2013 was $502 million, more than enough to pay our dividend and fund all our capital investment plans that we had during the year.

During 2013, lumber production in the U.S. West grew 7%. This, coupled with a 23% growth in export log demand, helped drive sawlog prices up 19% in our Northern Resources segment.

In the U.S. South, lumber production through the end of October had grown 4%, and sawlog prices there were 12% higher than at the end of 2012. The greatest increase in southern sawlog prices occurred in the Atlantic South region, where mill operating rates were higher.

Looking forward, we expect housing starts to grow about 19% to 1.1 million units in 2014. This growth and improving demand from repair and remodel markets should translate into about 3 billion board feet of additional North American lumber production in 2014. With their low-cost position, we expect southern lumber mills will capture a disproportionate share of this growth, leading to further increases in sawlog prices.

Many of our customers see the same forces at work and are preparing for improved markets in 2014 and beyond. As we highlighted in our Investor Day in October, capital investments focused on production expansion are being made in mills across the South. And it's not just domestic producers. Canadian producers have also been active, acquiring and expanding southern lumber mills. This makes sense given the South's low-cost position and the structural supply challenges the Canadian producers face at home.

Pellet markets are continuing to develop in the U.S. South, adding a new customer base in low-cost markets with good port access. Several of these mills have broken ground and expect to start taking deliveries in the second half of 2014. These include the 2 Drax mills we will serve in Louisiana and Mississippi. As these mills come online, they are expected to reintroduce healthy competition for pulpwood in the markets where they are located. We've been working for these last several years to make sure that Plum Creek's supply chain is in great shape and ready to serve our customers, both old and new, as demand grows.

We believe our position will be a strategic advantage, as demand increases in 2014 and beyond. We have received inquiries from a variety of pulpwood and sawlog customers seeking to secure longer-term fiber supply commitments. In most cases, they are willing to pay an explicit premium for a volume commitment.

We end 2013 in excellent financial health and with a strong, well-positioned asset base. We currently manage nearly 6.8 million acres of highly productive lands in 19 states. In the past year, we've made some significant investments that we expect to provide good returns in 2014 and even more compelling returns over time.

During the second quarter of last year, we added 46,000 acres of timberlands in Georgia and Alabama to our portfolio. In the third quarter, we added to our construction materials interest, this time, in the attractive Atlanta, Georgia market. In 2014, we expect the construction materials investments that we've made over the past 3 years to produce cash and cash returns exceeding 6% and these cash returns will exceed 9% over the life of these investments. The acquisitions we made in construction materials were opportunistic ones, offering compelling returns on our investment. We're pleased with these acquisitions and expect the segment's contribution will grow organically over the coming years, consistent with the strategic outlook we shared with you in our October 1st Investor Day.

Over the next 15 years, we expect to grow the cash flow from this segment to approximately $70 million, as royalty streams from natural resources that occur on Plum Creek's lands continue to grow and royalties from the acquired natural resources increase.

In early December, we completed the acquisition of approximately 500,000 acres of highly productive southern timberlands, their associated subsurface rights and real estate joint venture interests from MeadWestvaco. Shortly thereafter, it was my personal pleasure to welcome 26 new employees who will manage these lands for the Plum Creek team. We've quickly integrated these assets into the Plum Creek portfolio, and they are performing just as we planned.

We expect the acquisition to be slightly earnings dilutive, approximately 3% per share, but cash flow accretive by approximately 4% on a per share basis in 2014. We expect this accretion to continue to grow into 2015 and beyond.

Now let me outline for you how we see these assets adding to our results in the coming year. In the timber resources segment, the newly acquired lands will add approximately 3 million tons to our annual harvest, 45% of that will be sawlogs and 55% pulpwood. We expect this volume to produce roughly $50 million of adjusted EBITDA and approximately $20 million of operating income this year. We've already found that demand for higher and better used lands is strong and could generate approximately $20 million or more of adjusted EBITDA and approximately $3 million of operating income in 2014. We have already received a number of inquiries from individuals interested in acquiring some of these very attractive lands in the Southeast.

We expect to collect approximately $5 million in royalty from coal and wind assets, generating approximately $4 million of operating income. In addition, we have 2 real estate joint ventures with MeadWestvaco. We will report the results from these ventures using the equity method of accounting. The joint ventures are expected to generate some operating losses in 2014. Our share of those operating losses, should they occur, will be less than $3 million. We expect to receive approximately $3 million of cash from these investments in 2014, and we expect that cash contribution to grow in the following year and beyond.

The interest expense rising from the financing of the acquisition is expected to be approximately $30 million. This represents a combination of higher debt levels and a greater component of fixed rate debt in our post-transaction capital structure. Prior to the transaction, approximately 60% of our debt was fixed rate. Now our debt is 76% fixed and 24% floating. In all, net of additional interest expense, we're expecting the assets to add approximately $50 million in cash flow in 2014.

