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Potlatch Corporation (NASDAQ:PCH)

Q1 2014 Earnings Conference Call

April 22, 2014 12:00 PM ET

Executives

Jerry Richards - VP and CFO

Mike Covey - Chairman and CEO

Eric Cremers - President and COO

Analysts

Gail Glazerman - UBS Securities

Chip Dillon - Vertical Research

Paul Quinn - RBC Dominion Securities

Mark Weintraub - Buckingham Research

Steve Chercover - D. A. Davidson

Collin Mings - Raymond James & Associates

Operator

Good afternoon. My name is Jodie and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch First Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer for opening remarks. Sir, you may proceed.

Jerry Richards

Thank you, Jodie and good morning. Welcome to Potlatch’s investor call and Web cast covering our first quarter 2014 earnings. With me in the room are Mike Covey, Chairman and Chief Executive Officer and Eric Cremers, President and Chief Operating Officer.

Before we begin, I’d like to remind you that this call will contain forward-looking statements. Please review the warning statements in our press release and the opening of the presentation slides and in our filings with the SEC, concerning the risks associated with these forward-looking statements. Also, please note that segment information as well as a reconciliation of non-GAAP measures can be found on our Web site, www.potlatchcorp.com as part of the webcast for this call.

I will now turn the call over to Mike to make some introductory remarks. And then I will review our first quarter results in detail.

Mike Covey

Thank you. Good morning everyone. We are very pleased to report strong results in each of our business segments in spite of the harsh winter weather. Our resource business posted its highest first quarter operating income since 2008. We’re encouraged to see Northern region sawlog prices continue to improve based on the fundamentals that are driving strong lumber markets. However, Southern log prices in our wood basket remained historically low and likely won’t increase until a meaningful level of manufacturing capacity restarts. We expect Southern yellow pine sawlog prices to remain subdued this year.

The quarterly performance of our wood products division was solid and earnings increased compared to the fourth quarter, primarily due to higher average lumber prices. The direct effect of the severe winter weather on our mills was not significant. Production was slightly lower than the fourth quarter and we finished the quarter with about 2.5 million board feet of actual lumber inventory due to the weather related transportation issues.

Our Real Estate segment also generated significant first quarter income. As mentioned on our last earnings call, we closed on the sale of 11,000 acres of rural recreational real estate and they were in Idaho in January.

Overall expectations for our business in the industry remained positive while extreme winter weather hindered building activity during the first quarter we believe this setback is temporary. We continue to believe that housing will continue its recovery and we will exceed 1 million starts in the U.S. this year. Strong spring building season will be necessary to achieve projected housing starts and improve prices for our products. In summary we’re very pleased with the start of the year and expect 2014 to be another strong year.

Now I’d like to turn it back over to Jerry to discuss the quarterly results in greater detail and then the three of us will take questions. Jerry?

Jerry Richards

Thank you, Mike. Beginning with Page 3 of the slides accompanying this call, our first quarter net income was 20.3 million or $0.50 per diluted share. This compared to net income of 13.7 million or $0.34 per diluted share last quarter and 15.5 million or $0.38 per share in the first quarter last year. EBITDA was 41.7 million for the quarter.

I’ll now turn to the results of our operating segments for the quarter. Our Resource business as covered on Pages 4 to 6. The segment generated operating income of 16.2 million in the first quarter compared to 18 million in the prior quarter. As Mike mentioned this is the highest the Resource earnings have been in the first quarter since 2008. This is also the fourth consecutive quarter that the segment’s margin has been at or above 30%.

Sawlog prices in the Northern region were up slightly from the prior quarter. Price increases on a dimensional volume basis or board foot basis are muted when converted to dollars per tonne because logs are heavier in the winter due to moisture. Customers pay based on dimensional volume in Idaho not weight. Northern region sawlog volumes were down 18% on a sequential basis due to seasonality.

Pulpwood prices and volumes were higher in the Northern region due to a contract that went into effect at the end of 2013. Unlike the South, Idaho pulpwood primarily reflects the effect of trees and over mature stands and our pulpwood sales in Idaho do not generate significant margins.

Southern sawlog prices shown on Page 6 declined 6% during the first quarter as higher value of hardwood sawlogs made up the lower proportion of the mix. This is typical during the wetter winter months. The Southern sawlog harvest was slightly below the level we planned going into the quarter. Southern region pulpwood prices were flat quarter-over-quarter and harvest volumes declined seasonally.

