Potlatch Q2 2025 Earnings Report

Potlatch EPS Results

• Actual EPS: $0.09
• Consensus EPS: $0.07
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.17

Potlatch Revenue Results

• Actual Revenue: $274.99 million
• Expected Revenue: $267.66 million
• Beat/Miss: Beat by +$7.32 million
• YoY Revenue Growth: -14.20%

Potlatch Announcement Details

• Quarter: Q2 2025
• Date: 7/28/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 12:00PM ET

Potlatch (NASDAQ:PCH)Deltic Corporation (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.

Potlatch Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Q2 total adjusted EBITDA was $52 M, down from $63 M in Q1, with Wood Products EBITDA plunging to $2 M due to lower lumber prices and ~$7 M of one-time charges.
• Positive Sentiment: Management expects significantly higher Q3 adjusted EBITDA as Wood Products headwinds abate, channel inventories remain lean, and rising duties on Canadian imports lift lumber prices.
• Positive Sentiment: The Real Estate segment sold 7,500 acres at an average of $3,100/acre in Q2—including high-premium conservation sales—and raised full-year guidance to 31,000 acres at $3,100/acre on robust buyer demand.
• Positive Sentiment: Natural Climate Solutions pipeline expanded with ~43,000 acres under solar options (~$550 M NPV), 900 acres for lithium, and ongoing carbon offset, storage, and biomass opportunities.
• Positive Sentiment: Capital allocation focused on returns with $56 M of share repurchases in Q2 (largest single-quarter since 2006) at ~$39/share, as stock trades >4.5% yield and deep discount to NAV.

Presentation

[Operator]

Good morning. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Second Quarter twenty twenty five Conference Call. All lines have been placed in 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 Wacek, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Good morning, and welcome to PotlatchDeltic's second quarter twenty twenty five earnings conference call. Joining me on the call is Eric Creamers, PotlatchDeltic'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 in our website at www.potlatchdeltic.com.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

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

[Eric Cremers, President & CEO at PotlatchDeltic]

Well, thank you, Wayne. Good morning, everyone. Thanks for joining us. Yesterday, we announced second quarter total adjusted EBITDA of $52,000,000 Despite ongoing macroeconomic and trade policy uncertainty, our overall performance remained solid, primarily driven by our timberlands and our real estate segments.

[Eric Cremers, President & CEO at PotlatchDeltic]

The Wood Products division earned $2,000,000 in adjusted EBITDA during Q2 as its results were hampered by lower lumber prices and several nonrecurring items, which I will touch on in a bit more detail later. Turning to our business operations, let's start with a review of our Timberlands division. During the quarter, weather conditions for logging and hauling were favorable, enabling our teams, particularly those in Idaho, to surpass planned harvest volumes. Although we have managed to exceed our projected harvest volumes for the first half of the year, our overall annual harvest plan remains unchanged. Log prices across the South remained stable in Q2, while our average Idaho sawlog price was higher due to the seasonal impact of lighter logs as well as cedar pricing, which was driven by strong regional demand.

[Eric Cremers, President & CEO at PotlatchDeltic]

In our Wood Products business, overall lumber market conditions remained soft, primarily due to tepid demand in both repair and remodel as well as new residential construction segments. Also, the market anticipated tariffs on imported lumber going into the quarter and when they failed to materialize, it contributed to a decline in lumber prices, especially for Western SPF. Further, adverse weather conditions in the Southern region negatively impacted construction activity, consequently affecting southern yellow pine pricing. While declining lumber prices added pressure to our second quarter results, several other factors including certain one time items totaling approximately $7,000,000 also negatively impacted Wood Products' financial performance compared to Q2. First, freight costs surged during the quarter from constrained supply due to seasonal trucking demand for produce as well as a shortage of commercial truck drivers stemming from a recent executive order and Department of Transportation guidelines mandating English language proficiency in drivers.

[Eric Cremers, President & CEO at PotlatchDeltic]

However, we believe these transportation challenges are temporary as we have begun to see improvement in truck availability in recent weeks. Second, the utility providing electricity to our Waldo Sawmill conducted unannounced major maintenance on a substation during the second quarter, resulting in lower quality power, which caused production and maintenance challenges at the mill. While the substation maintenance has been completed, this temporary disruption had a negative impact on the mill's results in the second quarter. Third, a key capital project undertaken this year involved the replacement and upgrade of the sawbox at the St. Mary sawmill.