We're pleased with our 2013 results and expect good follow-through in the coming year. We expect adjusted EBITDA for the company to grow by more than $80 million in 2014, as growth from our timber resource, manufacturing and non-timber resource businesses more than offset our planned reduction in land sales. We expect further growth, as markets move closer to the demographic-driven residential construction level of approximately 1.5 million starts over the next 3 to 5 years.

David will now review our last -- past quarter's performance and discuss our expectations for the first quarter and full year 2014. David?

David W. Lambert

Thanks, Rick. We had an excellent fourth quarter with the results coming in at the high end of our initial expectations. As we mentioned in our last call, our fourth quarter guidance of $0.26 to $0.31 per share was exclusive of any impact from the MeadWestvaco acquisition. Excluding the income and expenses directly related to the acquisition and its financing, our fourth quarter results were $52 million, or $0.31 per share. Business results in the timber resources segments improved quarter-over-quarter, with harvest volumes in line with our initial expectations and log prices slightly higher than we were forecasting. Real Estate sales were stronger than expected as well, with segment revenues $7 million beyond our initial estimate.

Northern Resources' $8 million operating profit was largely unchanged from the third quarter's performance after excluding the third quarter's $4 million fire loss. Sawlog prices improved $2 per ton and offset a 5% decline in harvest volumes. Average pulpwood prices were unchanged from the third quarter. In the West, lumber production continued to be healthy and domestic producers competed aggressively for logs with export markets. Mills attempted to bolster log inventories going into year end. We directed our harvest volume almost exclusively to domestic customers during the fourth quarter, as domestic sales provided the best net cash margin for the company.

As we enter the first quarter, Western log markets are accelerating and prices and demand remain robust. Hardwood sawlog prices in the Northeast and Lake States remains strong on solid demand. We expect to see average Northern sawlog prices increase $3 to $5 per ton in the first quarter. Pulpwood demand in our hardwood regions remains good, and we expect our average pulpwood prices to hold steady at $43 per ton in the first quarter. Within the Northern Resources segment, we expect our 2014 harvest to be similar to 2013's harvest, nearly 4 million tons, with higher activity in West Virginia, offsetting lower harvest in the West. We expect the segment's harvest mix to be roughly 60% sawlogs and 40% pulpwood. The first quarter harvest is expected to be approximately 1 million tons.

The Southern Resources' $34 million operating income was up $7 million from the third quarter's $27 million level. The increase was driven by a combination of higher sales volumes and higher pulpwood prices in the region. As planned, the company increased the harvest volume approximately 11% for both sawlogs and pulpwood, as customers sought to build log inventories in anticipation of wetter winter weather.

We experienced improved sawlog pricing during the quarter. Prices increased between 1% and 5%, depending on the product and region. However, the largest gains in demand were for smaller-diameter chip and sawlogs. Our mix shifted towards these smaller logs and resulted in a flat pricing quarter-over-quarter.

Across the South, pulpwood markets remained strong, with solid demand from our traditional packaging customers. Our pulpwood prices advanced about $1 per ton. We expect first quarter sawlog prices to improve $1 per ton, and expect pulpwood prices to hold steady at $12 per ton.

For the year, we expect 2014 Southern harvest will be between 16 million and 17 million tons. We expect our harvest mix to be approximately 45% sawlogs and 55% pulpwood. We expect the first quarter's total harvest to be approximately 4 million tons, with sawlogs at about 1.8 million tons and pulpwood at about 2.2 million tons.

Turning to Real Estate. Our fourth quarter Real Estate segment sales were $59 million, about $7 million higher than we initially expected. Operating income was $31 million. Roughly 1/3 of the revenue was from conservation activity. Conservation sales consisted of approximately 6,100 acres of conservation lands in Wisconsin and Eastern Washington that captured about $1,000 per acre. Additionally, a $5 million conservation easement in Wisconsin captured $600 per acre. The balance of the sales consisted of approximately 4,000 acres of small, non-strategic lands, capturing nearly $1,300 per acre and about 20,100 acres of recreation lands that capture values roughly of $2,100 per acre.

Rural land markets remained pretty steady. The Gulf South and Lake States generated a little over 50% of the sales. Over the past year, we've seen increased interest in other regions as consumer confidence and the economy improved. We expect this trend to continue in 2014. We expect our Real Estate segment revenues in 2014 to be in the range of $240 million to $280 million, down from 2013's $286 million. Revenues from the segment should follow a seasonal pattern, with noticeably higher revenues in the second half of the year as most buyers typically evaluate properties in the spring and summer and close on properties in the third and fourth quarters. We estimate that land basis will range between 30% and 35% of sales, comparable to 2013's 32% of sales.

We expect first quarter real estate activity to represent a disproportionately low component of our sales for the year. First quarter sales are expected to be between $20 million and $25 million. This is lower than the $78 million reported in the first quarter of 2013, as we completed a single transaction of $53 million at that time.

