PotlatchDeltic Q1 2025 Earnings Report

PotlatchDeltic EPS Results

• Actual EPS: $0.33
• Consensus EPS: $0.20
• Beat/Miss: Beat by +$0.13
• One Year Ago EPS: N/A

PotlatchDeltic Revenue Results

• Actual Revenue: $268.26 million
• Expected Revenue: $243.68 million
• Beat/Miss: Beat by +$24.58 million
• YoY Revenue Growth: +17.60%

PotlatchDeltic Announcement Details

• Quarter: Q1 2025
• Date: 4/28/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 12:00PM ET

PotlatchDeltic (NASDAQ:PCH) (Nasdaq: PCH) is a leading Real Estate Investment Trust (REIT) that owns nearly 2.2 million acres of timberlands in Alabama, Arkansas, Georgia, Idaho, Louisiana, Mississippi and South Carolina. Through its taxable REIT subsidiary, the company also operates six sawmills, an industrial-grade plywood mill, a residential and commercial real estate development business and a rural timberland sales program. PotlatchDeltic, a leader in sustainable forest management, is committed to environmental and social responsibility and to responsible governance.

PotlatchDeltic Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic First Quarter twenty twenty five Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I would now like to turn the call over to Mr. Wayne Wacechuk, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Good morning, and welcome to Potlatch Deltic's first quarter twenty twenty five earnings conference call. Joining me on the call is Eric Kramers, Potlatch Deltic's President and Chief Executive Officer. This call will contain forward looking statements. Please review the cautionary statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward looking statements. Also, please note that a reconciliation of non GAAP measures can be found in the appendix to the presentation slides and on our website at ww.potlatchdeltic.com.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I'll turn the call over to Eric for some comments and then review our first quarter results and our outlook.

[Eric Cremers, President & CEO at PotlatchDeltic]

Well, thank you, Wayne, and good morning, everyone. Thanks for joining us. Following the market close yesterday, we reported total adjusted EBITDA of $63,000,000 for the first quarter. I'm pleased with our solid operational performance across all businesses despite the prevailing economic and trade policy uncertainties affecting the market.

[Eric Cremers, President & CEO at PotlatchDeltic]

Our financial performance improved compared to the fourth quarter in all three of our business units, demonstrating strong execution by our teams, the resilience of our operations and the positive effects of our strategic investment in the Waldo, Arkansas sawmill. Starting with timberlands, our teams in Idaho in the South did a great job of producing higher than planned harvest volumes during what is typically a seasonally slower period. This incremental volume was particularly advantageous in Idaho as we benefited from an increase in sawlog prices due to our index sawlog agreements coupled with higher cedar prices driven by strong regional demand. In our Wood Products business, lumber markets were dominated by tariff discussions throughout most of the first quarter. The Random Lengths Western SPF composite price rose by $60 during the quarter in anticipation of Canadian tariffs.

[Eric Cremers, President & CEO at PotlatchDeltic]

As the tariff deadlines loomed, buyers refrained from building inventory to hedge their positions, preferring instead to continue to purchase for near term needs. With Canadian lumber tariffs currently on hold, it remains to be seen how much of this run up of SPF prices in Q1 will unwind. Conversely, Southern yellow pine markets did not experience near the pricing benefit as SPF. Nonetheless, Southern pine lumber markets were more active and prices remained relatively firm during the quarter. Lumber markets continue to face relatively tepid demand from end markets.

[Eric Cremers, President & CEO at PotlatchDeltic]

That said, the capacity curtailments announced last year continued to impact the market, providing greater balance to supply and demand dynamics and helping support lumber prices. Additionally, pending regulatory actions related to Canadian duties and potential tariffs have provided support to pricing thus far this year, and that should continue as we move to the second half of the year. Canadian producers who supply approximately 25 of U. S. Demand were recently spared from reciprocal tariffs.

[Eric Cremers, President & CEO at PotlatchDeltic]

However, there are already well established softwood lumber duties on imported Canadian lumber, which are adjusted annually. Preliminary Canadian softwood lumber duty rates that will take effect later this year were announced and they are higher than current levels. The preliminary all others rate is set to increase from 14% to over 34%, more than double the current rates once finalized. Furthermore, on March 1, the Secretary of Commerce initiated a Section two thirty two investigation to determine the effects of imports of lumber and derivative products on national security. Commerce will evaluate the extent to which U.

[Eric Cremers, President & CEO at PotlatchDeltic]

S. Production can meet domestic demand and the feasibility of increasing domestic timber and lumber capacity. The findings of this investigation could lead to the inflammation of tariffs on all lumber imports into The U. S. And would be incremental to the already established Canadian softwood lumber duties.

[Eric Cremers, President & CEO at PotlatchDeltic]

During Q1, we shipped two ninety million board feet of lumber, which was 10,000,000 board feet over the upper range of our Q1 guidance. This overperformance to plan was mainly driven by our Waldo, Arkansas sawmill. The ramp up and performance of this mill has gone extremely well. In fact, by March, we were consistently achieving a run rate that matches its new targeted annual nameplate capacity of two seventy five million board feet per year. By hitting the mill's targeted key production metrics, including improvement in recovery rates and a 30% reduction in cash processing costs, we have now completed the ramp up phase of the project three months ahead of schedule.