[Eric Cremers, President & CEO at PotlatchDeltic]

This $3,000,000 project, which we expect to have a nearly 20% IRR, required a period of downtime and subsequent ramp up, which temporarily affected production levels at the St. Mary sawmill. This project was originally scheduled for installation in the third quarter, but we accelerated this initiative into the second quarter due to the anticipated tariffs on imported machinery from Canada. Lastly, a significant decline in lumber prices at the end of the second quarter resulted in a non cash inventory impairment charge of $3,000,000 compared to the first quarter. Although these items negatively impacted our second quarter results, we believe that these factors are now largely behind us and expect improved results for Wood Products in the third quarter.

[Eric Cremers, President & CEO at PotlatchDeltic]

Looking ahead, the administrative review on antidumping duties for softwood lumber imported from Canada has been finalized, with the final countervailing duties expected to follow in short order. The average combined duty rate will rise significantly, which will likely result in higher lumber prices across various species. These duties are separate from any potential tariffs that may get announced as the Trump administration completes the Section two thirty two investigation regarding the impact of imports of lumber and derivative products on national security. If such tariffs are imposed, they are expected to be on top of the duties and could further boost lumber prices. Moving to real estate, the division delivered another strong quarter selling 7,500 acres at an average price of $3,100 per acre in Q2, which included a large conservation sale to The Nature Conservancy.

[Eric Cremers, President & CEO at PotlatchDeltic]

Nearly one third of the acres sold in the first half of the year were associated with conservation sales at significant premiums to timberland value. Our transaction pipeline remains strong as buyers continue to pursue hard assets such as rural land amid considerable volatility across many other asset classes. On the natural climate solutions front, we continue to make steady progress across our various initiatives. Starting with solar, the overall market slowed down as participants digested the adjustments made to green energy incentives as part of the reconciliation bill. Despite these changes to incentives, we continue to see activity and healthy interest from solar developers, especially from the larger players in the space.

[Eric Cremers, President & CEO at PotlatchDeltic]

In fact, we are finalizing negotiations on one option that started after the bill was passed, highlighting the fact that developers remain interested in solar even without the investment tax credits. Once this option is executed, our outstanding solar option portfolio will approximately 43,000 acres at an estimated net present value of nearly $550,000,000 Additionally, lithium continues to be another promising NCS opportunity for us. We placed 900 acres under option with the lithium developer in the first quarter and expect to add significantly more acres under option by the end of the year. The smack over formation in Southwest Arkansas continues to attract significant interest from lithium developers, including major energy companies such as ExxonMobil and Chevron. We are also continuing to pursue opportunities related to forest carbon offsets, carbon capture and storage and emerging markets for biomass, such as bioenergy and sustainable aviation fuel.

[Eric Cremers, President & CEO at PotlatchDeltic]

We are excited about the potential optionality Timberland ownership provides and remain focused on growing our natural climate solutions opportunities. Shifting to our capital allocation strategy, our priorities remained centered on activities that we expect to create long term value for our shareholders. This includes maintaining our dividend, key capital investments and opportunistic share repurchases, all while preserving flexibility as we navigate challenging market conditions. With our stock trading at a significant discount to our estimated asset value and now yielding over 4.5%, share repurchases emerged as the top capital allocation opportunity in the second quarter. Consequently, we purchased $56,000,000 of our common stock through our 10b5-one program at an average price of $39 per share during Q2.

[Eric Cremers, President & CEO at PotlatchDeltic]

Notably, this was the company's largest share repurchase volume within a single quarter or year since becoming a REIT back in 02/2006. After deploying $60,000,000 in cash for share repurchases in the first half of this year, we continue to maintain a solid financial position, have the flexibility to navigate the current macroeconomic environment and remain opportunistic with capital deployment as we move forward. Now turning to The U. S. Housing market, uncertainty surrounding trade policy and other macroeconomic headwinds continue to weigh on affordability and buyer sentiment.

[Eric Cremers, President & CEO at PotlatchDeltic]

Persistently elevated mortgage interest rates and economic uncertainty have kept many potential buyers on the sidelines. In the second quarter, average total housing starts hovered just above 1,300,000 units on a seasonally adjusted basis, with average single family starts around 900,000 units. New residential construction retreated slightly along with a higher proportion of average starts shifting to multifamily during the quarter. However, housing starts remain relatively stable given current market dynamics. To stimulate demand for new home construction, builders continue to adapt by offering smaller homes, price reductions and mortgage rate buy downs.

[Eric Cremers, President & CEO at PotlatchDeltic]

Nonetheless, the long term fundamentals of housing demand remain intact. These include a persistent housing shortage, demographic tailwinds from millennial household formation and a growing population of renters transitioning toward ownership. As affordability pressures ease, we expect these structural drivers to reassert themselves supporting future growth in housing activity and by extension lumber demand. Moving on to the repair and remodel sector, activity has remained relatively subdued. Ongoing economic uncertainty and elevated borrowing costs continue to weigh on discretionary home improvement spending, particularly for larger scale remodeling projects.