Our Manufacturing segment reported $8 million of operating income, down $3 million from the third quarter on seasonally slower sales volumes in each of the product lines and modestly lower plywood and MDF prices. As mentioned in our press release, we expect the Manufacturing segment's 2014 operating income to grow with strengthening demand and pricing for the products we make. We expect results in this segment to rebound in the first quarter on seasonally stronger sales volumes and lumber prices.

During 2014, we expect to deliver timber to some customers under long-term fiber supply agreements. In some cases, Plum Creek will act as a procurement agent for our customers, purchasing timber from third-party sources on behalf of our customers and delivering the wood to their facility. Plum Creek will earn a fee for this service. We are targeting annual cash flow of approximately $15 million from this business by 2016. We will benefit from income this activity will generate. But importantly, these service agreements would help attract new demand into our timber markets. This business is expected to generate revenues and cash flows starting in the second half of 2014. The economics of this business are fundamentally different than any of our existing business segments or producing logs from our own lands. We do not expect this business will meet the quantitative thresholds to warrant its own business segment, and the results will be reported in a segment titled Other and will not be included in our timberland segments.

In order to maintain the transparency and comparability of our existing business segments, we will begin to refer to the business segment that is comprised of revenues and income from our non-timber natural resources as our Energy and Natural Resources segment, or ENR for short. This business has previously been reported in the segment titled Other. This business has more than doubled in size over the past decade.

In 2013, it produced $19 million of operating income and $22 million of adjusted EBITDA on revenues of $23 million. The ENR business segment generates income largely from the collection of royalties from subsurface assets, such as oil, natural gas, aggregates and industrial minerals. We have about 30,000 acres of industrial mineral and construction material assets, including sand, gravel and aggregates. These are located on more than 30 distinct properties across our ownership. These assets are developed and brought to market by third-party operators. This is a business that we've built over the years, and we have in-house experts, including geologists, environmental engineers and finance professionals that have worked in these businesses for decades.

Historically, the EBITDA revenues and operating income generated by this business were very close to the same because the assets themselves had little or no historical book value, and our cash costs in this segment are very small. The book value of the aggregate and coal assets we recently acquired from Vulcan and MeadWestvaco represent the investments that we've made in these natural resources. We've recognized, as depletion expense, the book value of these resources as they are produced and sold. For example, in 2014, we expect to receive more than $14 million in royalty payments from our Vulcan investments. Of this, we expect to recognize more than $10 million of revenue in 2014. The balance of the royalty payments we recognize as revenue over the life of the investment. We expect to recognize depletion expense of approximately $4 million and report income of approximately $6 million in 2014 on those investments.

In 2014, we expect total revenues in the ENR segment to exceed $30 million. Royalties from construction materials, coal and wind assets will grow in 2014, while revenue from natural gas assets is expected to decline approximately $4 million as a result of lower levels of leasing activity. We expect operating income in the ENR segment to be between $20 million and $25 million in 2014.

During the fourth quarter, our treasury department was busy completing the financing of the MeadWestvaco transaction. This activity is summarized in the schedule in our fourth -- is summarized in a schedule in our fourth quarter financial supplement. As expected, the effective cost of the 10-year note issued to MeadWestvaco to finance the timberland acquisition was 4.5%. The debt repayments made during the fourth quarter are worth noting, as we paid off the last of our private placement debt. As a result, we eliminated a handful of our debt covenants and can realize some modest efficiency gains in our treasury function. As a result, starting in the first quarter of 2014, we'll show a smaller cash balance than we've historically shown and show an equally lower borrowing level on our revolver at the end of each quarter. The cash balance will fluctuate from quarter-to-quarter but is expected to be in the $80 million to $100 million range. This change to our past practices has no impact on cash availability, liquidity, net debt or our cost of debt.

As of the end of the year, our net third-party debt stands at approximately $2.45 billion, and our net debt to enterprise value stands at approximately 24%. We expect third-party interest expense to be approximately $110 million in 2014. With the stronger results from our Manufacturing segment, we would expect that we'd have higher income in our taxable REIT subsidiaries and expect to report tax expenses of less than $4 million in 2014.

In summary, we expect our 2014 EPS to be between $1.30 and $1.50 per share, with the first quarter results between $0.12 and $0.17 per share. In 2014, we expect capital expenditures to be in the $85 million to $90 million range. This covers all of our maintenance and discretionary investment for the company, including reforestation and silvicultural treatments aimed at enhancing the yield of our forests. Rick?

Rick R. Holley

The new year is off to a good start at Plum Creek. With housing starts and permits strengthening to the 1 million starts pace in the fourth quarter, residential construction appears to be regaining its momentum. Builders' confidence is good, and our wood product customers tell us they are preparing for further demand growth in 2014.

As I mentioned earlier, we believe a disproportionate share of this 2014 growth in demand for lumber will come from the low-cost U.S. South.