The results of our wood products segment are on Pages 7 and 8. Operating income for the first quarter was 12.7 million compared to 9 million last quarter. The first quarter average lumber sales realization increased 7% quarter-over-quarter. Quarterly lumber shipments declined 5% due in part to transportation issues caused by the extreme winter weather.

Our real estate division’s results are on Page 9. Operating income for the quarter was 8.3 million compared to 4.6 million in the fourth quarter of last year. As Mike mentioned, in January we closed on a bulk sale of 11,000 acres of scattered rural recreation parcels in Idaho that were previously harvested. Operating margin declined because the Idaho property had a higher basis relative to the mix of real estate that we had sold in the recent quarters.

Pulpwood administrative costs, which were included on Slide 3, were 6.7 million versus 10.2 million last quarter. The decline was primarily related to mark-to-market adjustments in our deferred compensation plans which were driven by changes in our stock price, reduced incentive compensation expenses, and lower pension expense.

Our income tax provision was 5.5 million for the quarter, up from 1.3 million last quarter. The increase was due to higher earnings generated by our taxable REIT subsidiary. Our effective tax rate for the quarter was 21% at a consolidated level and 33% at a taxable REIT subsidiary level. While the rate will fluctuate during the year based on the mix of earnings between the REIT and the taxable REIT subsidiary in a given quarter, the full year rate should approximate the first quarter rate.

Moving to Page 10, our balance sheet remains solid. Cash and short-term investments increased over 18 million in the quarter and were 76 million at the end of the quarter. Our $250 million revolver remains undrawn and we have no debt maturing during 2014. We also have significant headroom under our loan covenants. Capital expenditures totaled 3.6 million for the quarter. We are still planning to spend approximately 28 million on capital projects in 2014.

Now I’d like to make a few remarks about our outlook for the rest of 2014. In our resource business, we continue to expect to harvest approximately 3.8 million tonnes this year. The breakdown between the regions is expected to be largely consistent with last year. Our harvest level is typically lowest in the second quarter due to spring break-up in Idaho. Soft ground makes it impractical to harvest during part of the quarter. We expect our harvest level in Idaho in the second quarter to be approximately two-thirds of the volume harvested in the first quarter.

We anticipate stronger Northern sawlog prices in the second quarter based on higher average lumber prices in the first quarter. Approximately two-thirds of our Idaho harvest volume is indexed to lumber prices on a one to three month lag. In the Southern region we anticipate higher prices in harvest volumes with hardwood sawlogs in the second quarter based on high demand for hardwood products. We expect prices for Southern yellow pine sawlogs, our predominant product in the region to remain flat at historically low levels.

We anticipate second quarter pulpwood prices in both regions to be largely consistent with the first quarter results. We expect earnings from our wood products segment to increase in the second quarter by an amount that approximates the increase that we experienced sequentially in the first quarter of 2014.

Our customers are telling us that field inventories are low and that they’re seeing signs of improvement in the markets. Improved weather conditions should help alleviate transportation issues that hampered shipments during the first quarter. Our second quarter estimate assumes an increase of approximately 10% in lumber shipments and flat averaged lumber price realizations.

In our real estate segment, we expect to close a conversation sale for a little more than 10 million in the second quarter. Total acres sold in the second quarter should approximate the number of acres sold in the first quarter. Our land basis as a percentage of revenues will decline in the second quarter as a sales shift mix -- through our mix of shifts.

Consistent with our outlook in last earning’s call, we anticipate land basis will approximate 25% to 30% of land sales revenue for the year and we remain on-track to sell between 30,000 and 35,000 total acres in 2014. In conclusion we were pleased with our first quarter results and continue to foresee strong performance for each of our operating segments for the remainder of the year.

That concludes our prepared remarks. Jodie I’d now like to open the call up to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Gail Glazerman from UBS.

Gail Glazerman - UBS Securities

Hi. Good morning.

Mike Covey

Good morning.

Gail Glazerman - UBS Securities

If I heard you correctly, you mentioned and certainly consistent with my view on sawlog harvests were lower than expected in the sales. Could you talk a little bit more about that and if you’re changing harvest volume do you expect to make that up within Southern sawlogs or across the spectrum and regions in pulpwood?

Eric Cremers

Yes, Gail, this is Eric. Sawlog volume was a little bit lower than we had planned on in the South some of that was just due to seasonality but some of was due to weather we had a really wet spring in the South. In the first three months of the year they were not only cold but they were also wet and that hindered our getting into the woods to some degree. So there may be a little volume that will shift out of the first quarter and the quarters later in the year.

