Deltic Timber's (DEL) CEO Mark Leland on Q4 2016 Results - Earnings Call Transcript

| About: Deltic Timber (DEL)
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Deltic Timber Corporation (NYSE:DEL) Q4 2016 Results Earnings Conference Call February 27, 2017 12:30 PM ET

Executives

Mark Leland - Interim President and CEO

Byrom Walker - Interim CFO

Analysts

Mark Wilde - Bank of Montreal

Albert Sebastian - Prospect Advisors

Operator

Welcome to the Fourth Quarter 2016 Deltic Timber Corporation Conference Call. My name is Ellen and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Interim President and CEO, Mark Leland. Mr. Leland, you may begin.

Mark Leland

Thank you, Ellen. Thank you all for joining us this morning. We have a number of things to discuss on this morning’s call. We achieved another quarter of solid operating and financial performance with Deltic’s well-positioned asset base and exceptional team. Before Byrom and I discuss our fourth quarter and annual financial results, I’d like to take a moment to discuss our management news.

On behalf of my fellow Board members, we are pleased to be announcing the appointment of a permanent Chief Executive Officer for Deltic today. The Board conducted a robust search process with the assistance of national search firm, Russell Reynolds Associates and interviewed a number of candidates. We determined that John is the ideal person to lead Deltic into the future. John, who will join Deltic effective March 8th as a seasoned executive with more than 25 years of forestry business, real estate development, finance and operations experience.

The Board of Directors is confident that with John’s extensive industry expertise and skill set, he’ll bring valuable insights into our business and position Deltic to capitalize on opportunities to increase profitability and further enhance shareholder value.

While I will no longer service as Interim President and CEO, I will continue as a member of the Deltic Board of Directors and will work with John to ensure a seamless transition. We also announced today that we have appointed Byrom Walker as Interim CFO, following the Board’s decision to terminate Kenneth Mann after the Board became aware that he misappropriated certain Company assets for personal use. The amount of the assets is not expected to have a material impact on Deltic’s previously issued financial statements and we expect to file our Form 10-K on time.

Byrom has been a valuable member of Deltic’s finance team for many years and brings a strong experience and knowledge to the Company to this role -- of the Company to his role. We appreciate him on taking on these responsibilities as we initiated search to identify our permanent CFO. I look forward to working with Byrom in his new capacity and I’m glad to have him joined me on the call today.

With that, I’ll turn the call over to Byrom to review fourth quarter and annual financial results.

Byrom Walker

Thank you, Mark.

Before we begin our discussion of the quarter and the year, there are couple of items that I need to cover. First, information recorded on this call speaks only as of today. Therefore, you’re advised that any time-sensitive information may no longer be accurate as of the date of any replay. In addition to this, some of the comments made during the course of this conference call, we’ll be considered forward-looking statements. These statements reflect the Company’s current views in regard to future events and financial performance. However, no assurance can be given that these events will occur or that the projections will be attained. Certain important risk factors that may cause the actual results to differ materially from these forward-looking statements are identified in Deltic’s 2015 Form 10-K on file with the SEC.

That being said, let me summarize some of the key financial highlights to the fourth quarter of 2016.

Net sales were $58.5 million, up 17.8% from the $49.7 million for the prior period fourth quarter. Net income was $3.1 million or $0.26 per diluted share versus a net loss of $0.1 million or $0.01 loss per diluted share for the same period last year. Net cash provided by operating activities was $15.3 million compared to $6.1 million for the fourth quarter of 2015.

Pine sawtimber harvested was 179,158 tons compared to a 155,027 tons this time last year. And pulpwood harvest increased by 29% to a 115,962 tons versus 90,128 tons in the fourth quarter of 2015. Finished lumber sales were 63.5 million board feet compared to 67.5 million board feet this time last year. Average lumber sales prices increased 17% to $360 per 1,000 board feet compared to the fourth quarter of 2015.