Plum Creek is well positioned strategically and operationally to benefit as markets continue to improve. We've quickly integrated the new assets we acquired, and they are performing as expected. We expect to produce good, fundamental cash flow growth in 2014 and expect cash flows from our timber resources and ENR business segments to continue to grow in 2015 and beyond.

Now we'll open it up for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from George Staphos from Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

I guess the first question I had is just more of a top-down question. If we start 2013 at $1.39, including the expenses from the Mead transaction and fire losses, it seems like the dilution from MeadWestvaco on an EPS basis would be $0.05 or so. Rough math, the differential in real estate revenue is worth about $0.05, so you're back at around $1.30. Could you provide what the largest items are in terms of swing factors between your guidance at the low end of $1.30 and the high end at $1.50? And then, I have a couple of follow-ons.

David W. Lambert

Well, I think that will push the range will be what happens to our outlook on southern sawlog prices. Rick talked about how we expect to see growth in these markets. We could see those prices growing much more robustly than we're assuming. On the low end, I think we feel pretty comfortable about achieving those results, and we don't see a big move off of that range.

Rick R. Holley

And, George, one of the biggest differences is that our guidance on real estate, we did mention that we're going to sell roughly $25 million of our expectation of Real Estate from MeadWestvaco. Because we just bought those assets, the basis is very high and, therefore, there is really no income contribution from that. So we're actually having lower land sales from legacy Plum Creek lands, which have a -- last year, they had a basis of 32% land basis and, therefore, 68% earnings, and we're replacing them with lands that have a very high basis and, therefore, the impact -- the income impacts. So that's why we're really getting people to focus more on cash flow than just the EPS numbers.

George L. Staphos - BofA Merrill Lynch, Research Division

Understood. The -- if you will, the forward guidance on real estate revenue is coming down to, I think you said, $200 million. What is driving that? Is that a recognition that you don't need as much land sale cash flow to maintain the business and your cash needs and cash uses given the cyclical upturn you're seeing in your resource and other segments? Or is there something else behind that, that revenue guidance? At one point, I think, you were close to $400 million a few years ago. Now we're looking at $200 million out in a couple of years.

Rick R. Holley

Yes. Over the last couple of years, we've had some transactions. We had $124 million what we call large, non-strategic transactions in 2013. Two of those -- one of those, we took the market on our own. But in 2 cases, both in Oregon, we were approached by third-parties interested in having some diversification on [indiscernible] and buying some stuff in Oregon, and we sold it. So I think the fact that it's coming down, it's in 2014 and beyond is really kind of our bread and butter. HBU sales, conservation, the small non-strategic, the 300,000 acres we've talked to you about and, over time, we'll see some development revenues as well. So I think it's just part of that 1.1 million acres is -- over time, it's going to be kind of a $200 million to $250 million run rate business over the next 15 to 20 years. And that's kind of what's in the bucket for 2014. It's just kind of that more traditional stuff. We don't anticipate any large non-strategic. With that said, if somebody approached us with a great price for something that's worth more to them than it's worth to us, we could pull the trigger on that. But it's really just no non-large, strategic transactions in 2014.

George L. Staphos - BofA Merrill Lynch, Research Division

I got a quick kind of question, and I'll turn it over. David, I understand why the depletion comes off the revenue in the ENR segment to get to your operating income. But why are you only reflecting $14 million of the royalty payments in revenue and only the $10 million?

David W. Lambert

Under the royalty agreements, we're starting off with a slightly higher royalty percentage in the early years. So although we're getting a little over $14 million of cash flow, we're only recording $10 million of revenue today. And so, we're kind of, for accounting purposes, straightlining that royalty rate over the life of the investments.

Operator

And our next question comes from Alex Ovshey from Goldman Sachs.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

A couple of questions for you. You said in the Northern segment that you expect sawlog prices to be up $3 to $5 in the first quarter, if I heard you right. What are the drivers of that improvement?

David W. Lambert

Well, I think we're just seeing very robust markets, typically this spring season's one of the stronger selling seasons. But with the competition between people bidding for export logs and the domestic mills hungry to replenish their inventories, we're just seeing very vibrant markets. We had some fire closures towards the end of last year. People are trying to catch up on that, and the markets are just very good. Lumber prices have accelerated now this year compared to where they were in the fourth quarter. That's helping people pay for the logs as well.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Got it, David. And we're now back to more normal levels in the North for sawlog prices. Is there an analytical way that you guys have in terms of thinking about what the potential upside is to sawlog prices from here?

David W. Lambert

Well, I think we have seen prices recover kind of back to some previous peaks. As lumber prices continue to advance and with very tight supply conditions, I think you see the mills kind of bidding for that incremental log. And that's been the behavior in the industry. What we think the analogy will be is once production starts picking up in the Southern United States, you're going to see a situation similar to what we've already experienced in the Northwest. People have to bid aggressively for that marginal log, and we would expect a significant recovery in Southern prices once that starts.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Okay. And then, just a question on the South. I think you mentioned that you had a couple of your customers come to you and ask to be able to enter into longer-term agreements, offering prices that are above current market prices. Can you just provide a little more detail around that? What kind of premiums are being offered and sort of what are your thoughts around potentially entering into some of those agreements?