[Eric Cremers, President & CEO at PotlatchDeltic]

However, the latest readings from both the leading indicator of remodeling activity from the Joint Center for Housing Studies of Harvard University and the National Association of Home Builders still forecast slight gains for expenditures on home improvements and maintenance in 2025, followed by more modest but still positive growth in 2026. For our business, we continue to see steady takeaway from our home center customers. We anticipate this trend will continue through the second half of the year, especially as homeowners complete deferred maintenance and mid scale renovation projects. Importantly, the long term fundamentals of the repair and remodel market segment remain unchanged. These include an aging housing stock now with a median age over 44 years, historically high levels of home equity and the continued prevalence of hybrid and remote work arrangements, which drive demand for functional and aesthetic home upgrades.

[Eric Cremers, President & CEO at PotlatchDeltic]

To close out my comments, while uncertainty and near term headwinds remain in the market, we have a favorable view of long term fundamentals that drive demand in our industry. Looking forward, we believe lumber prices have bottomed out for the year as we are starting to see prices trend higher. We are optimistic that the increase in Canadian softwood lumber duties and any potential Section two thirty two tariffs will have a positive effect on domestic lumber prices as we work through the back half of the year. Our strong balance sheet and excellent capital allocation track record combined with operational execution and cost discipline positions us to deliver long term value to our shareholders. I will now turn it over to Wayne to discuss our second quarter results and our outlook.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thank you, Eric. Starting from Page four of the slides, total adjusted EBITDA was $52,000,000 in the second quarter compared to $63,000,000 in the first quarter. This sequential quarter over quarter decrease in adjusted EBITDA is primarily attributed to seasonally lower harvest volumes and higher forest management costs in our Timberland segment, along with an inventory impairment charge in certain onetime costs in Wood Products. I will now review each of our operating segments and provide more color on our second quarter results. Information regarding our Timberlands segment is presented on Slides five through seven.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

The segment's adjusted EBITDA decreased from $42,000,000 in the first quarter to $40,000,000 in the second quarter. In Idaho, 360,000 tons were harvested in the second quarter, representing a slight decrease from the 368,000 tons harvested in the first quarter. While a seasonally lower harvest volume in the second quarter was anticipated, we capitalized on favorable logging and hauling conditions as well as adequate contractor availability to exceed the planned volume. The favorable conditions we experienced during the first half of the year have allowed us to make great progress on our twenty twenty five planned harvest volume. Sawlog prices in Idaho rose by 9% per ton compared to the first quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

This increase was driven by higher cedar sawlog prices and seasonally lighter sawlogs. Expenditures on forest management and road maintenance also increased seasonally compared to the first quarter. In the South, we harvested 1,500,000 tons in the second quarter, down seasonally compared to 1,600,000 tons harvested in the first quarter. Our Southern sawlog prices increased by 2% compared to the first quarter. This rise in price was mainly driven by a higher volume of premium grade pine sawlogs in our Gulf South region.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Now I will turn to Wood Products, which is shown on Slides eight and nine. Adjusted EBITDA was $2,000,000 in the second quarter compared to $12,000,000 in the first quarter. The decrease was driven by a combination of factors, including lower average lumber prices, increased processing costs primarily from onetime items and a write down of lumber inventories to net realizable value. Our average lumber price realization decreased $4 or 1% from $454 per 1,000 board feet in the first quarter to $450 per 1,000 board feet in the second quarter. Comparatively, the Random Lengths framing lumber composite average price was also 1% lower in the second quarter compared to the first quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Lumber shipments increased by 13,000,000 board feet, rising from two ninety million board feet in the first quarter to three zero three million board feet in the second quarter, setting a new quarterly record. This increase is attributable to improved seasonal operating conditions production at the recently upgraded Waldo, Arkansas sawmill. Transitioning to real estate on Slides 10 And 11, the segment produced adjusted EBITDA of $23,000,000 in the second quarter, which matches our first quarter results. During the second quarter, the rural real estate business sold 7,500 acres at an average price of $3,100 per acre, reflecting a significant premium over timberland values. Sales included the conservation land sales in Arkansas, which generated proceeds over $4,000,000 Demand for rural real estate remains robust, as evidenced by achieving the highest level of transaction volume this quarter since 2017.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

In the Chenal Valley development side of our real estate business, 18 residential lots were sold at an average price of $102,000 per lot in the second quarter. Despite prevailing macroeconomic challenges, we continue to experience steady demand from regional builders in Chenal. Turning to our capital structure summarized on Slide 12. We finished the second quarter with $395,000,000 in liquidity, including $95,000,000 of cash on our balance sheet as well as availability on our undrawn revolver. The reported cash balance reflects the use of 60,000,000 through the end of the second quarter to repurchase 1,500,000.0 shares at an average of $40 per share under our existing repurchase authorization.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