[Eric Cremers, President & CEO at PotlatchDeltic]

This modernization and expansion project at Waldo has significantly enhanced the competitiveness of the mill and is expected to generate approximately $25,000,000 in incremental EBITDA annually assuming a mid cycle sales environment. Moving on to our Real Estate segment. This business continues to benefit from demand for rural real estate, particularly for conservation and recreational purposes. We sold over 7,000 acres in the first quarter, including several larger transactions, which contributed to achieving notable premiums to timberland value. Steady demand is expected to persist as buyers seek hard assets like rural land against an environment of significant volatility and many other asset classes.

[Eric Cremers, President & CEO at PotlatchDeltic]

Now turning to our natural climate solution initiatives, solar continues to be very active. Since the end of twenty twenty four, we have expanded our acres under solar option contract by an additional 3,000 acres. This increases our total acreage under option to 38,000 with an estimated net present value of around $475,000,000 In recent conversations with solar developers, they continue to view their solar projects as viable and are therefore proceeding with their plans. Another promising NCS opportunity for us is in lithium, as a portion of our property in Southwestern Arkansas has potential for lithium development. We began our first step in potentially monetizing our land for lithium development this year by granting exclusive rights to a lithium developer to conduct brine exploration and production on approximately 900 service acres in Lafayette County, Arkansas.

[Eric Cremers, President & CEO at PotlatchDeltic]

The lease anticipates an initial five year term for planning, engineering and construction before potential production begins. Additionally, we are actively engaged in discussions on executing another large mineral rights lease in Southwestern Arkansas. Regarding forest carbon offsets, we are in the process of developing an improved forest management carbon offset project aimed at storing carbon in our forest, which we believe will generate cash flows that exceed our business as usual baseline. At this stage, we are currently conducting feasibility studies with reputable project developers that focus on potential projects in our Southern Timberlands. Due to the complexity and care required to develop a high quality carbon project, we would target to bring a meaningful project to market sometime in the next eighteen to twenty four months.

[Eric Cremers, President & CEO at PotlatchDeltic]

In addition, we continue to pursue a range of other longer term natural climate solution opportunities, including carbon capture and storage and new markets for biomass such as bioenergy and sustainable aviation fuel. For CCS, we are exploring projects for development in a block of our timberlands in Northern Louisiana that would support CO2 storage for potentially new emitting facilities in the region. We believe initiatives like these will ultimately increase demand for our rural land, likely driving timberland values significantly higher. Shifting to our capital allocation strategy, we maintain a balanced and disciplined approach, especially given current lumber markets and the uncertainty surrounding the broader economy. Our stock continues to trade at a significant discount to our estimated net asset value in addition to yielding over 4.5%.

[Eric Cremers, President & CEO at PotlatchDeltic]

As a result, share repurchases remain more attractive than acquiring timberlands or other capital allocation options. In the first quarter, we purchased $4,000,000 of our common stock through our 10b5-one program at an average price of $45 per share. And we have bought another $4,000,000 at $40 per share so far this quarter. Our solid financial position coupled with our liquidity profile allows us to continue being opportunistic with capital deployment as we move through the year. Turning our attention to The U.

[Eric Cremers, President & CEO at PotlatchDeltic]

S. Housing market. Overall macroeconomic conditions continue to constrain consumer confidence and challenge affordability, leading to low buyer urgency in both new and existing home sale markets. While large U. S.

[Eric Cremers, President & CEO at PotlatchDeltic]

Homebuilders have pointed to a slower start to the spring selling season, annualized U. S. Housing starts are stable averaging nearly 1,400,000 units. Single family homebuilding starts remained resilient near the 1,000,000 unit level as the larger public homebuilders continue to offer rate buy down incentives to drive home sales. The multifamily homebuilding segment remains challenging due to the restrictive construction financing and an oversupply of units which continue to be digested in the market.

[Eric Cremers, President & CEO at PotlatchDeltic]

For existing homes, inventory has risen, but sales remain on pace with last year's low level as interest rates continue to be elevated and existing homeowners wanting to move are continuing to choose to stay in their current homes due to the lock in effect of their low mortgage rates. Despite the current state of the housing market, the key drivers of inherent housing demand remain positive. These longer term structural tailwinds include the massive undersupply of homes, a substantial demographic shift as millennials transition to homeownership and strong household formations. We believe that once the constraints on housing affordability ease, this will serve as a catalyst for upward momentum in lumber demand. Now shifting to the repair to model sector, the level of activity so far this year has remained relatively stable.

[Eric Cremers, President & CEO at PotlatchDeltic]

On the one hand, underlying demand continues to be held back by several near term challenges, including falling consumer confidence and elevated financing costs for discretionary home improvement projects. However, leading R and R pundits predict modest gains in repair and remodel as we move through the year and big box retail centers are forecasting slight growth in comparable store sales. For our own home center business, we have strong takeaway and we expect this trend to continue. Additionally, the factors influencing demand for R and R remain intact, including an aging housing stock with a median age over 40 years, historically high home equity levels and the enduring trend of people working from home. To close out my comments, while the near term may be volatile and uncertain, we have a favorable view of long term fundamentals in our industry.