Rick R. Holley

Yes. Alex, a lot of those, obviously, conversations are confidential. But I think it's fair to say some of these are lumber customers and some of these are pellet customers. People are going to buy pulpwood and produce wood pellets, and they're really looking to have an assured source of supply with the supply chain that we have in place, with our contractor relationships and they're clearly willing to pay a premium on that, a couple bucks a ton. But we don't want to give a lot more detail than that because these are obviously confidential discussions.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

I got you, Rick. So it seems like it's more on the pellet side than on the lumber side. Is that...

Rick R. Holley

It's both, but it's increasingly on the pellet side because many of these companies building the pellets don't understand the supply chain. So they just want the logs in the yard, and they're willing to pay something to have that happen.

Operator

And our next question comes from Gail Glazerman from UBS.

Gail S. Glazerman - UBS Investment Bank, Research Division

Going back to the Northern log price, if I heard you correctly, you said you expect to sell more logs out of West Virginia and fewer logs out of the West. Is that incorporated in your first quarter guidance? Or is that something you'd expect to occur throughout the year? Because I'm just trying to understand because I would assume you'd have higher price on the Western logs than you would on West Virginia. I'm just trying to figure out how that ties in with the [indiscernible]

David W. Lambert

That's incorporated into our first quarter and throughout the year. It's relatively stable. And some of the sawlog prices that do occur in those hardwood regions are very attractive as well.

Rick R. Holley

Again, the higher sawlog volume you'd see in West Virginia has really come from MeadWestvaco lands we acquired there. It's not more volume off our existing legacy lands.

Gail S. Glazerman - UBS Investment Bank, Research Division

Yes. And, I mean, it's just leads to my next question. So your harvest guidance for the year of 20 million to 21 million tons, and that's incorporating 3 million tons from the land. So effectively, at the moment, the incremental harvest you are looking for is from the MeadWestvaco acquisition with stable harvests on your lands. Is that the way to think about it? And just given an assumption that housing activity is going to pick up 19%, what would get you to change?

Rick R. Holley

That's a fair assumption.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. But what would get you -- I mean, if the housing really picked up, I mean, what would get you to increase -- or could you increase harvest on your existing lands?

Rick R. Holley

I think if we start to see more activity in the U.S. South and more aggressive pricing there for sawlogs, we could increase the volume in the U.S. South, and we would do that.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. Can you give us a little bit color on what you're seeing in the export market so far in 2014?

David W. Lambert

Well, we saw a very strong rebound in 2013, especially in the third quarter, and carrying through. And both export shipments of lumber going out of Canada have been good and logs going to Asia out of North America have been very strong coming from the West Coast of the United States. So that market is kind of a full-go at this point in time.

Rick R. Holley

And the other thing we're seeing and we've talked to you about it before is increased activity in U.S. South. I mean, the volume is still fairly low, but there's more and more inquiries, there is logs coming out of several different southern ports, mostly in containers today. But over time, as those volumes pick up, there will be shiploads of logs coming out of the U.S. South going primarily to China. We would expect -- it's still a small volume, but our southern volume will about double going to China in 2014 versus 2013. And again, the good news there, it's more demand on a stable supply, so it just increases price in those local markets. So we're starting to see more activity there as well.

Gail S. Glazerman - UBS Investment Bank, Research Division

Okay. And just one final question. On the kind of long-term guidance for $200 million of land sales, is that incorporating whatever HBU potential you expect to see off the MeadWestvaco land? I presume it's not just the $25 million that you've talked about for this year.

Rick R. Holley

No -- yes. The $200 million -- the $250 million that we talked about historically, that's legacy Plum Creek lands. We're still getting our hands around the 501,000 acres, how much HBU and other potential there is there, so that would be incremental to that number over time.

Operator

[Operator Instructions] And our next question comes from Anthony Pettinari from Citi.

Anthony Pettinari - Citigroup Inc, Research Division

I had a question on 2014 guidance, maybe following up on George's question. When you look at the guidance for the full year, can you ballpark kind of year-over-year percentage price improvement in southern sawlogs that would get you to the lower and the upper end of guidance?

David W. Lambert

I think looking at the lower end that would probably be a little less than 10% and the upper end would probably be in the 20% range, and that's on a stumpage basis, so delivered log prices would only be going off half of that.

Anthony Pettinari - Citigroup Inc, Research Division

Okay, okay. And then, if you look at your -- maybe your more Atlantic timberlands versus Gulf timberlands, are you seeing more strength in a particular regional market? Or how would you characterize the different regions in the South in terms of price improvement?

Rick R. Holley

Yes. Clearly, the Atlantic South has been a stronger market over the past several years and will continue to be stronger this year. A lot of the incremental investments, a lot of the mills that had been purchased by some of these Canadian manufacturers are in the Atlantic South. And obviously, they have to recapitalize them to some extent, increase capacity. So it's more pronounced on the Atlantic South than the Gulf South.