MDF sales were 23.8 million square feet for the fourth quarter of 2016, up from 22.4 million square feet for this time last year. We sold 77 residential lots this year up from 52 in the fourth quarter of 2015. And we sold 23 acres of commercial property at an average of $232,500 per acre compared to no sales of last year.

Capital expenditures were $11 million in the fourth quarter of 2016 compared to $12.7 million in the fourth quarter of 2015.

Now for the full year of 2016. Net sales $219.4 million, up 13.2% from the $193.9 million for 2015. Net income was $9.2 million, an increase of $6.5 million or 42% when compared to the $2.7 million net income for the full year of 2015. Net income per diluted share was $0.76, an increase of $0.55 when compared to the net income per diluted share for the full year of 2015. Net cash provided by operating activities was $43.6 million, an increase of $13.9 million from a year ago.

Pine sawtimber harvest was 777,182 tons in 2016 compared to 755,417 tons in 2015. And our pine pulpwood harvest increased 29% to 508,482 tons versus 394,165 tons in 2015. Finished lumber sales were 274.6 million board feet in 2016 compared to 261.8 million board feet in 2015. Average lumber sales prices increased 9% to $361 per 1,000 board feet compared to 2015.

MDF sales were a 103.6 million square feet in 2016, up from 94.8 million square feet in 2015. We sold 130 residential lots in 2016, up from a 100 in 2015. And we sold 34 acres of commercial property at an average price of $207,000 per acre this year compared to no sales last year.

Capital expenditures were $44.8 million in 2016 compared to $37.8 million in 2015.

Now, I’ll let Mark provide color and closing comments.

Mark Leland

Thanks, Byrom.

As you can tell by the results, we are very pleased with the quarter and very pleased with the year. I’ll provide some additional color around the performance of each of our segments for the quarter.

First, our real estate segment. We really achieved outstanding results and are pleased to see demand for our mid market lots remain strong; we are currently developing additional lots for a sale as soon as late spring. In addition, we further capitalized on the improved markets for lumber and MDF. We achieved a 17% increase in average sales price for the lumber we sold compared to the fourth quarter a year ago. Further the slightly higher average sales price received for MDF sold during the fourth quarter of 2016 was on top of the 7% year-over-year increase in MDF sales volume achieved in the fourth quarter of 2016.

Del-Tin Fiber has improved its operating performance and we expect it to further improve following the arrival and installation of the plant’s new press chains, which we expect to occur in the third quarter of this year.

In our Woodland segment, the new small-log line at our Ola Mill is complete and operating, and we are working to process various mixes of pine sawtimber and smallwood to identify the most efficient profitable blend of timber for the mill.

We not only achieved our planned annual harvest volume of pine sawtimber, but we also took advantage of favorable logging conditions to harvest a small amount in excess of our annual harvest plan from our south Arkansas timberland. While markets for pine pulpwood remained soft, we were able to harvest and sell an increased volume of this fiber, helping to maintain the health of our forest.

Finally, as part of our commitment to return value to our shareholders, we continued to opportunistically repurchase the Company’s shares during the fourth quarter. We repurchased 32,309 common shares for $1.9 million, bringing our total repurchases for the full year to 309,739 common shares for a total of $17 million.

Turning to our outlook. For the first quarter and full year of 2017, we anticipate pine sawtimber harvest to be between 200,000 tons and 225, 000 tons; and 750,000 and 775,000 tons respectively, depending on weather conditions in our operating area. Finished lumber sales volume is estimated to be between 65 million and 75 million board feet for the first quarter of 2017 and 240 million to 290 million board feet for the full year of 2017.

MDF sales volume for the first quarter and year of 2017 is forecasted to be between 25 million and 35 million square feet; and 100 million and 120 million square feet respectively. Actual sales volumes for both finished lumber and MDF are dependent on market conditions of course. Residential lot sales are projected at 5 and 10 lots; and 120 and 140 lots for the first quarter and full year of 2017 respectively.