[Eric Cremers, President & CEO at PotlatchDeltic]

Lumber prices have made a strong run since last summer in what has been a flat demand environment. And our view is that once markets settle down, demand will return. And as demand returns, pricing should improve as well. Combined with our strong balance sheet and excellent capital allocation track record, we are well positioned to deliver long term value to our shareholders. I'll now turn it over to Wayne to discuss our first quarter results as well as our outlook.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thank you, Eric. Starting from Page four of the slides, total adjusted EBITDA increased $10,000,000 rising from $53,000,000 in the fourth quarter to $63,000,000 in the first quarter. This sequential quarter over quarter increase is attributed to improved performance across all our business segments, particularly Timberlands, which benefited from higher sawlog prices in Idaho and increased harvest volumes in both Idaho and the South. I will now review each of our operating segments and provide more details on our first quarter results. Information regarding our Timberland segment is presented on slides five through seven.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

The segment's adjusted EBITDA increased from 34,000,000 in the fourth quarter to $42,000,000 in the first quarter, driven by higher harvest volumes, increased Idaho sawlog prices and seasonally lower forest management costs. The first quarter's overall harvest volume exceeded our plan for Q1, marking a good head start to 2025. In Idaho, we delivered 368,000 tons in the first quarter, taking advantage of favorable logging and hauling conditions and adequate contractor availability. Sawlog prices increased by 9% per ton compared to the fourth quarter due to higher index and cedar sawlog prices combined with a slightly higher mix of cedar. Lower seasonal spending on forest management and roads also favorably impacted results.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

In the South, we harvested 1,600,000 tons in the first quarter, slightly above our fourth quarter harvest volume and exceeding our Q1 plan by almost 170,000 tons. Favorable weather and better than anticipated demand for stumpage sales let us start the year ahead of schedule. In the first quarter, our Southern sawlog prices decreased by just over 2.5% compared to the fourth quarter. This decline in price was mainly attributed to a shift in product mix, including a higher mix of smaller diameter sawlogs and a lower volume of hardwood sawlogs. Now I will turn to Wood Products, which is shown on Slides eight and nine.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Adjusted EBITDA increased from $9,000,000 in the fourth quarter to $12,000,000 in the first quarter. The increase was driven by slightly higher average lumber prices somewhat offset by higher log costs in Idaho. Our average lumber price realization increased $9 or 2% from $445 per 1,000 board feet in the fourth quarter to $454 per 1,000 board feet in the first quarter. Comparatively, the Random Lengths framing lumber composite average price was about 6% higher in the first quarter compared to the fourth quarter. Note that our regional mix and product mix differs from the composite and there's also a timing difference between our sales and the composite.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Lumber shipments increased by 7,000,000 board feet, rising from two eighty three million board feet in the fourth quarter to two ninety million board feet in the first quarter. This increase in shipment volume was primarily a result of the Waldo sawmill reaching its targeted production levels following the completion of our modernization and expansion project. Shifting to real estate on Slides 10 And 11. The segment generated adjusted EBITDA of $23,000,000 in the first quarter compared to $19,000,000 in the fourth quarter. In our real estate rural real estate business, we sold over 7,000 acres at an average of $3,300 per acre during the first quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Our first quarter results include three significant rural real estate sales, including a conservation land sale in Georgia for over $7,000,000 at approximately $3,300 an acre. We continue to leverage strong demand for rural real estate across all buyer segments, but particularly for conservation outcomes and recreational purposes. In the Chenal Valley development side of our real estate business, 11 residential lots were sold at an average price of $113,000 per lot in the first quarter. These sales were in line with our expectations due to the level of inventory available. Turning to our capital structure summarized on Slide 12.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

At the end of Q1, we had $447,000,000 in liquidity, including $147,000,000 of cash on our balance sheet as well as availability on our undrawn revolver. Net interest expense was approximately $2,000,000 in the first quarter, which is the lowest level for the year since we received the vast majority of our annual patronage payments from the farm credit banks during this quarter. We have $100,000,000 of debt maturing in August, which we plan to refinance. We also have available $75,000,000 of notional forward starting interest rate swaps, the lower borrowing cost for this debt refinancing. As Eric mentioned, we have been actively repurchasing our shares as our stock continues to trade at a significant discount to net asset value.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thus far this year, we have spent $8,000,000 on share repurchases, having bought back 188,000 shares for an average of $42 per share under our 10b5-one plan. We have $82,000,000 remaining on our $200,000,000 repurchase authorization. Capital expenditures totaled $23,000,000 in the first quarter. This amount includes real estate development expenditures, which are included in cash from operations and our cash flow statement. For the full year, we continue to anticipate CapEx spend of 60,000,000 to $65,000,000 which excludes the final closeout payment of $6,000,000 for the Waldo sawmill project that we made in Q1 and any potential Timberland acquisitions.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I will now provide some high level outlook comments. The details are presented on Slide 13. In our Timberland segment, we plan to harvest between one point six million and one point seven million tons in the second quarter with approximately 82% of the volume coming from the South. Harvest volumes in the North are expected to be seasonally lower in the second quarter compared to the first quarter due to the anticipated spring breakup. Also, Northern sawlog prices are expected to remain mostly flat.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