We have $30,000,000 remaining on our $200,000,000 repurchase authorization. We have $100,000,000 of debt maturing in August, which we expect to refinance. We also anticipate utilizing our remaining forward starting interest rate swaps with the $75,000,000 notion of value to lower borrowing costs for this debt refinancing. Capital expenditures were $10,000,000 in the second quarter. This amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

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. I will now provide some high level outlook comments. The details are presented on Slide 13. Within our Timberland segment, we anticipate harvesting between one point nine million two million tons during the third quarter, with approximately 80% of this volume sourced from the South. Harvest volumes in Idaho are projected to be seasonally higher in the third quarter relative to the second quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Additionally, sawlog prices in Idaho are expected to decline approximately 9% in the third quarter, primarily due to lower prices on index volume. As a reminder, our index volume is based on a one month lag. Consequently, Q3 index pricing is based on June through August lumber prices, with both June and July having seen relatively low lumber prices. In the Southern region, we anticipate harvesting approximately 1,500,000 tons during the third quarter, and we expect that sawlog prices will remain relatively flat. We plan to ship three ten million to three twenty million board feet of lumber in the third quarter, which would establish another quarterly record.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Our average lumber price thus far in the third quarter is $410 per 1,000 board feet, which is roughly 9% lower compared to our average lumber price in the second quarter. This is based on approximately 100,000,000 board feet of lumber. The lumber prices have been weak thus far in Q3. They have recently been improving, and we expect them to continue to rise as we move through the back half of the year, driven by higher duties and potential tariffs. Also, our Wood Products division had a couple of challenges in Q2, which we do not expect to repeat.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And as such, we anticipate results to improve in Q3. Turning to our Real Estate segment. We expect to sell approximately 15,000 acres of rural land at an average price of $3,100 per acre in Q3. Given this level of anticipated third quarter activity, we are increasing our full year guidance to an estimated 31,000 acres and increasing our average price per acre to $3,100 For our Chenala Valley development, we expect to close on approximately 50 residential lots at $140,000 per lot and 13 acres of commercial land at $530,000 per acre in the third quarter. Further details regarding real estate can be found on Slide 13.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

We anticipate that our total adjusted EBITDA for the third quarter will be significantly higher than our second quarter results driven by improved performance in both real estate and wood products divisions. That concludes our prepared remarks. John, I would now like to open the call to questions.

[Operator]

Absolutely. Ladies and gentlemen, this now begins the question and answer session for today. The first question comes from the line of Ketan Mamtora with BMO. Please go ahead.

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

Thank you and good afternoon. Maybe to start with, Vin, you talked about and correct me if I'm wrong on this, but what I heard was your lumber prices are down about 9% quarter till date, but you are forecasting kind of flat for the quarter. Can you just walk us through kind of what you're assuming there?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So, Ketan, this is Eric. I'll take that one. Yes. So the duties are just now coming into effect.

[Eric Cremers, President & CEO at PotlatchDeltic]

The antidumping duty just got announced a few days ago and countervailing is going to be announced here in just a few days. And there is a potential for tariffs, which I do believe one will be coming. The exact time when that happens is uncertain. But we think we're in a market environment where even though demand is tepid, as we said in our prepared remarks, we do think that these duties are going to force supply adjustments in the marketplace. And we've already seen it from ARBEC.

[Eric Cremers, President & CEO at PotlatchDeltic]

We've seen it from CAMFOR. Both those companies closed mills. We think more is coming. And so we think prices are going to gradually move their way higher as we move through the quarter. And if I had to pick a number on where we're going to be at the end of the quarter, we think July is the low point for the year.

[Eric Cremers, President & CEO at PotlatchDeltic]

We think we'll be potentially $50 higher in September than where we are today. Things have to happen for us to get there, but that's our outlook as we sit here today. And that's what drives us back to flat lumber prices comparing Q2 to Q3.

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

Got it. No, that's helpful. And then just one more on Wood Products. So the is it fair to say that as we move as we think about Q3, the lumber inventory charge and the one time unfavorable cost that you had that should largely go away in Q3, so call it rough numbers about $6,000,000 reversal?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. I mean, Ketan, it was a perfect storm that hit our Wood Products business in Q2. We talked about the St. Marys project that got accelerated from Q3 into Q2. That cost us some earnings.

[Eric Cremers, President & CEO at PotlatchDeltic]

We had the Waldo utility issue that cost us. Log costs are going be going down in Q3 versus Q2. Freight was a big issue for us in Q2. That's not going to happen in Q3. The LCM hit that we took in Q2, we think that's going away in Q3 as prices rise.

