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Temple-Inland (NYSE:TIN)

Q2 2011 Earnings Call

July 21, 2011 9:30 am ET

Executives

Randall Levy - Chief Financial Officer, Treasurer, Chief Operating Officer of Guaranty and Chairman of Pension & Investment Committee

J. Maley - President, Chief Operating Officer and Director

Chris Mathis - Vice President of Investor Relations & Treasury

Doyle Simons - Chairman, Chief Executive Officer and Chairman of Executive Committee

Analysts

Peter Ruschmeier - Barclays Capital

Phil Gresh - JP Morgan Chase & Co

Mark Wilde - Deutsche Bank AG

Mark Weintraub - Buckingham Research Group

George Staphos

Mark Connelly - Credit Suisse

Anthony Pettinari - Citigroup Inc

Gail Glazerman - UBS Investment Bank

Operator

Good morning. My name is Misty, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Temple-Inland Second Quarter 2011 Earnings and Webcast Conference Call. [Operator Instructions] Mr. Chris Mathis, Vice President of Investor Relations and Treasury, you may begin your conference.

Chris Mathis

Good morning. My name is Chris Mathis, Vice President, Investor Relations and Treasury for Temple-Inland, and I would like to welcome each of you who had joined us by conference call or webcast this morning to discuss the results for second quarter 2011. Joining me this morning are Doyle Simons, Chairman and Chief Executive Officer of Temple-Inland; Pat Maley, President and Chief Operating Officer; and Randy Levy, Chief Financial Officer.

Please read the warning statements in our press release and our slides concerning forward-looking statements as we will make forward-looking statements during this presentation. In addition, this presentation includes non-GAAP financial measures. The required reconciliation with GAAP financial measures can be found on our website at www.templeinland.com.

This morning, we will give a presentation on the results for second quarter 2011. After the completion of the presentation, we'll be happy to take your questions. Thank you for your interest in Temple-Inland, and I would now like to turn the call over to Doyle Simons.

Doyle Simons

Thank you, Chris. Good morning, everyone, and welcome to our second quarter 2011 earnings call. Before I get into the detail of our second quarter earnings, let me make a brief comment regarding International Paper's offer to acquire Temple-Inland.

On May 17, 2011, International Paper made an unsolicited proposal to acquire Temple-Inland for $30.60 per share. Our Board unanimously rejected that proposal on June 4, finding it grossly undervalued our company. On June 6, International Paper publicly announced their $30.60 acquisition proposal and, on July 12, commenced a tender offer at the same price of $30.60 per share. The Temple-Inland Board unanimously rejected the offer and recommended that shareholders not tender their shares, again finding that it grossly undervalued our company.

The reasons for the board's recommendations are set forth in our Schedule 14D-9, which was filed earlier this week with the Securities and Exchange Commission and is posted in the Investor Relations section of our website. For more information about the IP offer, we direct you to Schedule 14D-9. We will not be discussing anything further on this call related to the IP offer.

Turning to the second quarter, we had another very good quarter as our employees again delivered strong operating results and solid cash flow in the quarter. Excluding special items, net income was $0.21 per share. This compares with $0.22 per share in first quarter 2011 and $0.19 per share in second quarter 2010. Special items in second quarter 2011 were an after-tax charge of $4 million or $0.04 per share primarily related to Box Plant Transformation II.

In Corrugated Packaging, segment operating income was $96 million. This compares with $98 million in first quarter 2011 and $63 million in second quarter 2010. Our return on investment in the quarter was 18%.

Our mills ran well in the quarter, and Box Plant Transformation continues to drive down the cost structure of our box plant system, largely offsetting the impact of 2 fewer shipping days and higher input cost in the second quarter compared with the first quarter.

In terms of absolute input costs, comparing second quarter 2011 with first quarter 2011, input costs were mostly up with virgin fiber up $3 million, OCC up $8 million, chemicals up $2 million, freight up $7 million and energy down $2 million. Compared with second quarter 2010, input costs were higher with OCC up $16 million, energy up $4 million, chemicals up $7 million and freight up $12 million.

Our average box price was down $3 per ton in second quarter 2011 compared with first quarter 2011. Compared with second quarter 2010, our average box price was up $41 per ton.

On an average week basis, our box shipments were up 3% in second quarter 2011 compared with second quarter 2010. Industry box shipments were down 1% in the quarter. Our shipments versus the industry were against an easier comp as our shipments were down 3% in second quarter 2010, while industry shipments were up 5% in second quarter 2010. We took 30,000 tons of maintenance-related downtime in the quarter and reduced our inventory by 31,000 tons in the quarter.