In the South, we plan to harvest 1,400,000 tons in the second quarter

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

and we

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

expect our Southern sawlog pricing to remain relatively stable as well. We plan to ship 300,000,000 to three ten million board feet of lumber in the second quarter. With Waldo now operating at full capacity, achieving this shipment level will set a new quarterly record. Our average lumber price thus far in the second quarter is $475 per 1,000 board feet, which is roughly 5% higher compared to our average lumber price in the first quarter. This is based on approximately 100,000,000 board feet of lumber.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Shifting to real estate, we expect to sell approximately 8,000 acres of rural land and roughly 20 Chenal Valley residential lots in the second quarter. Further details regarding real estate can be found on the slide. Overall, we estimate second quarter total adjusted EBITDA will be lower compared to our first quarter results due to seasonally lower harvest volume and higher forest management costs. That concludes our prepared remarks. Rob, I would now like to open the call to questions.

[Operator]

Thank you. We will now begin the question and answer session. Your first question comes from the line of Ketan Mamtora from BMO. Line is open.

[Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets]

Morning and thanks for taking my question. Great. Maybe start with can you talk a little bit about, you know, the demand trends that you are seeing both in the new IT channel and the r and r channel as we move through April? You know, as you pointed out, you know, it seems like things have gotten off to a slow start. But I'm curious what you're hearing from the from your customers as we move to the busiest time of the year?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes, Ki Bin, this is Eric. The way I would describe the current market environment for lumber is that things are decent. I do believe it is a little bit of a tale of two cities right now. I believe the South is on firmer footing than the North. And in fact, I would tell you that right now prices are, I don't know, 10 to $20 per thousand board feet higher than what the latest random lengths print is for the various southern species and dimensions.

[Eric Cremers, President & CEO at PotlatchDeltic]

And I would tell you that the North is actually selling a bit below the latest random lengths print. The South has been on pretty much an upward trajectory since the start of the year with pre directivity very solid. And then if I had to speculate as to why it's a tale of two cities, I don't think it's because demand is different between the North and the South. I think it really has more to do with Northern Species folks, the customers are basically digesting some inventory that they bought in anticipation of lumber tariffs, which of course didn't happen. Our home center takeaway, it remains relatively good.

[Eric Cremers, President & CEO at PotlatchDeltic]

I mean, think our year to date volumes are running something like four percent above the prior year. We are getting into the slower summer months. If I had to guess, I think you'll see a little bit of a pullback here over the next month or two. We've already seen random lengths pullback, I don't know, 3% or so from the peak. But I think as you get out into I don't know if it's going be in July or August or September.

[Eric Cremers, President & CEO at PotlatchDeltic]

But at some point, the expectation those duties going higher is going to compel people to start building inventories. And like I said, I don't know which month it's going to happen, but it's going to happen. So the price risk is clearly to the upside in the back half of the year. But we are in a relatively flat demand environment. Just look at housing starts, we're stuck at 1.4.

[Eric Cremers, President & CEO at PotlatchDeltic]

R and R markets I think are a little bit better than new residential construction. But even that, we're talking about modest demand improvement. So that's kind of how I see the backdrop here. But I do think the price risk is to the upside.

[Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets]

Understood. And Eric, just curious, you talked about maybe in the North folks buying in anticipation of tariffs. As we sit here today, how would you characterize channel inventories?

[Eric Cremers, President & CEO at PotlatchDeltic]

Well, I think we're relatively low levels. The industry has learned to operate at relatively low levels over the years. People don't like holding inventory speculating on where prices are going to be headed. And also we're in a relatively high interest rate environment. So there are carrying costs to holding high inventory levels.

[Eric Cremers, President & CEO at PotlatchDeltic]

So I think the industry is running at a relatively low level of inventories with the exception of maybe some of northern species. There may still be a little bit of inventory hangover from the potential for inventory building due to tariff concern.

[Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets]

Understood. And Vane, one for you. In terms of second quarter Northern sawlog price realization, my understanding is generally going from Q1 to Q2, we see a pretty meaningful improvement just from the density component. Is that getting offset offset by, you know, some of the recent declines we've seen in some of the northern species in lumber? Or is there anything else that's going on?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yeah, Ketan, you're right. There is the positive effect of weight in the second quarter, but that's been our forecast is that's offset by lower pricing. Now keep in mind that with spring breakup, we'll start moving logs here in the month of May. So there's nothing in April. And then the first those shipments in those deliveries in May will have April pricing.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So with you know, we've seen a little bit of rollover in Northern pricing in April. So that's that's what's the that effect is is what we're anticipating.

[Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets]

Got it. That's helpful. I'll jump back in the queue. Good luck.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thanks.

