Potlatch Corporation's Q2 2014 Results

Jul.23.14 | About: Potlatch Corporation (PCH)

Summary

Not much new in Q2.

Weather conditions affected operations.

No recovery yet in southern pine prices.

Timber REIT Potlatch Corporation, (NASDAQ:PCH) reported 2nd quarter results today. As usual, I will concentrate on year to date numbers rather than quarterly results. This is because there is allot of seasonality involved with timber operations with one of the main factors being weather.

Year to date, revenues were up 4% from last year. Operating income was up nearly 9%, and net income up 5.6% over 2013. Net cash from operations was up 65% or $68.432 million versus $41.515 million last year. Distributions were up 13% over 2013.

On a business segment basis, timber revenues were down about 9% from 2013 levels and operating income down 10%. This was due largely to weather conditions in both the North and South causing less volume to be harvested. The difference will most likely be made up for in the second half of the year.

Real estate revenues were up 189% over last year and operating income up 187%. This was due to the closing of two large transactions in 2014. As I have stated before, real estate results for timber REITs are very lumpy so too much should not be read into these stellar results.

Wood products revenues were up less than 1% over 2013 but operating income was down 29% from 2013. I'm not sure of the reason for operating income to be so far down on flat revenues but I believe it is due largely to increased sawlog prices which were up 9% in Idaho.

As I said last year at this time, timber REITS , (NYSE:PCL), (NYSE:RYN), (NYSE:WY), and (NYSE:CTT) continue to struggle primarily due to the housing market. The housing recovery continues at an extremely slow pace. New starts have been continuously revised downward over the last few years. Even so, 2014 starts are predicted to be up 13% and 2015 starts up 23%. Whether they will remains to be seen, although I have my doubts. As long as the current administration's policies are in effect, I see little to stimulate a full housing recovery.

The slow housing recovery continues to hold southern pine sawtimber prices at historically low levels. The recovery of these prices holds the largest upside to timber REIT results in the future. Everyone agrees that any meaningful increase to lumber demand must come from the South as western prices and harvest levels have been just about fully recovered for several years now due to Asian demand.

Potlatch's unit price is at about $41.65, up about 4% year to date. They pay a distribution of $.35 or about a 3.4% yield. Long-term debt remains at about $320 million.

I expect to see similar results from the other timber REITs as they report over the next week. The big story is the near non-existent housing recovery that continues to hold down southern pine sawtimber prices. For the time being, I see Potlatch and the other timber REITs is somewhat of a holding pattern with slight ups and downs from quarter to quarter until new develops in housing.

Disclosure: The author is long WY, PCH, PCL, RYN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.