[Eric Cremers, President & CEO at PotlatchDeltic]

And frankly, haven't also we haven't talked about panels, but our plywood business has made a step change for the better in Q2 to Q3. Some of that's driven by potential tariffs on Brazilian plywood coming into U. S. But also some of that imported product our customers are realizing is of low quality. And they've come back to us even though we charge more for our plywood, they're willing to pay it given the low quality material they've seen coming out of Chile and Brazil.

[Eric Cremers, President & CEO at PotlatchDeltic]

So there's a bunch of things that hit us in Q2 that are going to reverse going into Q3 and I've got pretty good expectations for our earnings in Q3.

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

Got it. That's helpful. And then just final one from me. On capital allocation, Eric, you talked about share repurchases kind of really picked up here recently. Given an understanding that this is sort of a point in time reference, but this year has been just generally challenged in lumber.

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

As you think about EBITDA leverage that's ticked up, how do you think about sort of balancing near term uncertainty versus what is clearly a pretty attractive discount to NAV as you think about share repurchases?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. I mean, one of the things we're always going to do is we're going to protect our dividend and we're going to protect our balance sheet. Those are sacrosanct to us. But once we've taken care of those two, we feel like we've got free cash flow that we can use at our discretion to drive shareholder value. And as we think about what's going be the best option, we're going to have to look at the landscape.

[Eric Cremers, President & CEO at PotlatchDeltic]

And the landscape is going to be a review of what are our M and A opportunities at the time. And it's also going to be what is our outlook for the business at that point in time. It feels to me like Timberlands earnings are generally pretty stable kind of all the time. It feels to me like real estate, the demand just continues to go higher almost no matter the environment. So the wildcard really is wood products.

[Eric Cremers, President & CEO at PotlatchDeltic]

And as we sit here today and we look at the outlook and not just for the back half of this year, but also getting into next year and potentially the year after that, at some point in time housing starts are going to get better and this lackluster R and R market, it's going to get better too. We think there are projects that are pent up are going to get done at some point in time in the future, maybe not when mortgage rates are 6.8% or 7%. But as rates come down and I do think rate cuts are coming, we think activity is going to pick up and that's going to drive demand for lumber and that's going to help move pricing higher. So as we looked at it this quarter in particular, the stars really aligned for us to be aggressive on share repurchases, especially with our stock trading at such a deep discount to net asset value. Demand for Timberland, it's never been higher.

[Eric Cremers, President & CEO at PotlatchDeltic]

And as we look at it, our stock is just on massive sale. And with a bright outlook on future earnings, it's hard for us to not be aggressive. But we're always going to protect the balance sheet and we're always going to protect our dividend first.

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

Thank you. Very helpful, Eric. I'll turn it over. Good luck.

[Eric Cremers, President & CEO at PotlatchDeltic]

Thanks.

[Operator]

Your next question comes from the line of Anthony Pettinari with Citi. Please go ahead.

[Anthony Pettinari, Research Analyst at Citigroup]

Good morning.

[Eric Cremers, President & CEO at PotlatchDeltic]

Good morning.

[Anthony Pettinari, Research Analyst at Citigroup]

Hey, just following up on the previous question. Eric, I think you talked about expectation for a tariff maybe in addition to the import duties, if I got that right. And I think lumber has generally been exempted by USMCA, and we didn't have a lumber tariff around Liberation Day. So I was wondering, you talking about like $2.32? Or do you think you could see a tariff on top of the duty? Or what sort of drives that view, if I got that right?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. I guess I just look at Trump's actions to date, his administration. We've now seen tariffs on steel, aluminum, copper. Everything that seems to be under investigation winds up with a tariff on it.

[Eric Cremers, President & CEO at PotlatchDeltic]

I don't have any inside information that a $2.32 tariff is coming on lumber. I just I know the country has got a lot of fiber out there. We don't have the converting, but we do have a lot of fiber. And I think if a tariff was put in place and not a short term one, but a long term one, one that lasted perhaps years, I think it would compel the industry to really step up and build more mills. And we could become self sufficient in lumber.

[Eric Cremers, President & CEO at PotlatchDeltic]

So I guess I'm just kind of reading between the lines here that in judging Trump's prior actions, and it seems to me like that's where he's headed with all this. I could be wrong. It's pure speculation, but that's what my gut tells me, and it would be on top of the duties.

[Anthony Pettinari, Research Analyst at Citigroup]

Got it. Got it. That's very helpful.

[Anthony Pettinari, Research Analyst at Citigroup]

I guess maybe sticking with kind of the policy side and one big beautiful bill. I guess maybe two questions. I think there's a provision in there to increase, the taxable, subsidiary that a REIT can hold to 25%. Is that impactful to you? And then second question, is the view that of the I think you said over 40,000 acres under solar option.