[Operator]

Your next question comes from the line of Anthony Pettinari from Citi. Your line is open.

[Anthony Pettinari, Analyst at Citigroup]

Good morning.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Good morning.

[Anthony Pettinari, Analyst at Citigroup]

Just following

[Anthony Pettinari, Analyst at Citigroup]

up on Keaton's question, when tariffs were announced on Liberation Day, we didn't get Canadian lumber tariffs, but we did get kind of very high tariffs on kind of everything else. When Liberation Day happened, did you see a significant change in your order book? Or did your kind of dealer customers, did they communicate kind of a big change in their demand or maybe even on the real estate side? I'm just kind of curious like what impact that event happened or what that did to end consumer demand, if anything?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I don't really know that it changed end consumer demand a whole lot, Anthony. There was some I'm sure some folks were speculating that there were going to be Canadian tariffs on imported Canadian lumber. And when it didn't happen, all of a sudden people had inventory that they had to let come back down again. But I think most of the market never really anticipated a huge inventory. Now the $2.32 tariff is still hanging out there, and I do actually think there's going to be a tariff for lumber this fall.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

It's anybody's guess as to what that might be. But back to your question, I don't know that it really changed a whole lot other than there may have been some advanced ordering for SPF or SPF corollary species like HempFur, Doug Fur. There may have been some people out buying in advance of Liberation Day and then that had to be unwound. But I don't think that the effect was huge.

[Anthony Pettinari, Analyst at Citigroup]

Okay. That's helpful. And then when we do go from I guess 15% to 34%, thirty five %, do you think Canadian lumber volumes into The U. S. Basically get shut down?

[Anthony Pettinari, Analyst at Citigroup]

Are they maybe able to absorb some of those costs or not pass those Like what actually happens to Canadian volumes when we get up to like a 34%, thirty five % duty when I guess when you think about history?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. I think it's going to be a little bit of both. I think there are going to be some competitors. I mean if you're West Fraser and you've got mills in Canada and you got mills in the South, you can absorb some of that higher duty and keep operating. If you're a smaller independent operator and you've got one mill in Canada and you're disadvantaged with expensive logs, it's to be a world of hurt.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I do expect there to be more mill closures or curtailments up in Canada as we get into the fall with these higher duties. I mean, a 34% duty is pretty it's pretty onerous.

[Anthony Pettinari, Analyst at Citigroup]

Got it. Got it. That's helpful. I'll get back in the queue.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thanks. Thanks.

[Operator]

Your next question comes from the line of George Staphos from Bank of America. Your line is open.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

Hi, everyone. Good morning. Thanks for the details. Recognizing that we're not at mid cycle pricing yet in lumber, what do you think Waldo's actual contribution was on a year on year basis to the EBITDA in the Wood Products segment? Any sense that you could relate to us?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Well, what I'd say so far, George, is that it's not where we want it to be. It's not because the mill is not running well. The mill is running exceptionally well. I think the real issue right now is pricing. And that mill generally runs wider dimensions not narrow dimensions.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And this spring in the South that was relatively dry, logs were accessible. And so we didn't get the price run up in wides this spring that we would normally get. So I'm not we've had one quarter where pricing isn't exactly where I'd like it to be. But I do have an expectation for higher prices as the year progresses. And I especially have a higher price expectation for next year as I think starts are going come back and R and R is going to be on firmer footing next year.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So I have no doubt Waldo is going to grow into its pro form a. It's not quite there yet, but it's getting there.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

Okay. I appreciate that, Eric. Switching gears a little bit. I mean, you had a reasonably constructive quarter in real estate. I think you noted that overall prices went up.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

But from our vantage point, looking at some of the trade periodicals, it looks like activity in the South, in particular, has been a little bit sluggish. I don't think there's been a meaningful change in pricing per acre. Now if you agree with that, what do you think is happening? And if you have a different view of things, please relay what you're seeing in the Southern markets, it's not a monolithic market. There are going to be different regional trends.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

How would you paint that picture for us?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes, George, this is Wayne. I think I'd start with looking at our rural real estate business, typically smaller transactions. Again, that market, we're seeing strong demand. We forecasted our guidance is 26,000 acres this year, so still strong environment. We've seen that in Q1.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

We're forecasting another 8,000 acres in Q2. So the pipeline looks strong there. Demand is strong from conservation to recreational. But those tend to be smaller sales relatively speaking. Now if you're kind of referring to the broader M and A environment with larger transactions, 10,000 plus acres, yes, think we're still seeing there's a lot of buyers for those tracks and the demand and the pricing, lower discount rates, yeah, that's still a healthy market.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So we're it's still very strong from an M and A standpoint. Now there's not a lot of acres and transactions coming to market, but the ones that do that are quality tracks, yeah, we're seeing a lot of buyers for those or a lot of, I guess, bidders ultimately for those tracks.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

Do you anticipate there'll be a

[George Staphos, Managing Director at Bank of America Merrill Lynch]

little bit more activity in the larger transactions at some point? If so, what would be the catalyst from what you said? Is it just rates coming down or is there something else that would be a driver for you from what you see?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I think rates could influence it, but also maybe more clarity on where NCS plays out. I think some sellers are waiting for a little more clarity or the ability to monetize more of the NCS opportunities. So I think that could once that picks up, you could see more properties coming into market. I think that's a big factor.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