Commercial acreage within the Chenal Valley continues to receive interest, but due to the volatile nature of commercial real estate transaction and significant number of factors involved, it’s difficult to anticipate future closings.

I would like to cover one last before turning things over to the operator for questions. As you may have seen, a filing was made last week by one of our shareholders expressing its views about Deltic. As we noted in our statement, we maintain open communications with all of our shareholders and value their input. We’ve met and spoken with South Western on number of occasions to discuss their ideas and look forward to continued constructive dialog with our shareholders. Our Board is committed to acting in the best interest for the Company and our shareholders and regular reviews the Company’s strategic priorities and opportunities to enhance value.

At this time, we are not going to get into additional detail on this topic, and we don’t intend to comment further. We appreciate you keeping your questions focused on earnings results.

With that, I’d like to open the call up for questions. Ellen?

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Mark Wilde with Bank of Montreal.

Mark Wilde

Just a couple of questions on the sawtimber and lumber markets. Can you give us any sense of whether you are seeing any tensioning yet in the saw log markets in Arkansas and Northern Louisiana?

Mark Leland

We are seeing very nice demand and prices for lumber. Sawtimber is continuing to improve slightly, but not as strong as the lumber demand.

Mark Wilde

Yes, okay. And then turning to lumber, the guidance you gave us for lumber production this year, what kind of operating rate would that imply for you guys?

Mark Leland

It’s in the mid-80s, 80% range.

Mark Wilde

Okay. Is there any reason you wouldn’t be running harder, given the strength of the lumber market right now?

Mark Leland

We really try to operate and manage our operations, daily operations depend on demand. So that forecast or that outlook is really based on our view of what demand is. To the extent we could sell more, we’ll operate more days.

Mark Wilde

Okay, alright. Now, last question I had, there was an announcement on last week that Forestar had sold its remaining mineral rights. And I just wonder whether there is any kind of read through on the value that they got to kind of the value of your mineral rights.

Mark Leland

Yes. I think it’s hard to because we have a pretty spotty quantity of mineral rights. I mean, it’s -- we have some in summer wreckage and others we just own the timbers.

Operator

Thank you. [Operator Instructions] The next question is from Albert Sebastian with Prospect Advisors.

Albert Sebastian

Yes. Could you just maybe give a little bit more granularity in terms of the situation with the former CFO? How did this come to light, the misappropriation of assets?

Mark Leland

Yes. If you, Sebastian, we provided information in our press release and the 8-K filing, and there is really more detail in the 8-K filing, and I would point you to that. We’re really not going to get into any additional detail at this time. We’re really focused on talking about earnings and earnings for the full year and the quarter.

Albert Sebastian

Okay. And in terms of Southeastern Asset Management, the filing that they had in terms of -- do you have any commentary in terms of the accuracy of that filing; is it something that -- is there a difference of opinion in terms of the circumstances surroundings the approach of other parties or no?

Mark Leland

Sebastian, yes, we talk to all of our shareholders often, we are welcome to their input and we are looking always towards maximizing shareholder value. We made a statement on Southeastern filing. And I think we are not going to comment further.

Albert Sebastian

Okay. And going forward, do you see any potential for asset sales at the Company?

Mark Leland

Yes. We are not going to comment on M&A or changes in strategic direction on today’s call. We are going to be focused on earnings.

Operator

And we have no further questions at this time. I would like to turn the call back to Mark Leland for closing remarks.

Mark Leland

Thank you, Ellen, and thank you everybody for joining the call. I just want to reiterate, we had a solid year this year, overcoming some adversity and delivering solid results, both from a cash flow and an operating results and operations. We hit our operating targets, generated substantial amount of cash flow and earnings. We commissioned a small logline and we brought -- and we announced today a new CEO with the tremendous amount of experience. So, we are excited to go forward. Thank you everybody for joining, and thank you very much. Bye-bye.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

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