PotlatchDeltic reports 1Q profit of nearly $15 million, on target with post-merger savings

by Wesley Brown ([email protected]) 314 views 

Nearly two months after joining operations with its Arkansas rival, PotlatchDeltic Corp. on Thursday (May 3) eked out a first quarter profit and reported its recent deal with El Dorado-based Deltic Timber puts the newly combined company ahead of pace to achieve $50 million in annual synergy savings.

For the period ended March 31, PotlatchDeltic reported net income of $14.6 million, or 29 cents per share, down 13.6% from net income of $16.9 million, or 41 cents per share, a year ago. Revenues for the newly-created timberland operator rose 33.5% to $199.9 million, compared to $149.7 million in the same period a year ago.

On Feb. 20, Potlatch Corp. closed out its previously announced $3.3 billion deal to acquire Deltic in an all-stock agreement that gave Potlatch shareholders 65% of the combined company, which also changed its name to reflect both companies’ past.

The first quarter results include post-merger revenue from Deltic Timber’s operations from Feb. 21 through March 31. Wall Street had expected the West Coast REIT to post first quarter earnings of 56 cents per share on revenue of $175 million, according to Thomson Reuters.

“First quarter 2018 marked a key milestone in our company history as we successfully closed our merger and began a new chapter as PotlatchDeltic,” said Mike Covey, PotlatchDeltic’s chairman and CEO. “Significant work has been accomplished toward integrating the two companies and we have made meaningful progress capturing $30 million of our $50 million annual synergy target on a run-rate basis. Our employees have also done a tremendous job this quarter achieving excellent operating results, taking advantage of strong market conditions in lumber and favorable sawlog demand.”

After the deal closed more than two months ago, company officials said the combined company is expected to have a market capitalization of $3.3 billion and a total enterprise value of more than $4 billion, including approximately $700 million in net debt. Potlatch, which retained a satellite headquarters in El Dorado, now has more than 1,500 employees and more than 200 customers through operations across its extensive timberland and lumber manufacturing portfolio.

Like industry rivals Plum Creek Timber, Rayonier and Weyerhaeuser, Potlatch also converted Deltic’s operations into a real estate investment trust (REIT) structure to ensure the new company achieves the most efficient tax structure, officials said. As part of the REIT conversion process, Deltic’s accumulated earnings and profits, which are estimated to be nearly $250 million, will be distributed to stockholders of the combined company through a dividend consisting of 80% stock and 20% cash by the end of 2018.

Together, PotlatchDeltic now oversees a timberland portfolio of nearly 2 million acres, with approximately 1.1 million acres in the U.S. South, including Arkansas, Louisiana, Mississippi and Alabama. In Arkansas the company owns 933,000 acres of forestland, and operates lumber and paper mills in Warren, Waldo and Ola.

Companywide, PotlatchDeltic operates eight wood products manufacturing facilities, including six lumber manufacturing facilities, one medium density fiberboard (“MDF”) facility in Arkansas and one industrial plywood mill.  The February merger also combined Potlatch and Deltic’s two real estate business under one banner.

In total, the combined company will have lumber capacity of 1.2 billion board feet, which is heavily weighted towards high-margin southern yellow pine lumber that is produced at its three southern mills. The transaction also combines two highly complementary and successful real estate businesses.

Excluding $4.7 million attributable to Deltic Timber operations, the merged company’s Resource business reported adjusted earnings of $33.0 million, a $2.5 million decrease from fourth quarter 2017. In the Wood Products division, the Spokane timberland REIT posted earnings of $23.3 million, a $1.5 increase minus Deltic Timber expenses.

The company’s Real Estate business, which includes residential and commercial acreage in west Little Rock’s Chenal area, saw adjusted income of $7.5 million, up $4.1 million from the previous quarter excluding a $500,000 hit from Deltic Timber.

“We remain optimistic that improving U.S. housing starts and strong repair and remodel activity will continue to support favorable fundamentals for our resource and wood products businesses,” Covey said. “The merger with Deltic is off to a very successful start, we are confident that our synergies and operational efficiencies are attainable, and we continue to identify additional opportunities. We are well positioned with a strong balance sheet, significant financial flexibility and a conservative dividend payout ratio.”

At Thursday’s close, PotlatchDeltic shares were down 30 cents at $51.55. The company stock has traded in the range of $43.15 and $56.35 over the past weeks, including the last two months following the merger of the former Arkansas-based publicly-held concern.

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