Gail Glazerman - UBS Securities

Okay. And there was a reference in the slides about new contracts in terms of the Northern pulpwood. I realized that’s not a huge profit generator for you. But can you talk about kind of what changed there and how we should think about that moving forward?

Mike Covey

Yes, Gail, so historically if you take a look at the Pacific Northwest it’s been oversupplied in terms of sawmill residuals and pulpwood, a lot of pulp mills have closed down in the Pacific Northwest and that’s resulted in and generally speaking a lot of fiber in the region. Consequentially selling pulpwood was not a great business for us over the last couple of years and it’s gotten to a point where margin was so low that we weren’t even taking it out of the woods. While a customer approached us and said they would like to enter into a contract with us and we indicated we can only do it, and justify it at higher prices because the whole distance is relatively far compared to what had been providing them. So, we were able to reach an agreement with them in the mid-40 price range that provides us a little bit of margin, I know we might make a 1 million bucks a year off of this but it’s not significant and doesn’t really move the needle.

Gail Glazerman - UBS Securities

Okay. And just more strategically, it’s a little bit-- I mean it seems like lumber might be finding some sort of flow right now, but over the prior couple of weeks, it’s been relatively weak, the random length even as weather has been improving and I am just wondering if you have any perspective on what’s been driving that? And may be also just if you could give a little bit of color in terms of what you are seeing in terms of the seasonal pick up that you’ve referenced any anecdotes there?

Eric Cremers

Yes, Gail. So, it’s Eric again. Yes, prices have been a little bit weak here off late, but we still have bad weather throughout the Midwest even as recently as last week. And if you look at housing starts in the Midwest, they were down 35% in the Midwest year-over-year, so we think that weather has had a significant impact on the housing market this year. And we’re now at a point where things are starting to turn in fact lumber futures were limit up for July yesterday. So, we think we are at that turning point and certainly what we hear from our customers out on the field is that, dealers have been holding off on buying inventory because they remind themselves of what happened last year when prices got bit up early in the year and then fell hard. So, they have been running with relatively light inventories and now we’re going to need to see them step into the market and buy lumber. So, our view is that that doesn’t start to happen until you get into the back half of this quarter. So it’s a little bit early but we think June and the third quarter, are going to be relatively strong and that’s consistent with at least this view as well.

Mike Covey

I think Gail just to add on to that, this is Mike Covey. I still think you have to take a longer term view on this housing market and its recovery which, the North American lumber industry is producing somewhere in the neighborhood of 54 billion board feet of lumber today, as demand for housing increases and it gets to more normalized levels, which we think will approach a 1.5 million starts as we get to the recovery a couple of years from now, demand is going to increase an incremental 10 billion board feet over that time period and support a 1.5 million housing starts. We’re seeing demand rise this year a couple of billion board feet and a couple of billion board feet more next year and as the demand capacity ratios in the industry rise from the low 80% range today, the numbers in the future that consistently has supported stronger pricing for lumber. So, we remain very optimistic long-term.

Gail Glazerman - UBS Securities

Okay. And any signs of customers in Arkansas kind of just starting to take action and ramping up production?

Mike Covey

Well there’s been a couple of positive things not directly in our wood basket but West Fraser just purchased two mills kind of in North Central Arkansas, north and a little bit west of Little Rock. There is other wood sawmill starts in the area although the very large GP plywood plant remains idled. But I think there is no question this recovery, the numbers that I mentioned the incremental 10 billion board feet of lumber that’s going to support the housing recovery in this country, is not going to come from the Pacific Northwest, it’s likely not going to come much from Canada, it’s got to come from the U.S. South and eventually Arkansas will play a role in that and when that happens we will see higher lumber, higher log prices in our wood basket.

Gail Glazerman - UBS Securities

Okay. And just two last modeling questions. In terms of corporate expense can you give us any thoughts on how we should be thinking about that for the balance of the year? And can you, in terms of your second quarter harvest plans can you give any sort of perspective on kind of the breakdown between pulpwood and sawlogs by regions?

Jerry Richards

Gail, this is Jerry Richards, I’ll take the corporate question and I think Eric will take the harvest breakdown question. But on corporate, our guidance in the past has been, we expect corporate to run about 9 million per quarter and I would say it’s probably in that 8 million to 9 million per quarter, we certainly were lower in the first quarter compared to that run rate. And again it’s largely due to mark-to-market on a decrease in the stock price, some incentive comp and then like I said pension is running low this year but that is baked into the 8 million to 9 million guidance that I am giving you.

Gail Glazerman - UBS Securities

Okay.