Looking ahead to the third quarter, we are optimistic that box shipments reaccelerated in June after stalling in May, and that trend has continued into July. In addition, we had 26,000 tons less planned maintenance downtime in the quarter compared with the second quarter. However, it is important to note that our historical box shipments are seasonally lower in the third quarter compared with second quarter. In addition, we anticipate higher recycled fiber costs in the third quarter compared with the second quarter. Current OCC prices are approximately $15 to $20 per ton higher than the second quarter average.

Building Products. Building Products lost $8 million in second quarter 2011 compared with a loss of $6 million in first quarter 2011 and income of $15 million in second quarter 2010. Lumber prices were down $22 in second quarter 2011 compared with first quarter 2011, and down 86 compared with second quarter 2010. Lumber volumes were essentially flat compared with first quarter 2011 and second quarter 2010.

Gypsum prices were up $9 in second quarter 2011 compared with first quarter 2011 and essentially flat compared with year ago levels. Gypsum volumes were down compared with first quarter 2011 and second quarter 2010.

Particleboard prices were up $3 compared with first quarter 2011 and flat compared with second quarter 2010. Particleboard volumes were down slightly compared with first quarter 2011 and up compared with second quarter 2010.

Our EBITDA in this business was a positive $2 million in the quarter despite the very low level of housing starts. We are one of the very few companies in this industry that has continued to generate positive EBITDA throughout the severe downturn in housing. We were encouraged by the improvement in June housing starts to the highest level in 6 months as well as the modest improvement in permits.

I will now touch on a few financial highlights for the second quarter. Beginning with cash flow, cash provided by operations was $121 million for the quarter. Moving to the balance sheet, our net debt at quarter end was $690 million, down $47 million compared to first quarter end net debt of $737 million. We anticipate our net debt will be below $600 million by year-end 2011. Our liquidity remains very strong.

Unallocated expenses, interest expense and the effective tax rate in the quarter were all consistent with or better than our prior guidance. And finally, share-based comp expense was $20 million in the quarter due to the $6.37 per share increase in our share price in the quarter.

In summary, second quarter 2011 was a very good quarter as we ran our mills well and continued to realize the benefit from Box Plant Transformation. Looking ahead, box demand has reaccelerated after stalling in May, and industry fundamentals are constructive. We are encouraged by our progress on Box Plant Transmission II and confident in our ability to continue to drive up our returns in our Corrugated Packaging business. In Building Products, we remain committed to generating cash despite the depressed housing market and to driving high levels of returns for shareholders as housing markets recover. Finally, our financial priorities remain unchanged, and we are committed to creating value for our shareholders. With that, operator, we are ready to begin the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Gail Glazerman with UBS.

Gail Glazerman - UBS Investment Bank

I guess just to start, can you talk a little bit about your open market board sales and what you're seeing in that side of that business? It looks like volumes were up a bit in the quarter. Was that the domestic export?

Doyle Simons

Yes, I'll ask Pat to address that, Gail.

J. Maley

Yes, open market sales were up, and I would characterize demand both in domestic and export arenas as pretty stable. The export market is a very viable channel for products at this point. Obviously, it goes through its own cycles, but export is a viable channel that we participate in, albeit to a much less degree than some of our competitors.

Gail Glazerman - UBS Investment Bank

Okay. And Pat, can you just give a little more color on the reacceleration that you've seen in box demand and how it might have compared to kind of the end of last quarter, beginning of the second quarter?

Doyle Simons

Yes, let me walk you through that, Gail, because as we said on the last call, April box demand was very good. Then as I mentioned in the comments, we saw box demand stall in May, but encouragingly, box demand picked back up in June. Our box demand or box shipments were up 4% in June versus June, our last level, and I can tell you that trend has continued into July.

Gail Glazerman - UBS Investment Bank

Okay. And then on the box pricing, can you just give a little bit of color on what went on there and kind of how we should think about pricing in the third quarter? Is there anything in the market or is that mix driven?

Doyle Simons

Yes, it is. Over the last quarter, 2 quarters as you know, box prices are essentially stable. You will see some variation from quarter-to-quarter due to mix, but the bottom line is box prices are stable.