[Anthony Pettinari, Research Analyst at Citigroup]

Is any of that at risk given some of the changes around solar incentives? Or you feel that those are kind of vetted and rock solid? Those are my two kind of follow ups on the one big beautiful bill.

[Eric Cremers, President & CEO at PotlatchDeltic]

Wayne will take the first and I'll take the second.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. So Anthony, on your TRS question, increasing that threshold from 20% to 25%. Yes, certainly the increased threshold provides for us, I would say, modest expansion opportunities for our Wood Products business. Under the previous threshold, had ample cushion under the test, but this new threshold certainly provides us an opportunity to further grow wood products.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Now it's either through discretionary larger scale capital projects on our existing mill footprint that provides an attractive IRR such as what we just recently did with Waldo or we could look at strategic mill acquisitions that are the right fit that would align with our existing wood products and timberland portfolio. But at the end of the day, we certainly view this increase in the threshold as very positive for the company.

[Eric Cremers, President & CEO at PotlatchDeltic]

Anthony, I'll take the second question regarding solar. Yes, I'm not sure the one big beautiful bill had much, if any, impact on the outlook for solar. And let me give you the reason why.

[Eric Cremers, President & CEO at PotlatchDeltic]

At the end of Q2, we announced that we had 38,000 acres under option for solar. And actually, where we sit here today, have 34,000 acres. So we're down 4,000 acres. We did have, in fact, one cancellation here recently that I don't think surprised us. It was a developer that was struggling with its utility for an offtake agreement.

[Eric Cremers, President & CEO at PotlatchDeltic]

And when they canceled their option, we reached out to another larger solar developer and said, hey, this property has now come available. What do you think? Do you have an interest? And they jumped on it. And we think we're going to get a new option in place at more favorable terms than the option that got canceled.

[Eric Cremers, President & CEO at PotlatchDeltic]

The other data point that I would highlight is the fact that we've got another solar farm that we're in negotiations with right now, and it is big. It's 9,000 acres, over $100,000,000 net present value. And we're down to the final short strokes negotiating that option agreement. And we expect to have that in place by the end of Q3. That's going to put our solar acres up to 43,000.

[Eric Cremers, President & CEO at PotlatchDeltic]

And frankly, I got a forecast from the team that does this workforce and they think we could be at 51,000 acres under option by the end of the year and that our potential remains 70,000 to 75,000 acres in total. So I don't think this one big beautiful bill had much of an impact at all on solar. And in fact, it may even accelerate some projects to enter into service quickly to try to capture the tax benefit. So I remain very optimistic on solar.

[Anthony Pettinari, Research Analyst at Citigroup]

Got it. Got it. That's extremely helpful. I'll turn it over.

[Operator]

Your next question comes from the line of George Staphos with Bank of America. Please go ahead.

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

Hi, everyone. Good morning. Thanks for the details. Want to go back to Wood Products. How are you? So same reason, can you give us a little bit more color or detail in terms of what was going on with that project? You said you accelerated the investment there, which seemed like it gave you some negative onetime effect in the quarter. But if you could give us a little bit more detail into what was going on there in the first place. And then relatedly, obviously called out what was going on with Waldo. That's unfortunate, but it's behind you. But in terms of manufacturing costs overall being nearly $1,000,000 headwind sequentially in the quarter, what else was going on there?

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

And what was in that bucket? And I had a quick follow on after that.

[Eric Cremers, President & CEO at PotlatchDeltic]

I'll take the first one and I'll let Wayne have a second one. So yes, the project at St. Marys, so we're replacing the saw box out of the St. Marys sawmill and effectively we're getting rid of band saws and we're going to circular saws. It's just more efficient.

[Eric Cremers, President & CEO at PotlatchDeltic]

We can eliminate a handful of positions. It's a $3,000,000 project in total. It's taken us a couple of years to get it done, 20% IRR. We're very happy with the project. But for us to implement the project, we had to get a piece of machinery, which Canada produces a lot of the machinery that goes into sawmills.

[Eric Cremers, President & CEO at PotlatchDeltic]

We had to get that equipment exported out of Canada down into The United States for installation. That project was scheduled to happen during Q3. Well, go back to the spring of this year when there was all kinds of tariff talk, not just from the Trump administration, but also from Canada. And there was a lot of talk about a tariff going in place on that imported machinery from Canada. And the potential hit was I think $300,000 if I'm remembering correctly, 200 to $300,000 And we said, well, we're going to do the project in Q3, but why don't we go ahead and accelerate it into Q2 so that we can avoid that potential tariff hit.