Eric Cremers

So on the harvest volume question, Gail, I think what you will see is about 670,000 tonnes for the second quarter that’s what we are currently expecting, and roughly half from the north and half from the south. And if you break it down and you think about the two different regions, the north with roughly 330,000 tonnes roughly 90% of that is sawlog and 10% of that is traditional and pulpwood. And then if you take a look at the south, it will be skewed a little bit more towards pulpwood versus sawlog.

Gail Glazerman - UBS Securities

Okay. Thanks very much.

Mike Covey

Thank you.

Operator

Your next question comes from the line of Chip Dillon from Vertical Research.

Chip Dillon - Vertical Research

Yes, hi. Good morning.

Mike Covey

Good morning.

Chip Dillon - Vertical Research

The first question is just to understand the land sales a little bit. You mentioned the basis would be 25% to 30% for the year and I haven’t done the calculation, what was it in the first quarter?

Jerry Richards

It’s approximately 36% in the first quarter Chip.

Chip Dillon - Vertical Research

So if the land, the acres are going to be about the same I guess that other big sale will happen in the second quarter. I guess we could see a little bit and even a small improvement in the real estate EBIT for the second quarter before it drops off?

Jerry Richards

Yes, that’s correct Chip, we do anticipate a slightly higher EBIT in second quarter.

Chip Dillon - Vertical Research

Okay, okay. And then as we go beyond this year I would guess you all are sort of gearing toward around 20,000 or so acre per year kind of run rate, in other words this is a little bit of an elevated year and then the future as far as which can be about 20,000 acres a year of land sales?

Jerry Richards

I think at the start of the year when we gave guidance on how we thought 2014 was going to play out. We spoke about these two transactions being a bit unusual, and they were skewing our land sales higher for the year but our typical run rate is going to be in the 20,000 to 25,000 acres per year.

Chip Dillon - Vertical Research

Got you. And let me just shifting gears a little bit. There has been some I guess maybe more barking and biting going on in terms of what we’re hearing about land sale activity out there, not the kind that we’re just talking about, but timberland in particular. What is sort of your feeling? Are you getting more people soliciting you for -- to take a look at properties for sale or people knocking on your door to actually to try to buy from you, and I am talking not the HBU but more just pure timberland?

Mike Covey

Chip this is Mike. I don’t think the character of dollars on the sidelines that are waiting to be invested in timberland has changed dramatically over the last 18 to 24 months. There are a number of TIMOs with dollars to invest. And that typically has been focused on the U.S. South. The big transactions, the last couple of them done by REITs with Weyerhaeuser and Plum Creek executing large deals, but there is still a strong appetite and there is whenever a property comes on the market in this kind of 50,000 acre range or 25,000 acres there are a number of bidders both TIMOs and REITs and it’s very competitive. And I don’t think the pipeline has really changed dramatically there is really not a lot of land for sale, there is a fair amount of dollars chasing it and as a result as a benchmark we see Southern land prices kind of reset at this $2,000 an acre range.

Chip Dillon - Vertical Research

Got you. Thank you.

Operator

Your next question comes from the line of Paul Quinn from RBC Capital Markets.

Paul Quinn - RBC Dominion Securities

Yes thanks very much, good morning. Well I guess afternoon for some. Just a question on, you mentioned West Fraser acquisitions done in Arkansas, has there been any other acquisitions done on that state and given West Fraser’s plans to increase production. Is that enough to move the needle to increase prices and harvest levels by all this?

Mike Covey

Paul this is Mike, the West Fraser purchases of the two mills they recently bought are transportation wise out of the Potlatch wood basket they are too far north and west. So I mean it’s certainly incremental capacity in the states to the extent West Fraser improves and always runs in the higher levels. And that’s all good but it doesn’t immediately affect Potlatch. There have been no other large transactions in the State of Arkansas with investors other than there is certainly a number of people exploring call it low investments in the State of Arkansas as well as a couple of idled mills that are rumored to be in the process of sale and restart that haven’t happened yet specifically with over GP mill in El Dorado Arkansas, which is in Potlatch’s wood basket.

Paul Quinn - RBC Dominion Securities

Okay, thanks. And just a question on Pacific Northwest here, prices have held up pretty strong in the lumber side as well as the log side. We’re starting to hear some expected weakness in export markets. Are you hearing that at all and do you think that comes back on your pricing levels in Idaho?