Gail Glazerman - UBS Investment Bank

Okay. And then just last -- just 1 -- 2 more quick questions. Doyle, you mentioned OCC being up relative to the quarter average. Are you seeing incremental pressure currently or have things started to stabilize at that higher level? And can you talk a little bit about where you're seeing some of your other inputs?

Doyle Simons

Sure. Current OCC costs, Gail, are up roughly $17 versus the second quarter average. As you know, it is very, very difficult to predict OCC prices. I would tell you we believe that the bias is flat to maybe up in terms of the balance of the quarter in terms of OCC. In terms of our other input costs, I'd tell you that natural gas is up slightly. What I'm talking about now is current prices versus second quarter average, natural gas up slightly, maybe $0.25. Virgin, I think, will be down. Virgin wood will be down in the third quarter versus the second quarter. And freight is essentially flat but some uncertainty regarding freight as well.

Operator

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

Mark Weintraub - Buckingham Research Group

I just wanted to delve a little bit more into -- you talked about net debt going below $600 million by the end of the year. Is your cap spend budget still the same for 2011?

Doyle Simons

It is, Mark. As we've said on the last call and as we've put in our 10-Q, our capital expenditure budget for 2011 is $225 million to $235 million, and that continues to be the case. And with that in place, we believe, as you referenced, that our net debt will be below $600 million by the end of the year.

Mark Weintraub - Buckingham Research Group

And besides earnings and the sort of between CapEx and DD&A, are there any other significant drivers that we should be aware of that would likely impact where net debt goes, either expectations on working capital and/or anything else that might be included in getting to that calculation?

Doyle Simons

No, nothing out of the ordinary in getting to that calculation, Mark.

Mark Weintraub - Buckingham Research Group

Okay. And then lastly, is it possible -- I know sometimes you like to do this all at the end of the year, so maybe I'm jumping the gun here. But how much from the Box Plant Transformation program has been achieved to date, of the second part? Second transformation program?

Doyle Simons

Mark, you're right. We will -- we've consistently, did it 2 years ago. Did it last year, we gave an update on Box Plant Transformation at the end of the year. And the reason we do that is, as we've said all along, the benefit from Box Plant Transformation is lumpy. Some quarters you get a lot. Some quarters you don't get much. And we think to give a true picture of the progress on Box Plant Transformation, it makes more sense to do it on an annual basis, which we will continue to do going forward. With that said I will tell you we're very encouraged about Box Plant Transformation and continue to drive the benefits to the bottom line.

Operator

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

Chip Dillon

First question. Doyle, it's interesting you mentioned that you expect your virgin fiber costs, which have certainly stayed in check through all this period, can even go lower in the third quarter. And I was wondering if you had any insights into what might be going on there. Are the people that sell you wood just more eager to get rid of it? Or are there other dynamics?

J. Maley

Chip, this is Pat. I would say that harvest conditions in our wood basins are very, very favorable. I mean, normally, at this time of year, it's a good -- harvest conditions are good, but the drought has brought very good logging conditions, and that's reflected in the downward pressure, if you will, on prices. I'd also add, to respond to your question and Gail's, I think, that our sawlog costs are down in the quarter, and we expect those to continue to go lower in the third quarter.

Chip Dillon

Got you. And when you -- getting back to the net debt reduction for the year, is there anything that we should be aware of in terms of your targets for, say, net working capital? Do you expect that to actually decline this year? Or are you building some increase there?

Randall Levy

It's Randy. No, we don't have anything that would be driving working capital particularly one way or another.

Chip Dillon

Oh, okay. And then last quick question is just on, Randy, on the tax situation. If you could just update us on what, if any, remaining credits are to be realized? And I'm not talking about the alternative minimum tax tied to the timber but in terms of basically the fuels credit.

Randall Levy

The last piece of the cellulosic credit would be utilized this year. And as we've said before, when we split that out, it was approximately $25 million to $30 million and that would keep our cash tax rate in the 10% to 12% range.

Chip Dillon

And that's sort of spread throughout the year, not all in -- it hasn't been realized yet?

Randall Levy

It's pretty much spread throughout the year.

Operator

Your next question comes from the line of Mark Connelly with CLSA.

Mark Connelly - Credit Suisse

Doyle, just 2 questions. I've started to see some interesting new changes in packaging stuff that's just coming into my house, which is obviously not much of a sample. I'm just curious whether you see customers experimenting more recently relative to what you've seen before. And then a second maybe semi-related question. As you work through your Box Plant Transformation, are you seeing or do you expect to see, either directly as a goal or as a byproduct, a shift in the number of SKUs that you're going to be working with?