Anthony Pettinari - Citigroup Inc, Research Division

Okay. That's helpful. And then, switching gears to the MeadWestvaco JVs. What percentage yield would you expect to realize for the -- I guess, it's a $152 million investment in the JVs? And understanding that you will report an operating loss in 2014, what is the timetable for realizing that return in JV 1 and JV 2?

Rick R. Holley

I think, as we mentioned, we get -- the $12 million investment in JV 1, we'll get a disproportionate amount back over and above the 5% ownership over the next few years. So I suspect we'll get that back in pretty short order the next 2 or 3 years. But the $140 million, kind of over the next 8 to 10 years, 12 years, it really depends. We're going to obviously try to capture the most value in the marketplace, and we're not going to be in a hurry and we'll work very closely with our partner, MeadWestvaco, to make those kinds of decisions. But I think, as we look at this going in, it will certainly over the next 10 years, but it could be shorter, it could be longer, depending on the marketplace. But these -- one thing I should say about the MeadWestvaco acquisition. I've been out to meet all the new employees, we've been out on the ground and we are more excited about that acquisition today than we were throughout the time of looking at it and clearly when we closed it. This is a very, very attractive asset that we are very excited about, both from the productivity of the lands, the forestry, the markets, the customers and also the HBU potential. These are some extraordinarily attractive lands, especially in the South Carolina and Virginia markets.

Operator

And our next question comes from Chip Dillon from Vertical Research.

Chip A. Dillon - Vertical Research Partners, LLC

I don't really have that many questions. The only couple I had is when I look at the real estate, sort of the long-term trajectory, and you mentioned that you expected to kind of get to a $200 million level, should we assume that the HBU that you sell will sort of have similar values to what we've seen in recent years, which should be somewhere, I guess, in rough terms, between $1,500 and $2,000 an acre? Or would there be a reason to see that maybe kick up a little bit based on maybe what you've acquired from MeadWestvaco?

Rick R. Holley

Well, setting aside MeadWestvaco, Chip, I think you'll see it kick up because we've kind of stayed out of the high-end markets. We've not sold HBU in Florida or Georgia or really Montana in recent years because the market has been poor, and those are really the best markets we have on a per acre value standpoint. So I think as the -- in the years ahead, we should see our per acre numbers for HBU go up considerably over where they have been, again, because what we've been selling is largely the Gulf South, kind of Louisiana, Mississippi and also Wisconsin, which -- and those are excellent prices in those markets, but clearly below what we see. The MeadWestvaco lands, I would suspect -- and again we're still wrestling with that, trying to understand all the acres will be well north of those numbers.

Chip A. Dillon - Vertical Research Partners, LLC

Okay. And then, just on the Vulcan Materials' income or situation for '14, you mentioned -- I think you said you expect to receive $14 million, but you've recognized $10 million as revenue and depletion was $4 million and income was $6 million. I'm just curious, does that mean the EBITDA would be $10 million or would it be $14 million in 2014?

David W. Lambert

Reported EBITDA in the financial statements will be $10 million. Cash in hand will be greater than $14 million.

Chip A. Dillon - Vertical Research Partners, LLC

Got you. Okay. And would that be some kind of a deferred, I guess, cash flow item on the balance sheet somehow?

David W. Lambert

Yes, it will show up as deferred revenue.

Chip A. Dillon - Vertical Research Partners, LLC

Okay. And then, just real quickly, what was the -- what were the contribution to EBITDA, I guess in the ENR division from the aggregates in the fourth quarter? And I would assume the timber deed is humming along around $3 million to $4 million per quarter of EBITDA?

David W. Lambert

Yes. Kind of, of the acquired aggregate business that we have done recently, that was about $3 million in the fourth quarter. And with respect to the timber deeds, they generated cash flow of about $5 million in the fourth quarter.

Chip A. Dillon - Vertical Research Partners, LLC

Got you, got you. And then, I guess, the last thing is on the -- and I guess we can look this up, but on the timber transaction from several years ago -- and I know you referred to it in the debt table, but does that have a natural point where that -- in the next couple of years, we have to -- where that might wind up somehow? Or I guess, it's 2018. But there's no -- I guess, the question is, is there a way that could wind up earlier? And if -- and is there a way it could get extended beyond 2018?

David W. Lambert

Our partner has an option to do a termination transaction in year 7 of the transaction, and we have 1 in year 9, so -- and that's still a couple of years away for that. So there can be some variability there.

Operator

Our next question comes from Mark Wilde from Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

Rick, I wondered, just to start off, any prospects for any kind of further portfolio repositioning? I think over the last year or two, you've talked about wanting to be more of a buyer in the South than a seller in the West, and you've done exactly that. I wonder if there's any more to be done.