Eric Cremers

So Paul this is Eric, certainly there is a risk if export markets weaken particularly China. If China lessens demand I suppose the Canadians could redirect some wood to the U.S. We haven’t seen signs of that happening yet, but certainly if that were to happen, the Canadian’s redirected wood it wouldn’t be healthy for U.S. markets.

Mike Covey

We kind of, we held our breath during the start in Vancouver and expected perhaps that we’d see a slug of inventory come from Canada to the U.S. for whatever reason that really hasn’t happened and I think it’s been held for eventual that shipments to export markets and other customers. And also to some degree a portion of the mountain pine beetle while it is being produced in Canada it really doesn’t have a suitable home here in the U.S. in the retail or home building market.

Eric Cremers

We’ve also seen exports so far in fact of lumber from Canada to China have actually -- they are up something like 7% year-to-date which is surprising to me. I am also hearing issues about log availability up in BC. So there couldn’t be some mitigating factors here that are, we’re also close to where the tariff kicks in for the Canadians as well as you know we’re just a few dollars above where that 5% duty would kick in. So we’re cautiously optimistic.

Paul Quinn - RBC Dominion Securities

Okay, thanks very much. Thanks for the color.

Operator

Your next question comes from the line of Mark Weintraub from Buckingham Research.

Mark Weintraub - Buckingham Research

Thank you. With your FAD comfortably above your dividend right now and fairly up-to-date assessment of where you think things are going. Can you help us think about how we should think about your dividend on a go forward basis and and/or share repurchase if that’s something that could be a use of cash on a go forward basis?

Mike Covey

Well Mark just to kind of leverage off the numbers, our FAD exceeded distributions by $25 million in 2013 and our FAD was $13 million higher this quarter than distributions, so you are correct our FAD stream is growing that’s largely been supported by the strength of our northwest resource business as well as our wood products manufacturing business. And then certainly this large land sale that we executed in Q1, that’s the one we planned in Q2, helped that figure.

We’ve said overtime, we will increase the dividend when we believe it can be on a sustainable basis and we really look for improvement in our southern log markets to help with that decision and we’ve been patient. So, let’s not just say we have to see improvements from southern sawlog prices but it would certainly be a catalyst for us to have greater confidence about the dividend going forward.

Regarding other uses of capital, our focus has been on acquisitions. We’ve not been successful on any large ones recently although we’ve been competitive on several. We increased -- we stepped up the investment and the capital expenditures, particularly in our wood products business to in total of $28 million this year. We’ve paid down all the debt that we think made sense to prepay and a share repurchase program is something that our Board has not authorized but that’s something that certainly we wouldn’t rule out.

Mark Weintraub - Buckingham Research

And just on the last part, what would be the dynamics that would get you to choose to go that direction because I think you’d agree you are probably selling at a reasonably meaningful discount to, if you were to try and got out and buy assets and given where the yield is on the dividend, it’s buying back stock, you’ve actually reduced the cash out fairy substantially. What would be the other elements that you’d want in place before wanting to go forward with thinking seriously about share repurchase?

Mike Covey

The comments that you made are certainly we agree with those statements. We believe we trade at significant discounts of net asset value today, so that makes a share repurchase program more attractive there is no question about that. And I think the other thing is keeping a component of dry powder available for us in the event that an attractive acquisition comes along, so that’s balancing all those decisions and having $76 million of cash on-hand today plus a one tap revolver and as a matter I think for the Board just on how much to do we want use up some of that dry powder for a share repurchase program if they were supporting of it which is holding it for an acquisition program.

Mark Weintraub - Buckingham Research

Thank you.

Mike Covey

You’re welcome.

Operator

Your next question comes from the line of Steve Chercover from D. A. Davidson.

Steve Chercover - D. A. Davidson

Thanks. Good morning everyone.

Mike Covey

Morning.

Steve Chercover - D. A. Davidson

So you mentioned the low field inventories and you also talked about the Canadian strike that fortunately didn’t float in the U.S. but with all the railcar shipments are you afraid that there might be some wood or I guess finished lumber at mills which still could go to market?

Eric Cremers

Well and Steve, so far what we’re seeing, what we’re hearing is that that wood is direct into the Canadian market, so you got to remember a lot of it is kind of lower quality beetle killed wood in the first place. So, its natural home is with the Chinese construction market. I think assuming China doesn’t implode and so far we have a GDP data out on the first quarter from China. It held in there pretty good at 7.4%. It looks like that wood is going to eventually find its way over to China and not be redirected to the U.S. but certainly it’s a concern.

Steve Chercover - D. A. Davidson

Okay. So, when you talk about the results in wood products being up similar to the performance in Q2, 2013, you are saying it’s up about a 1 million from the Q1 level?