J. Maley

Yes, Mark, it's Pat. Yes, I would say that as you see new packages and things coming to your house, we see it as well. And I think the Internet and the -- that whole piece of the market, I think, is growing. So obviously, we participate in a growing way in that segment of the business. And then relative to Box Plant Transformation and kind of what we're doing, we've consistently said that the equipment that we're putting into our facilities and the technology behind it is all aimed at participating to a greater degree in markets that -- where high graphics and short-order quantities are kind of the norm, and those are generally markets that margins are superior to other parts of the box business.

Mark Connelly - Credit Suisse

Oh, so is it too soon for you have already picked up a significant increase in SKUs? Or do you think it that way?

J. Maley

Well, I would say this. That'll be part of the more expansive discussion at year end when we talk about the impact of Box Plant Transformation II, but we're clearly seeing some of those benefits accrue to the bottom line right now.

Mark Connelly - Credit Suisse

Okay, very helpful.

Operator

Your next question comes from the line of Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG

Doyle, as you talked about getting down to that $600 million number, that's been your bogey, I think, for the last few years. Can you talk a little bit about how you would use cash once you get down to that level?

Doyle Simons

Well, good question, Mark. And I would tell you our financial priorities remained unchanged. First and foremost, as we've talked to you and others about it, is returning cash to shareholders. We understand the importance of a dividend, Mark. We didn't cut our dividend during the downturn, and we've increased our dividend the last 2 years, including an 18% increase in our dividend earlier this year. So we will have opportunities to continue to grow our dividend. Secondly, as you just alluded to, our focus has been on paying down debt. We will reach, as you mentioned, our target. As we approach our target, we will look for other opportunities to return cash to shareholders, one of which is to repurchasing shares. We do have a current share repurchase authorization in place. Third, we will continue to invest in our business. One of the key drivers of our improving returns has been our investment in our business, specifically Box Plant Transformation I and now Box Plant Transformation II. I would say we do anticipate that our capital expenditures will start to return to more normalized levels of 85% of depreciation, and we'll start to approach that beginning in 2012. And then finally, Mark, as we've said, historically we will look for acquisitions. But as always, we will be very, very disciplined based on ROI. And I think our actions over the past 3.5 years have confirmed our discipline regarding acquisitions.

Mark Wilde - Deutsche Bank AG

Yes, there had been a lot of things out there you might have bid on that -- or you might have bought, but you have not -- well, all right, to go back to that last question Mark Connelly asked, I just wonder. You've talked about all of the investment in the box plants and then these EVOLs, these Mitsubishi EVOLs, giving you the ability to go after harder-to-do, higher margin business. Is that something we should start to see in your box prices?

Doyle Simons

Yes, I think as we go forward and that becomes a bigger part of what we do on a relative basis, you'll see that in box prices. And it will -- when you have mix impacts that might depress reported realizations, those will be offset and then some from improvements in gaining share in those type of products.

Mark Wilde - Deutsche Bank AG

Okay. Last question I had, though, just on the cost side. You mentioned you were up about $7 million in freight. Is that -- how do you measure that? Is that, well, kind of incoming freight as well as outgoing freight? Or what's really in that number? Because it -- presumably, as freight costs go up, that has to have a big effect on things like pulp wood costs.

Doyle Simons

Yes, that's a total number for freight, Mark. It includes everything that you just outlined.

Mark Wilde - Deutsche Bank AG

Okay, all right. Very good.

Operator

Your next question comes from the line of Anthony Pettinari with Citi.

Anthony Pettinari - Citigroup Inc

Given the housing market is quite weak, I wanted to maybe step back and get your view on the longer term potential of the Building Products business. I just guess looking back at 2004, 2005, you were generating $160 million, $170 million EBITDA at a time when we were running maybe 1.6 million, 1.7 million starts. If you assume we can kind of get back to this 1.5 million start range in the mid part of the decade, is it realistic that you can generate the kind of EBITDA that you did in the last cycle? Or are there structural changes in the industry or how you're positioned in the industry that would make it more difficult to achieve or maybe even provide some upside to the last cycle?