Okay. Last two for me and I'll turn it over. Can you talk maybe you mentioned I missed it why you saw more mix for small diameter logs in the South? What was driving that? Recognizing ultimately you have to be opportunistic in your markets you know, whatever you have, you have.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

And then just as we think about 2Q and the guidance, and we appreciate that that color that you provide, you know, we have maybe not the pricing you want, but we do have Wallow coming up. We do have pricing in Wood and Lumber up, although I know you said that's maybe pulling back a bit. How would you have us think about, at least directionally, the segment EBITDA trends 2Q versus 1Q? Should we expect that wood is up given that backup? Or might it also be lower for whatever reason?

[George Staphos, Managing Director at Bank of America Merrill Lynch]

So mix in the South and sort of the EBITDA bridge, whatever you can relay there for 2Q. I'll turn it over. Thank you.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. So George, your mix question, yes, it's just a function of really just wet weather. So when it's wetter in the South for us, especially in the Gulf South, we can't get as deep into the woods where larger logs are at. So we stick closer to the roads where that tends to be more chip and saw, and that chip and saw sells for a lower price point. So again, that's just kind of weather driven and a reflection of that.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I would say from a pricing is stable by product. So again, it's really mix driven. On the thinking overall from a guidance standpoint, yes, we're as we said in the prepared remarks, on about a third of our shipment volume forecasted shipment volume for the quarter, we're up 5% on a pricing standpoint. How much of that holds for the rest of the quarter? Yes, that's hard to say.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I mean, random lengths has come down a bit, but still, we're up 5% quarter to date. How much of that will roll through on what products? But still, we think we're kind of at that level where we've come in Q2 or even a bit higher for Wood Products.

[George Staphos, Managing Director at Bank of America Merrill Lynch]

I appreciate it. Thank you, Wayne. Your

[Operator]

next question comes from the line of Mark Weintraub from Seaport Research Partners. Your line is open.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Thank you. Just actually first wanted to follow-up on this lumber pricing in the second quarter. In the slide, you have it flat. So are you when you provide that guidance of expecting EBITDA to be lower than Q1, is that assuming that you give back the 5% through the balance of the quarter and so that lumber prices are flat?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. So Mark, we're up 5% spot in quarter to date in lumber. We're indicating flattish prices for Q2. Now is it up 3%? Is it up four Is it down 1%?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I think our expectation is for it to be kind of where it's at, maybe a little soft. We've seen random lengths roll over 3% from the peak, so it could come down a little bit. I wouldn't read too much into us saying that lumber prices are going to be flat. It'll be in that zip code. We are expecting our Wood Products business to have higher earnings in the second quarter than the first quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Timberlands is where we expect earnings to come down and we expect it to come down through normal seasonality. So that's where the drag on the P and L is going to be in Q2. It's not going to be in Wood Products.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Right. Although I guess I was trying to because I would have thought Wood Products would be up and if you have prices up 3% to 4% or 5% it actually would be up a decent amount. And so I'm really trying to get a sense as to how much you think timberlands are going to be down that you'd kind of say even if prices are up 3% to 5% that you're expecting 2Q to be clearly lower than 1Q. So that sort of was the angle that I was trying to get a sense of. Any help there in maybe quantifying?

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

On

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

the Timberland side, lower seasonal volume, pricing relatively flat in both regions. The other thing I would highlight is just normal seasonality from our forest management costs and roads. And that will from Q1 to Q2, that's about an additional almost $4,000,000 So that's the other kind of flip from Q1 to Q2 that's lowering results on Timberlands compared to Q1.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Got you. That's helpful. Thank you. And then maybe first one other follow-up on Lemmer. Had mentioned Eric, you had mentioned that you thought that, there would be tariffs from, the Section two thirty two investigations.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

I'm just curious, is there kind of what's sort of the thought process behind that?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I just feel like I hear a lot of noise from the administration around lumber. And it's not just lumber, it's automobiles, aluminum, steel, the fact that it singled out to be one of the industries under investigation, the fact that The U. S. Does have ample supplies of timber, the fact that it's well known that Canada basically subsidizes its lumber producers. I can't predict what the future hold marks.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I just look at the anecdotes that I read in the paper and the back chatter that I hear and it's just what my gut tells me is that there could very well be a tariff. There may not be, but who knows?

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Got you. I just didn't I don't know if they're engaging either industry groups or companies that are involved, but it that's is that happening to your understanding?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Well, yeah. I mean, yeah, the Department of Commerce is talking to all sorts of people trying to figure out where to go with this.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Okay. Got you. But okay. Fair enough. And then, lastly, you did buy back some more stock.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Your balance sheet is still strong. Stock price is even lower. What's sort of a comfortable level of cash for you to have on the balance sheet?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Well, I think historically we've talked about having $100,000,000 of cash on the balance sheet. This is sort of a safety net if you will. So I mean that's kind of how we're thinking about it. I'm not happy where the stock is at. I'm surprised.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

We're executing extremely well right now across the business units. I think like I said earlier pricing risk is to the upside. And certainly share repurchases, it's moved to the top of the capital allocation toolkit here. So we'll see where things go from here.

[Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners]

Great. Appreciate all the thoughts. Thank you.

[Operator]

Your next question comes from the line of Buck Horne from Raymond James. Your line is open.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Hey, thanks. Good morning. I wanted to go back to the solar and lithium opportunities you guys are seeing a lot more progress with. And maybe if could just help us understand the potential time line for when some of those option contracts would convert to more meaningful royalty revenues? Or when would we see like a more meaningful financial contribution as those things move to full operational capability?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. For us, Buck, we don't foresee one of these deals closing this year that we currently have under option. I think there's a strong likelihood next year that we would see one or two start to fall. And those option periods are anywhere from three to five years. So that period is now starting to come to the tail end of those option cycles.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I would note that I think developers want to move forward. I think there's a lot of strong demand there. I think one of the challenges that we hear is just from the regulatory agencies. You know, they're backed up approving projects, which, you know, that stretches out the process. But, yes, I think with that, we stay in close contact with all of our developers and where they're at in the process and how it's progressing.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And like I said, we think one or two will start to fall next year and kind of the dominoes from after that.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Got you.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Got you. That's very helpful. Thank you. And then switching to a little bit on the lumber side of the equation. Thinking about the potential for these duties and tariffs hitting various Canadian species of wood, spruce that the homebuilding industry usually is reliant on.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Wondering if you're hearing of any talk about homebuilders trying to switch species or maybe get up to speed on using more yellow pine in their operation ahead of potential duties increases. Are you hearing or getting any increased interest from builders looking to get up to speed on using yellow pine in their operation?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes, Buck. That substitution has been taking place over the past several years as U. S. Southern yellow pine production has really grown. We are hearing about it more and more, and I think it's just going to continue to grow as we move forward.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Okay. Is it any noticeable acceleration or change in that recently?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I would say we're hearing a little bit more chatter about it, for sure. You know, I can't quantify it for you. I can just say that I am hearing about it more and more. Okay. Appreciate the color.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thanks guys. Good luck. Thanks.

[Operator]

Your next question comes from the line of Matthew MacKellar from RBC Capital Markets. Your line is open.

[Matt McKellar, Vice President at RBC Capital Markets]

Thanks for taking my questions.

[Matt McKellar, Vice President at RBC Capital Markets]

Just a couple of quick ones for me. First, I think you mentioned higher cedar log prices in Idaho a couple of times in your opening remarks. Could you maybe just provide a bit of color on what you're seeing in cedar markets? And then second, if we do see meaningful Section two thirty two tariffs of wood products, what would be your view on the likely impact of timberland valuations over the medium term?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. Matt, this is Wayne. Regarding cedar, I don't know that's really our view is more of a kind of market specific what we're seeing in our region. Our customers, I think, been short on cedar, and that's really been a regional mix and regional demand which is driving prices up for us. So we've capitalized on that with our customers specifically in the regions that we and the customers that we service.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yeah. Matt, I'll take the second one on your question regarding the February impact on Timberland valuations. It's really, really hard to speculate what that impact is going to be until we know more like how big is the tariff number one. And then number two, how long is that tariff going to last? I think I've read in some places that the Canadians are going to turn to try to settle this dispute very quickly.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And if that's the case then I would say it's going to have little to no impact on Timberland valuations. But if they dig their heels in and the tariff goes on for an extended period of time then I would say it could have a meaningful impact on timberland valuation. So it's just really hard to speculate where we wind up with all of this.

[Matt McKellar, Vice President at RBC Capital Markets]

Okay. Thanks very much for the color. I'll turn it back.

[Operator]

Your next question comes from the line of Mike Roxanne from Truist Securities. Your line is open.

[Michael Roxland, MD - Equity Research at Truist Securities]

Thanks, Eric and Wayne for taking my questions and congrats on the quarter.

[Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets]

Thanks, Greg.

[Michael Roxland, MD - Equity Research at Truist Securities]

My first question is I want to go back to the your Southern sawlog and pulpwood harvest. Obviously, they exceeded our forecast, exceeded your earnings guidance. I think, Wayne, you mentioned favorable weather as being a contributor. Is some of the harvest related to salvage wood from Hurricane Helena as well? I mean, just trying to get a sense as to like what really happened that drove the huge outperformance in terms of harvest volumes for Southern sawlogs and pulpwood in 1Q?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. Mike, for us, salvage, we don't we have very little impact from Hurricane Helene for us. That's more coastal in the South So for us, big impact and not a driver of over performance for the quarter. Look, it was both in Idaho, so we took advantage of favorable hauling conditions, log and hauling conditions in Idaho to outperform a little bit there.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

In the South, again, we could move volume. Also, just we have an estimate baked in of what we think stumpage will be. It's a little bit stronger demand than stumpage in the first quarter. Now that doesn't change our overall forecast on what we'll sell for stumpage for the year, but it was just a little bit higher. Some of our customers wanted to get ahead of that to begin the year.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So stumpage is up a little bit more than we anticipated.

