Potlatch First Quarter Earnings Up Sharply
April 25, 2006 (Press Release) - Potlatch Corp. today reported earnings of $61.7 million, or $2.07 per diluted common share, for the first quarter of 2006, compared to earnings of $3.8 million, or $.13 per diluted common share, for the first quarter of 2005. Results for 2006 included a net tax benefit of $51.2 million, or $1.72 per diluted common share, which related to the company's January 1 conversion to a real estate investment trust (REIT).
Excluding the tax benefit, first quarter 2006 net income was $10.5 million, or $.35 per diluted common share. The earnings improvement was due to better results for the Consumer Products and Resource segments.
Net revenues for the first quarter of 2006 were $402.5 million, compared with $336.9 million recorded in the first quarter of 2005.
The Resource segment reported operating income of $14.7 million for the first quarter of 2006, compared with $9.5 million earned in the first quarter of 2005. Increased fee timber harvests in Idaho and Arkansas and higher sales prices for logs were largely responsible for the higher earnings. "Our Resource operations in Idaho and Arkansas took advantage of favorable markets and operating conditions in 2006's first quarter compared with the 2005 quarter, resulting in the increased fee harvests," noted Michael J. Covey, Potlatch president and chief executive officer. "Idaho harvest levels increased by 14 percent compared to the first quarter of 2005, reflecting our plan to increase timber harvesting in Idaho by approximately 25 percent over the next five years, if market conditions remain favorable," Covey noted.
Resource segment results were impacted by the first full quarter of harvesting activities at the company's hybrid poplar tree farm in Boardman, Oregon. Trees planted 11 years ago are now being converted to chips and a variety of lumber products by third-party contractors. Investment in a new sawmill, which was announced on January 25, 2006, has been cancelled. According to Covey, "The construction of a new sawmill over the next three years, which required an initial investment of $8.1 million, is best suited for a company with deeper hardwood manufacturing and marketing experience. We are actively seeking outside parties willing to match their capital and expertise with our world-class sustainable poplar resource, which is capable of providing logs suitable for the manufacturing of high value clear lumber, veneer or engineered wood products on an 11-year sustainable rotation."
The Land Sales and Development segment, which is a new segment beginning in 2006, reported operating income of $.5 million for the first quarter of 2006, compared with operating income of $1.0 million for 2005's first quarter. Results from this segment depend on the timing of closing of transactions resulting from the company's efforts to identify, develop and market property with higher and better use values.
Operating income for the Wood Products segment was $6.9 million for the first quarter of 2006, compared with income of $8.6 million recorded in the first quarter of 2005. "The lower earnings were primarily due to lower selling prices and higher freight costs for our lumber products and higher log costs at our plywood operation," Covey remarked. The unfavorable comparison was partially offset by a 35 percent increase in lumber shipments, largely attributable to the acquisition of the company's Gwinn, Michigan, mill in May 2005, as well as increased shipments for most of the segment's other lumber mills.
The Pulp and Paperboard segment reported an operating loss of $2.4 million for 2006's first quarter, versus operating income of $2.4 million for the first quarter of 2005. "A 13 percent increase in paperboard shipments, combined with higher selling prices for paperboard and increased pulp shipments to external customers, were more than offset by higher maintenance, chemical, freight and energy costs," Covey said. He added that energy expense, including natural gas, was $2.0 million higher than in the first quarter of 2005. "Our paperboard mills in Arkansas and Idaho showed improved results through the quarter, and the segment was profitable during March," he stated.
For the first quarter of 2006, the Consumer Products segment reported operating income of $6.4 million, a significant improvement from an operating loss of $1.0 million reported for 2005's first quarter. "The improved operating results are attributed to a 12 percent increase in net selling prices resulting from a combination of price increases and sheet count reductions," Covey noted. In addition, he explained, production from our Through-Air-Dried tissue machine in Las Vegas was at record levels. "We have also taken steps to strip freight costs out of our business by relocating and adding converting capacity in Elwood, Illinois. Later in the year we will complete installation of a new bathroom tissue line in Elwood, which follows the relocation of a towel converting line from Benton Harbor, Michigan, to Elwood last month," he concluded.
The tax provision for the first quarter of 2006 included a net tax benefit of $51.2 million, or $1.72 per diluted common share, which was the result of the reversal of timber-related deferred tax liabilities that are no longer required as a result of the company's REIT conversion. Excluding this net tax benefit, the company recorded an income tax benefit of $2.4 million, compared to an income tax provision of $2.4 million for the first quarter of 2005. The income tax benefit was due to the pre-tax loss for the company's taxable REIT subsidiary.
Potlatch is a REIT with 1.5 million acres of forestland in Arkansas, Idaho, Minnesota and Oregon. Through a taxable REIT subsidiary, the company also operates 13 manufacturing facilities that produce lumber and panel products and bleached pulp products, including paperboard and tissue products.
SOURCE: Potlatch Corp.