Rick R. Holley

Well, I think we're still -- given the opportunities we see in the U.S. South, we're probably a buyer in the South and a holder or seller in the West. We just think from a value perspective, and you've seen sawlog prices, for instance, in the Northwest recover quite nicely. They have not recovered in the South. So if I had $1 to invest today, I'd put it in the South because I think there's more upside to that, plus all the other underlying land values and opportunities that we've talked about in the South before, so...

Mark Wilde - Deutsche Bank AG, Research Division

Okay. Another question. Just going back again to the real estate sales and you mentioned that you hadn't really been doing much in terms of HBU sales in Florida or in Georgia or out in Montana. I'm just a little surprised that you wouldn't be getting more of a kind of an offsetting lift as those start to ramp up over the next few years.

Rick R. Holley

Well, I think we will. So I think what you're going to see happen is, as those markets ramp up on a per acre basis, obviously, the numbers will be higher. So we'll be generating more revenue on less acres than we have historically just because you start selling things for $3,000 an acre versus $1,500 an acre. It's a huge difference. So we always talked about the $200 million to $250 million. That's kind of the run rate over time. But as these markets advance and prices improve, those numbers will obviously change. And the MeadWestvaco transaction, obviously, is going to change that as well. And we'll try to give more guidance later in the year, as we get our hands around what we think the real HBU portfolio in that asset is.

Mark Wilde - Deutsche Bank AG, Research Division

Yes. You mentioned being just kind of surprised or probably pleasantly surprised on what you've learned over the last 6 or 8 weeks. If you had to kind of point to 2 or 3 things that have been the biggest upsides for you, what would you say they were?

Rick R. Holley

I think the stocking on the lands are higher than we -- even the work we did. So the lands are better stocked, the markets are a bit better. I think there's -- again, MeadWestvaco was managing much of this land from a pulpwood standpoint largely for their paper mill in Virginia and also the capstone mill in South Carolina, where they have a supply agreement and there's a lot of terrific saw timber on those lands today. So I think that's the biggest surprise, is the stocking levels and the maturity. Even though we thought it would be good, it's even better. In some of these HBU lands, we drive around to get more information about them on just the quality of the lands and close to -- I mean, it's just -- it's really, there's more HBU opportunities, and the value per acre will be much higher than we put in our pro formas when we did the transaction. It's just -- we hadn't found any bad surprises. Not that we won't, but there hasn't been anything bad from this yet. It's been really -- they managed these lands very, very well, and we're pleased to have them in our portfolio.

Mark Wilde - Deutsche Bank AG, Research Division

Yes. I guess if you look at a map and you look at the population that's within a day's drive of most of those holdings, it's a pretty big base of population around them. Last thing I was curious about was just on the pellet business. It sounds like one of the things that you've found with these pellet guys is that some of the big customers over in Europe are willing to pay a premium in order to have somebody like Plum Creek kind of arranging kind of procurement. Is that correct?

Rick R. Holley

That's correct.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. And then, Rick, kind of along with that, it seems like, just in the last couple of weeks, there have been some stories in the press about maybe some of the European government officials maybe starting to backpedal a little bit on sort of green energy commitments. Would you want to talk about that at all?

Rick R. Holley

Yes, I think there's been some news of late about Europe, the European Union, generally about their poor economies, can they really afford green energy as the bottom line? Can a consumer afford it. Their energy costs are very, very high there? We have cheap gas here. They don't have cheap gas -- I mean, natural gas in Europe or certainly in the U.K. I think in the U.K., where most of these customers we're serving today we'll be serving initially, most of the product is going to the U.K. A lot of it is going to Drax. And in the U.K., basically all of these utilities have a 20-year commitment from the government. So I think that's going to stay in place. I mean, they made you invest -- huge investments based on that commitment. So we feel very good about that. We're working with a couple of companies that will take wood into the European Union, and a lot of that goes into consumers not directly to utilities and those markets seem to be -- they've been there a long time and they seem to be pretty very good. So we're still pretty upbeat about the whole European pellet business.

Operator

[Operator Instructions] And our next question comes from Daniel Rohr from Morningstar.

Daniel Rohr - Morningstar Inc., Research Division

Just looking out a few years and thinking about how the BC supply shortfall start to bite with housing picking up and, I guess, the transmission mechanisms to various regional markets. In which states -- if you could provide some color on this, did we typically see BC and southern lumber and panel sort of in competition back in the good old days for housing?

David W. Lambert

There's a few places where you can see prices kind of actively quoted for both southern yellow pine and BC in kind of the Midwestern states and other markets. Many markets have current -- have existing regional preferences right now. But as we see demand pick back up, we've seen how BC was not responded proportionately. The U.S. West, it looks to be pretty full up. We saw one of the major western sawmills that announced a shift drop, citing long-term log supply a week or so ago. And so, when we think of the increase that's going to happen in lumber production this year, just to meet the 1.1 million housing starts we're estimating, we think the South is going to get a disproportionate share, where this past year, they actually had probably taking less than their share. And as those trends continue to build, we'll see the South continue to do that. And so, that's why we think we're going to see this pricing response come forward in the South where, up until this point, we haven't seen it.