[Eric Cremers, President & CEO at PotlatchDeltic]

So we accelerated into Q2 and that meant the mill had not as much production and it had excess maintenance costs for the installation of project. So that was a decent hit. It was I don't know a couple of million dollars perhaps net impact to our P and L. That was scheduled Q3 and now it's behind us because we got it done in Q2 and we didn't get stuck with the tariff.

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

Understood. Then the Hey, Wayne, go ahead.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. And then I guess on your second question on manufacturing costs, yes, there's a little bit of additional residual headwind there in manufacturing costs. But that really is mostly kind of carryover from Q1 that an inventory in Q1 that's flowing into Q2. So outside of these onetime items, for the most part, Wood Products manufacturing costs were pretty stable. And we expect that to continue into Q3 and see manufacturing costs on a per unit basis improve, especially as we production and shipment levels will go up in Q3.

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. And George, just to add to that, we expect our cash processing costs per 1,000 in Q3 to be 13% lower than Q2. That gives you a sense of the order of magnitude of these of the project at St. Mary's and the Waldo utility issue what it had on our P and L.

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

So Eric, maybe a little bit of an unfair question and we won't really hold you to it, but let's assume your pricing forecast hold. I mean, would it be fair to say that you might be able to climb all the way back to your 1Q level of EBITDA by the third quarter in the Wood Products segment? If I add back all the one timers, Ketan was chatting about that, plus manufacturing costs, plus some throughput, is that too big of a stretch for you at this juncture?

[Eric Cremers, President & CEO at PotlatchDeltic]

No, not at all.

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

Okay. I appreciate that. Last question oh, go ahead.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And George, yes, I would just highlight, we also took a LCM at the end of the quarter. Quarter over quarter, that was about $3,000,000 So if we anticipate pricing to improve, so we don't we wouldn't expect in that pricing trend that to repeat as well.

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

Yeah. Sure. I was in my thinking, was already reversing that out as well, Wayne. But no, that's great. Where do you I mean, know you're probably going say they're lean, but I'll ask the question anyway.

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

Where do you see inventories right now in the channel on lumber? And then if you could give us just a quick update on where you see your operating rates for this year in lumber? And if you had a view on where the market recognizing the markets are localized or what you see for North American operating rates in lumber that would be great. Thanks and good luck in the quarter.

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. Thanks, George. Yes, I do think inventories are lean. There may be a little bit of inventory building that's been taking place here over the past couple of weeks in anticipation of these duties moving up. I mean, if I look at what's happened to like the Western SPF composite, it bottomed back in late May.

[Eric Cremers, President & CEO at PotlatchDeltic]

It's since moved up 34 If I look at Western SPF 2x4s, it bottomed May 8, I think it was, and it's now up $78 Well, it's not up due to improved demand. I can tell you that because as we've been talking about, demand is tepid. So I do think there might be a little bit of inventory building going on out there, but I just don't think it's a lot. Now back to your second question, operating rates. We continue to run our mills all out.

[Eric Cremers, President & CEO at PotlatchDeltic]

It's how we get per unit cost down and it's how we each incremental stick of lumber has got positive cash flow, positive margin. So the harder we run, the better our results are going to be. If I had to guess how the industry is operating, it's probably in the upper 70s, 78%, 79%, something like that. And if you've got a mill that's in the fourth quartile, each incremental stick won't be incrementally cash flow positive to you like it is to us because we've got mills that in the better quadrants. So they're not going to run when market conditions get tough unlike us, which we can afford to run when market conditions get tough.

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

Okay. Thanks very much, Ark. Have a good quarter. Thanks.

[Eric Cremers, President & CEO at PotlatchDeltic]

Thanks.

[Operator]

Your next question comes from the line of Kurt Kinger with D. A. Davidson. Please go ahead.

[Kurt Yinger, SVP & Research Analyst at D.A. Davidson Companies]

Great. Thanks and good morning. Hey, I to talk kind of two higher level questions. The first is on kind of Timberlands M and A. You touched on kind of the NCS opportunities, the relative stability of the cash flows, the overall demand. We've also seen pretty compelling pricing relative to what's probably embedded in your stock at this stage. So I'm just curious if we were to put maybe the balance sheet aside for a second, would you kind of be inclined to be an incremental buyer or seller at this stage in regards to the Timberland portfolio?

[Eric Cremers, President & CEO at PotlatchDeltic]

Well, it's a great question, Kurt. I mean, I'd love to be an incremental buyer. It's a great asset class. The demand for rural land has never been higher. I'd love to be a buyer, but on the one hand.

[Eric Cremers, President & CEO at PotlatchDeltic]

But on the other hand, we're not going to do something that destroys shareholder value. And the prices people are paying for timberland, we don't know how they get to an acceptable return on investment. So that kind of moves us to the sidelines on buying timberland. Now thankfully, we do have a capital allocation option like share repurchases, which makes all the sense in the world to us right now. And in terms of being a seller, I think we are a seller.

