Deltic Timber Corp. officials said Wednesday (Oct. 21) that a “prolonged weak housing market recovery” and the impact of excess U.S. wood product stockpiles led to the company’s disappointing third quarter results, pushing profits down dramatically from a year ago.
For the period ended Sept. 30, the Arkansas timberland and real estate concern reported net income of only $38,000, down from profits of $5.9 million in the third quarter of 2014. Revenues for the El Dorado-based company also saw a steep decline, falling 14% from $58.3 million in the third quarter of 2014 to $50.1 million at the end of Sept. 2015.
Still, Deltic President and CEO Ray Dillon said the company’s assets continud to produce positive financial results despite the negative impact that the company’s weak markets had on sales prices.
“While some wood products manufacturers increased their production in anticipation of a stronger U.S. housing market for the second half of 2015, the actual recovery continued to be slower than expected, adding to the downward pressure on lumber prices in the third quarter,” Dillon said in a statement. “In addition, exports of logs and lumber manufactured on the West Coast of the United States to the Far East have decreased. As a result, there was simply more wood-product inventory available in the Company’s primary market areas during the third quarter than required to meet current demand.”
Under the difficult economic conditions, Dillon said Deltic is now focused on improving operating efficiency at its manufacturing facilities, reducing costs and positioning the company to capitalize on future market opportunities.
“During the third quarter, we continued to make progress on capital projects in our sawmills that we began earlier in 2015, as well as to develop additional lots in our Chenal Valley development to offer later this year,” Dillon said. “We also entered into a new $100 million term note for ten years, at a favorable fixed interest rate, further ensuring the company’s ability to finance future growth opportunities.”
The Deltic CEO also said the company spent nearly $10 million to repurchase shares through a board-approved stock buyback program.
Following are other items of interest from Deltic’s third quarter.
• The Woodlands segment reported operating income of $4.5 million for the third quarter of 2015, compared to $5 million in 2014’s third quarter, primarily because of reduced timberland sales and decreased oil and gas related income, partially offset by a benefit from income from additional pine sawtimber and pine pulpwood harvested at improved prices.
• The Manufacturing segment reported operating income of $2 million for the third quarter of 2015, which compares to $9.1 million in 2014’s third quarter. The decrease was primarily due to lower average sales prices for lumber and medium density fiberboard
• The Real Estate segment reported an operating loss of $200,000 million in the third quarter of 2015, compared to an operating loss of $300,000 million for the same period of 2014. There were 34 residential lots sold in the third quarter of 2015 versus 15 lots sold in 2014’s third quarter. Due to the mix of residential lots sold, the current quarter’s average per-lot sales price was $62,700 compared to an average sales price of $99,700 per lot in the third quarter of 2014. There were no sales of commercial acreage during either 2015’s or 2014’s third quarter.
• Corporate operating expense was $3.7 million in the third quarter of 2015 compared to $5 million for the third quarter of 2014. The decrease was due to reduced general and administrative expense, primarily incentive plan expenses. Interest expense was $1.9 million in the third quarter of 2015 compared to $1.1 million in the third quarter of 2014.
Going forward, Dillon said the outlook for the rest of 2015 will mostly depend on market conditions, especially in the lumber and fiberboard business. He also said the company’s Little Rock-based real estate market is also experiencing tough economic headwinds.
“Residential lot sales are projected to be 27 to 52 lots and 75 to 100 lots for the fourth quarter and year of 2015, respectively,” the Deltic CEO said. “Commercial acreage within Chenal Valley continues to receive interest from potential buyers, even so it is difficult for the Company to predict the timing of closings of any commercial real estate transactions due to their highly uncertain nature, volatility, and the significant number of factors related to any sale.”
At the close of business Wednesday, Deltic shares (NYSE: DEL) were off 1.93% at $65.26, sliding by $1.22 as nearly 30,000 shares traded hands in weak volume. For the year, the Arkansas company has traded in the range of $57.56 to $70.29.