PotlatchDeltic 3Q profits dive 66% as up-and-down lumber prices spook industry

PotlatchDeltic Corp. on Monday beat Wall Street expectations for the third quarter, but volatile lumber prices kept profits well below year ago results for the Spokane, Wash.-based real estate investment trust (REIT) that has significant operations in Arkansas.

For the period ended Sept. 30, PotlatchDeltic reported net income of $20.6 million, or 30 cents per share, down 66% compared to $60.4 million, or 93 cents per share, in the same period a year ago. Revenue for the three-month period fell nearly 21.7% to $226.3 million compared to $289.2 million in the same quarter of 2018.

Wall Street had expected the timberland REIT to post third quarter earnings of 24 cents per share on revenue of nearly $235 million, according to Thomson Reuters. Following the release of PotlatchDeltic’s results after the close of market Monday, company Chairman and CEO Mike Covey said the company’s businesses “executed well on factors within their control.”

“Real Estate continues to have a strong year, selling double the number of rural acres that we expected as well as closing a commercial real estate transaction in Chenal Valley during the third quarter. Wood Products established new quarterly lumber production and shipping records and remains on pace to complete $40 million of capital projects to expand capacity and increase grade recovery,” said Covey. “While Timberlands scaled back Southern harvest volumes in the third quarter due to full mill inventories, the segment benefited from higher than expected Southern sawlog prices. Looking forward, we remain optimistic that the lumber market will improve.”

Last year, PotlatchDeltic closed on its $3.3 billion deal to acquire El Dorado-based Deltic Timber Feb. 20 in an all-stock agreement that gave Potlatch shareholders 65% of the combined company, which also changed its name to reflect both companies’ past. PotlatchDeltic retains a satellite office in El Dorado and has more than 1,500 employees and 200 customers through operations across its timberland and lumber manufacturing portfolio.

Nationwide, PotlatchDeltic oversees a timberland portfolio of nearly 2 million acres, with approximately 1.1 million acres in the U.S. south, including Alabama, Arkansas, Louisiana, and Mississippi. In Arkansas, the company owns 933,000 acres of forestland and is the second large private landowner in the state. Through its taxable REIT subsidiary, PotlatchDeltic also operates six sawmills and an industrial-grade plywood mill.

Operationally, PotlatchDeltic’s Timberlands business earnings were down 27% at $42.9 million, compared to $58.6 million in the same period of 2018. Revenues were also down 1.9% to $98.8 million, compared to $111.4 million a year ago. Company officials said Northern sawlog prices increased 7%, reflecting slightly higher lumber prices on indexed volume and seasonally lighter logs.

In the company’s Wood Products division, the lumber mill operator eked out earnings of nearly $5.9 million, down 87.3% from $46.4 million in the same period of 2018. Revenues for the division declined 27.8% to $143.6 million, compared to $199 million a year ago. The Wood Products segment set quarterly records for lumber production and shipment volumes in the third quarter, company officials said, but log and manufacturing costs were lower on a per-unit basis. Lumber inventory for the three-month period was written down $3.5 million compared to $7.4 million year ago.

In PotlatchDeltic’s real estate operations, earnings spiked by 95% to $14.6 million, compared to only $7.5 in the previous year. Third quarter sales rose to $18.4 million, up 64.3% from $11.2 million in the same period of 2018. PotlatchDeltic still operates a 4,800-acre master-plan community in West Little Rock that is about half complete, officials said.

Company officials said the timberland REIT sold 6,225 acres of rural real estate compared to 12,375 acres in the previous quarter, including the sale of a former Deltic tract for $19.6 million.

At the close of business Monday, PotlatchDeltic shares fell 35 cents to $43.01 on the Nasdaq stock exchange. The company’s shares have traded in the range of $28.07 as a low and $44.09 as a high over the past 52 weeks.