Jerry Richards

Yes Steve, this is Jerry Richards. So, really what we’re looking at if you were to go back to Slide 3, we’re up about 3.7 million operating earnings, so that was guidance saying we expect to be somewhere in that same range sequentially Q1 to Q2.

Steve Chercover - D. A. Davidson

Got it. And then while we’ve discussed opportunities for acquisitions, I mean there was a fairly decent transaction in Arkansas in Q1, were you competitive there and are you still interested in growing?

Jerry Richards

Well Steve, we certainly looked at anything at, frankly we’re looking at virtually everything that’s in the southeast right now, it doesn’t mean we’re pulling the trigger on them but we’re certainly looking at everything in southeast and especially if it’s in Arkansas. I think what Mike was suggesting is that we’re getting closer and closer in terms of being the winning bid if you will on those transactions but we have not been successful here off late.

Steve Chercover - D. A. Davidson

But being contiguous to your existing land or even your existing states isn’t a key criteria?

Jerry Richards

Now the closer it is to our operating, the more interested we are in the property.

Steve Chercover - D. A. Davidson

Okay. Many thanks.

Operator

(Operator Instructions) Your next question comes from the line of Chip Dillon from Vertical Research.

Chip Dillon - Vertical Research

Yes, hi. I guess more for Mike but certainly Eric and Jerry should chime in. It would seem to be based on your comments about the timber or the saw log pricing you’re seeing out there that if you bought lands at current prices with sort of even distribution of harvest or in other words where there is not a lot of, where there is not mostly you have to wait. But you’re cutting right away, that you’re getting a better immediate return in the west because the pricing of logs is I guess you would view as something closer to acceptable where as in the south there is still below acceptable. So I guess what I am saying is if you buy in the south you’re getting a lower price but you’re probably getting a very low near-term return in the hopes that you can recover that and then some wood prices going up. Is that sort of fair especially given you mentioned that southern values have perked back up again?

Mike Covey

Well I think investments in southern timberland today in the markets where we operate anyway can only be justified at the prices that they have been trading for can only be justified on a belief that southern log pricing is in fact going to improve and improve pretty dramatically in the next two to three years. If you bid on the transactions that we’ve looked at current pricing on those transactions with some discount rate that’s in there, what we believe is that competitive range you are not going to be successful.

There is no question that if the successful buyers of southern timberland were bidding in a recovery. And in the Pacific Northwest the few transactions that have occurred which have been on Oregon and Washington, I think you can much more successfully bid kind of current prices and perhaps be successful. But in the south you have to bid on a speculation that price is going to improve. Or use of discount rate that is incredibly low.

Chip Dillon - Vertical Research

I see, well maybe some of us would measure success by the fact that you aren’t buying land in the south, if those are the conditions and those that are going to have to hold out for even higher prices than you would need to move your volumes. So that sounds like you’re doing a good job there.

Mike Covey

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Collin Mings from Raymond James.

Collin Mings - Raymond James & Associates

Hi. Good morning guys. Just a quick follow-up, can you just remind me what the softwood, hardwood mix is in the U.S. south just in context of that shift in pricing kind of reported prices you guys were talking about?

Mike Covey

The mix in terms of sawlogs in the south is that your question Collin?

Collin Mings - Raymond James & Associates

Softwood versus hardwood.

Jerry Richards

It’s roughly call it, 90% softwood and 10% hardwood.

Collin Mings - Raymond James & Associates

Okay. And then you guys talked about just again in context of that price mix or that price shift just the mix on the hardwood and seeing materially stronger pricing in the hardwood component. Can you just maybe shed some light on what’s driving that or what do you think is driving that, recognizing it’s a small part of the overall mix?

Jerry Richards

Yes, we think it’s driven by really strong furniture and appearance markets like flooring for example. Also railroad ties come from hardwood, and that market is particularly strong. And so it’s really those three sectors that are driving it.

Collin Mings - Raymond James & Associates

Okay, great. Thanks guys.

Operator

(Operator Instructions) There are no further questions here at this time.

Jerry Richards

Alright thank you and thanks for joining our call today and for your interest in Potlatch. The investor events in which we would be participating this quarter include the REITWeek Conference in New York, in the first week of June and Marketing in Toronto the Midwest and the East Coast in May and June. I’ll be at my desk shortly and look forward to answering your additional questions. Thanks Jodie.

Operator

Thank you, sir. That concludes today’s conference call. You may now disconnect.

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