[Michael Roxland, MD - Equity Research at Truist Securities]

Got it. Okay. No, that's helpful, Wayne. Thank you. In terms of NCS, Eric, mentioned, obviously, is doing very well.

[Michael Roxland, MD - Equity Research at Truist Securities]

You have the 35,000 acres under solar option. You've identified another 35,000 acres. You mentioned that last quarter. When you look at your portfolio in the U. S.

[Michael Roxland, MD - Equity Research at Truist Securities]

House, how much of your acreage do you think will ultimately be stratified for solar?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

As we sit here today, it's in the low 70,000 acre kind of range. But I think one of the things that it's hard to know is these are the obvious sites, the 70,000 to 75,000 acres that I'm referring to. Do the economics of solar get to the point where you can go a little bit farther with your solar farm from the grid? Today, developers are demanding sites that are virtually right below the high voltage power lines. But I could see the costs or the P and L benefit to solar, I could see it growing over time as technology improves.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And that could drive the developers to look a little bit further away from being right below those high voltage power lines and substations and transformers and whatnot. And under that scenario, you could we could have a whole bunch more acres that could be applicable to solar. So that 70,000 to 75,000 acres that we referred to, that's the obvious stuff today. But there could be more acres on top of that, but we'll just have to see how the industry develops.

[Michael Roxland, MD - Equity Research at Truist Securities]

Got you. And any timeline for the 70,000 acres in terms of how do think about how it deploys over time?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. It's really hard to know. It feels like it's taking longer than any of us would like. We had a conversation with a developer the other day about what is taking so long. And their response was, look, there is just a huge bottleneck of projects that these grid operators have to evaluate.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And our system is called the MISO, acronym, MISO, and it controls electricity for 15 states, the Midwestern part of The United States. That's the one that we deal with primarily. And what I would tell you is that the solar developer that we spoke with, the note they sent me was that the queue process for the projects, it's very long, it's very tedious, and it's very disorganized. And this operator, this MISO operator, they have to do a utility study for each and every one of these projects that they look at. And each and every one of these projects, the study takes about two years to get complete.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And think about all the projects that they have been inundated with over the past couple of years and think about what's going on S. And where that demand is. And MISO is just they've got their hands full trying to figure all this out. So I think to summarize, this is taking a lot longer than any of us would like, but I don't think that means that the projects get canceled.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I just think it means they get stretched out a little bit.

[Michael Roxland, MD - Equity Research at Truist Securities]

Got it. That's really helpful, Mark. And then just one quick one in terms of the number. Obviously, you produced 10,000,000 board feet more than the higher end of your previous range. But you also mentioned, Eric, that lumber demand is tepid.

[Michael Roxland, MD - Equity Research at Truist Securities]

So how do you reconcile producing more with the comment that demand is not there? And I understand you want to get it rolling up and running to capacity, but can you just tell us what we can do? Like, help me understand clearly what happened with respect to lumber demand for your own order book relative to your production or with the incremental production of 10,000,000 board feet?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. Well, first of all, million board feet in the grand scheme of a 50,000,000 board foot market is not a whole lot. So I'm going to be forcing a higher cost competitor or fourth quartile mill to produce 10,000,000 feet less, all things equal. But when I say demand is tepid, that doesn't mean that it's falling. It just means it's not growing rapidly.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I do actually think lumber markets in The U. S. Are going to grow this year, not by a lot, by, I don't know, 5,000,000,000, zero seven five billion board feet. I don't think it's, by and large, going to come from new residential construction. I think it's mostly going to come from R and R projects.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

The R and R market is hanging in there. We talked about treater demand earlier. The other thing, I read an interesting statistic the other day, and that is that R and R searches on Google are up 25% year over year. Now it's hard to that doesn't directly translate into 25% higher lumber demand, obviously, for R and R projects, but it shows that peak R and R period that the country experienced back in COVID, that's long in the rearview mirror. And where we sit today with low existing home sales and tons of home equity having been built up in the country, people want to do R and R projects, and it's slowly but surely starting to happen.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So we'll have no trouble finding a home for that 10,000,000 board feet, I guess, the long and short of it.

[Michael Roxland, MD - Equity Research at Truist Securities]

Got it. Makes a ton of sense. Thanks for the color, good luck in 2Q. Thanks. Thanks.

[Operator]

At this time, I'm showing there are no more questions. I'll now turn the call back over to Wayne Waseczak.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thank you, everyone, for joining us this morning and your continued interest in PotlatchDeltic. Have a great day.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Wayne Wasechek, VP & CFO
• Eric Cremers, President & CEO

Analysts

• Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets
• Anthony Pettinari, Analyst at Citigroup
• George Staphos, Managing Director at Bank of America Merrill Lynch
• Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners
• Buck Horne, Managing Director - Equity Research at Raymond James Financial
• Matt McKellar, Vice President at RBC Capital Markets
• Michael Roxland, MD - Equity Research at Truist Securities