J. Maley

And I would start with a baseline of 1.5 million housing starts because, as you and others know, that had been a 30-year, 50-year historical average. I can tell you when we get back to 1.5 million in housing starts, Anthony, in our opinion we'll do much better than even we did previously at those level of housing starts. And the reason for that is we made some significant changes to our cost structure, as you're very well aware throughout this downturn, which is what has allowed us to continue to generate positive cash flow when most of our competitors have not been able to do that. So when we start to approach 1.5 million in housing starts, I think we will generate very, very high levels of returns for our shareholders. We've also been very specific in saying that we don't have to get back to 1.5 million in housing starts to generate returns for shareholders. Based on our current cost structure, we believe, as we approach 1 million in housing starts, we will be able to generate returns for shareholders in the 15% to 20% range at 1 million in housing starts.

Anthony Pettinari - Citigroup Inc

And just a very quick question on the corrugated side. Obviously, you have an agricultural exposure, and we've been hearing of reports of maybe the worst heat wave in 70 years. Is this something that could be an impact in the third quarter? Or is this not something that you're worried about right now?

J. Maley

I would say our ag business -- we expect good results from our ag business in the third quarter.

Operator

Your next question comes from the line of Peter Ruschmeier with Barclays Capital.

Peter Ruschmeier - Barclays Capital

I wanted to ask a question about the Building Products business, and if you could remind us on your gypsum wallboard business. How much is residential demand normally -- a normal environment versus non-res? And then can you elaborate on what you've seen in the non-res demand for your building materials?

J. Maley

Yes, I would say that our gypsum business primarily is aided by improvements in multifamily starts right now and repair and remodel. And if you look at our business across all product lines, 50% is housing start dependent, 35% repair and remodel, 15% nonresidential.

Peter Ruschmeier - Barclays Capital

Okay. And how much of an improvement have you seen, if any, off the lows in non-res?

J. Maley

Well, clearly, that's -- I don't have the percentage at the tip of my tongue, Pete. But clearly, that's the nonresidential and is helping our business. And I think the other piece of it is we've expanded our product line in gypsum to include some fiberglass-faced sheeting products and a family around those -- around that product that allows us to participate in markets maybe that we hadn't historically.

Peter Ruschmeier - Barclays Capital

Okay. And I want to come back, if I could, maybe for Pat, Box Plant Transformation II. How are customers responding to the program? And my assumption has been that it's largely a productivity measure that reduces costs for you, but does it have any tangible benefits that you're seeing from customers? And is that contributing to some of the share gains that you've seen, 400 basis points in the second quarter? And do you think that, that improved performance relative to the industry, can continue as we look to the second half of the year?

J. Maley

Well, there's no question that we're able to take the investments both from a cost standpoint -- and again, to highlight the specifics of it, the returns that we talk about are strictly hard dollar cost savings, and again, we'll report on those at year end. But clearly -- and not included in the savings is an ability to take that equipment technology and pursue segments of the market that we haven't participated as much perhaps than as others. Relative to the 400-basis-point gain, Doyle talks about the -- we had an easier comp, to be straight up about it, that we didn't have as high a bar to jump over as the industry. So when you look at it, I think we had a good quarter relative to box volumes but not something that was out of line, if you will, from a share standpoint.

Peter Ruschmeier - Barclays Capital

Okay. Lastly, Pat, how would you characterize trends in Mexico -- in your Mexican business relative to the U.S.? Any qualitative observations you can make there?

J. Maley

Yes, I would say the Mexican market is projected to grow at basically double what the U.S. market is. That said, with all of the violence and the drug-related activity, if you will, going on there, it's clearly put a little bit of a damper on the overall economy and people are not willing to go out and kind of freely do what they normally do. And so that, I think, has put a damper on it. But clearly, our Mexican business is important to the company and it's performed, I think, very well this year under those circumstances.

Peter Ruschmeier - Barclays Capital

Very good.

Operator

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch.

George Staphos

A couple of housekeeping questions first. I think you mentioned earlier that your June box shipments were up 4% and that July had continued the trend. I'm not trying to be to fine around this. Would it be fair to say that your July shipments are up at least 4% thus far early in the quarter?

J. Maley

Yes, they're not up 4%. I think the -- and the comp's different. But the point Doyle was making is that they're up year-over-year and that trend, if you will, above last year is continuing that we saw in June.

George Staphos

Doyle, just a quick question. I realize you don't want to talk about the bid process with IP, but I just want to see from a housekeeping standpoint. Are there any other disclosures or responses that you're obliged to make at this juncture? Or have you done all the response that you need to do at this juncture?

Doyle Simons

We've done everything we need to do at this juncture.