Rick R. Holley

You're going to see lumber out of British Columbia and every market in the United States, you're going to see it in Florida, but a lot of it flows, just logistically, into the California market. And obviously, there are competes directly with lumber out of the Pacific Northwest, not lumber out of the Southern United States. But there's a lot of Canadian BC lumber in the South, as well, which will compete with the southern yellow pine.

Operator

And our next question comes from Mark Weintraub from Buckingham Research.

Mark A. Weintraub - The Buckingham Research Group Incorporated

It's kind of a continuation of this question on Southern versus Western pricing, et cetera. And as you noted, you're expecting the South to regain some ground. Why hasn't -- why don't you think there has been a little bit more of a shift where folks might be taking advantage of the lower prices in the South to date?

David W. Lambert

I think we've seen a lot of discipline by the southern mill operators. Many of them were family mills and they didn't want to repeat a prior cycle. So as demand was growing, they've been very hesitant to kind of add that full second shift. It kind of comes on as a stair step. What we're hearing from our customers now is that they're preparing for that, whether it's a capital debottlenecking process or hiring the labor. And so, I think that's where we're going to see the material difference.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Okay. So you think they do have access to get into some of the markets, which, perhaps, right now, western mills are servicing, but that they just haven't chosen to for whatever reason?

David W. Lambert

Oh, absolutely. And even as housing grows, the southern share is going to grow at least at a significant portion of that. And so, they're going to have their natural markets to serve as well. But if we think of lumber mill margins, in the West, they've been bidding back a significant portion of the lumber prices to the log. Where down South, they're making tremendous margins. They are the low-cost producer. And so I think many of the Canadian operators that have been buying mills in the South than your traditional domestic operators, they're looking, if they're going to grow incremental production, they're going to do it in the market where they make the money.

Operator

And our next question comes from Collin Mings from Raymond James.

Collin Mings - Raymond James & Associates, Inc., Research Division

Most of my questions have been answered. But just -- Rick, just taking a step back and thinking about capital allocation priorities, I know you guys are actively looking at continuing to acquire more timberland, particularly in the South. But how do you think about buying back some stock here given some of the recent pressure on the stock versus boosting the dividend again this year? Can you just talk a little bit about how you're thinking about allocating capital here?

Rick R. Holley

Well, again, as we think about capital allocation, even though it's all in one, think about the dividend kind in the right hand and investment on the left hand. As we think about investment, clearly, we're disappointed in the stock performance of late. And if we see continued weakness in their stock, we're willing to buy our stock back. I know we just issued some stock, but we certainly are willing to buy our stock back because we think, again, that's the cheapest way to buy an asset that we really like, which are the timberlands. We'll continue to look at opportunities, the timberlands that come on the market and opportunities like the MeadWestvaco and some other things we've done over time. We don't look to grow the construction materials business any further. We like the percent that it is of our kind of a net asset. It's a good business. It's going to grow over time. And we're really happy with that -- with what we have. We will continue to look at timberland acquisitions. As we've said consistently, as we continue to grow the cash flow from our non-real estate businesses at Plum Creek, we'll look to grow our dividend. So that's almost, again, on the right hand and a separate discussion amongst the management and the Board of Directors, so...

Collin Mings - Raymond James & Associates, Inc., Research Division

Okay. And then, just really 2 smaller housekeeping questions. One, in the Q&A, you've commented, I think, that you got that the exports out of the U.S. South to China could double this year relative to last year. Can you remind us what base that's off of? Was it 200,000 tons?

David W. Lambert

Last year, we were doing a little under 150,000 tons of ports out of the South, and we would see that growing to 300,000 tons plus.

Collin Mings - Raymond James & Associates, Inc., Research Division

Okay. Great. And then, just a real quick update on the projects in Alachua County. I saw that you guys submitted the longer-term plan to the county, I would say, mid-December. Can you just maybe update us on any potential land sales from that in 2014? Are we still thinking that's going to be '15, '16 before you've seen anything tangible from a land sales side on that front?

Rick R. Holley

Yes, it's '15 or '16. It's -- we submitted the plan in the fourth quarter of 2013. It will go for public review and comment probably in the second quarter of this year. We would hope in the next year or so to get it finally approved by both the county and the state. And then, that's Phase 1. Phase 2 is now finding an anchor tenant to come in. And so, it's kind of a '15-'16 thing.

Operator

Thank you. I would now like to hand the conference back over to management for closing remarks.

Rick R. Holley

Well, thank you, everybody. And again, happy new year, and we look forward to seeing you all in the new year, and good luck to the Seahawks, as I said. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.

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Plum Creek Timber Company, Inc. (PCL): Q4 EPS of $0.31 beats by $0.03. Revenue of $331M (-6.5% Y/Y) beats by $8.9M.