George Staphos

A bigger picture on the cost side. If we went back a few years ago probably and looked out to the current environment and the dashboard, if you will, at this juncture, would it be fair to say that inflation and input cost has been more than you would have expected, more than the industry would have expected? And realizing Box Plant Transformation has done a great job of allowing you to handle this by improving returns and you did a great job of reducing natural gas consumption at the mills, from here what are the next levers that you have to deal with cost inflation into the future? How do you deal with your costlier platform?

J. Maley

Well, the first job is to get the monies targeted in our box side to be spent and the returns into the bottom line just as quick as we can. And as Doyle mentioned, we're pretty encouraged with what we see at this point. So that's kind of the first step. And there is a lot of improvement yet that we expect from that investment. I think then we go and look at a number of opportunities that we've -- some of which we've got rolling right now. We've got an improvement at one of our mills where we're putting in a new wood yard that we think has got a great return and it's dramatically lower our fiber and energy costs there because of the elimination of purchased part on the energy side and greater control, et cetera, on the wood cost side. So that's a big part of what we're doing on the mills side that's going on currently. We've had a number of smaller projects that we've targeted to reduce our energy consumptions, et cetera, that we don't really talk that much about. But there's a few other key projects that we've identified kind of similar to some of the projects that others have tackled relative to becoming more energy self-sufficient and those kind of things. We have a number of those opportunities that we've identified. And as we get to those out years, if you will, past Box Plant Transformation, we'll start entertaining and putting a finer pencil to those projects.

George Staphos

However, you suggested you also might have biomass boiler or probably stuff you've seen across some of the other companies?

J. Maley

Yes. I mean, we've got a mill where it's an ideal candidate, if you will, to take and increase our virgin fiber capacity and put in electrical generation equipment that's going to kind of have a double whammy of improving our virgin fiber position and dramatically lowering our energy purchases as an exposure to that input cost push.

George Staphos

Last question, I'll turn over. I thought I saw on the trade press that you were considering an R&D center for the box business. Maybe I missed this, but if -- do you have any color on that? I'd be interested in terms of what you're considering doing with that center and what you hope the outcome to be.

J. Maley

Yes, I would say that we've got a lot of pots on the stove. And as the press is prone to do sometimes, they get the cart before the horse, and sometimes they get the horse wrong. So we're starting a number of things, and when we finalize what we're going to do in each one of the locations we've targeted, there'll be confirmation from the company in addition to what the press prints.

George Staphos

That would be a year-end event with BPT to the update there?

J. Maley

Yes.

Operator

Your next question comes from the line of Phil Gresh with JPMorgan.

Phil Gresh - JP Morgan Chase & Co

So I just want to follow up on the OCC front. You had mentioned $15 to $20 higher this quarter. I was wondering, are you seeing actually increases in August? One of your peers is talking about that. And if so, is that kind of embedded into the $15 to $20 that you're saying? Or if that happens, would that be incremental?

J. Maley

The number I gave was July versus the second quarter average being up $17 a ton. That does not include anything for August. So anything in August would in fact be incremental. And as I mentioned earlier, Phil, the buy for August is flat to maybe up. We'll see how it plays out. But predicting OCC cost changes, as you very well know, is very difficult.

Phil Gresh - JP Morgan Chase & Co

Yes, understood. And then just a second question. I've heard that the lumber markets are a little bit weaker in Texas than some other regions, and I know you have a little bit higher exposure there. So I was wondering if maybe you could talk about trends there and what you're seeing and if that's accurate.

Doyle Simons

Yes, I don't know who's giving you that information, but it's incongruent with our experience in our lumber business. Texas is, if not the best, one of the very best markets around the country, and we see much better activity in Texas than some of the other markets we participate in. I would say that our lumber business from a pricing standpoint kind of bottomed the 1st of July. And since then, pricing has been moving in the right direction and our realizations continue to be positive. In the second quarter, I would say just from a little more color standpoint on the lumber side is, well, our sawlog pricing didn't fall at the same rate as our lumber pricing fell, but lumber prices are recovering and sawlog prices are now declining. So we look at that as good for the third quarter.

Operator

At this time, there are no further questions. Mr. Doyle Simons, are there any closing numerous?

Doyle Simons

No closing remarks other than I would like to thank everybody for participating and for their interest in our company.

Operator

This concludes today's Temple-Inland Second Quarter 2011 Earnings and Webcast Conference Call. You may now disconnect.

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