[Eric Cremers, President & CEO at PotlatchDeltic]

We want to bear in mind our need for long term harvest profile. That's our future. So we're not going to sell all of our acreage. But we did enter into if you recall last year, we had a large sale to FIA. I think it was in the second quarter that we generated, I don't know, 50 some million.

[Eric Cremers, President & CEO at PotlatchDeltic]

That was perfectly good timber That was industrial plantation, four year old timberland that we sold at significant premium. So we will, from time to time, put in place a timberland sale. And by and large, we use the proceeds from that sale to repurchase stock. Bought after we executed that FYA sale, we've since bought back about $95,000,000 worth of stock. So I suspect you might continue to see that trend going forward if conditions stay where they are, which is timberland prices staying high and our stock price staying depressed.

[Kurt Yinger, SVP & Research Analyst at D.A. Davidson Companies]

Right. Okay. Perfect. No, I appreciate the directness of the answer there. That's great.

[Kurt Yinger, SVP & Research Analyst at D.A. Davidson Companies]

The second one is just on lumber. Clearly, there's been a lot of capacity that's been taken out over the last few years, but still has not been kind of sufficient to really tension supply and demand. I guess when we think about the duties and the potential of tariffs, is the certainty of that you think enough to result in maybe some more material actions or enough capacity being taken offline? Or is there anything else that you sense people are holding on to on maybe the optimistic side to where we might not see kind of that sort of supply response in the market?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. It's a really, really, really good question, Curt. I tell you, it's hard to speculate what if you're running a Canadian mill, what do you do here? Your duty is going it just went from, what, 14% up to 34%. And my understanding is the average mill up in BC with a 14% duty was running at breakeven, cash flow breakeven.

[Eric Cremers, President & CEO at PotlatchDeltic]

Now they're running at a minus 20% cash flow profile. Do they hang on and wait for a better day? Because I think most people are forecasting the duty to come down to 15% next year. But what if they get stuck with a tariff along the way? That mountain pine beetle, as you know, has decimated the forest in BC.

[Eric Cremers, President & CEO at PotlatchDeltic]

And with all the fires up there, getting low cost logs is just getting harder and harder and harder. So I don't know what a Canadian operator will do, but that's the answer to your question. Do they continue to hang on and try to survive and make it to a better day? Or do they just throw in the towel and all of sudden we see another 2,000,000,000, three four billion board feet of capacity leave the market? I don't know the answer to that question, but I do know that operating conditions are only getting more challenging for them.

[Kurt Yinger, SVP & Research Analyst at D.A. Davidson Companies]

Yes. Okay. That makes sense. Appreciate all the color. Thank you.

[Eric Cremers, President & CEO at PotlatchDeltic]

Thanks.

[Operator]

Your next question comes from the line of Matthew MacKellar with RBC Capital Markets. Please go ahead.

[Matt McKellar, Vice President at RBC Capital Markets]

Good morning. Thanks for all the details so far. Just one for me. Are you seeing many opportunities to invest in your Wood Products business today that would clear your return hurdles based on your expectations of how lumber prices evolve? And I guess maybe just more broadly, how would you have us think about how CapEx trends in that business over the next couple of years? Thanks.

[Eric Cremers, President & CEO at PotlatchDeltic]

Yeah. Great question. We've done an extensive analysis. We do have opportunities to continue to grow and improve our Wood Products business. What we told ourselves for 2025 is that we were going to get Waldo up and running and get it to its potential and kind of settle down and let's see where markets are at and then revisit expansion opportunities as we get towards the end of the year.

[Eric Cremers, President & CEO at PotlatchDeltic]

So that work is underway as we speak. And we'll have more to say as we get to later in the year or early next year.

[Matt McKellar, Vice President at RBC Capital Markets]

Okay. Thanks. That's fair. I'll pass it back.

[Eric Cremers, President & CEO at PotlatchDeltic]

Thanks.

[Operator]

Next question comes from the line of Mark Weintraub with Seaport Research Partners. Please go ahead.

[Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners]

Thank you. I apologize, had some technical difficulties.

[Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners]

So if this was already covered, skip over. But did you talk about Section two thirty two investigations? And if you have a perspective on what's happening or what might happen there?

[Eric Cremers, President & CEO at PotlatchDeltic]

We did talk about earlier, Mark. And I'll just say that we don't have any inside information, but my theory, my view is that one is coming, a tariff given what we've seen in steel, aluminum, copper and other industries. But it's pure speculation.

[Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners]

Got you. And then so I guess if I heard you right, you said you thought that duties next year would be going down to about fifteen percent, which I guess surprised me given that lumber prices hadn't gone up. Did I hear you right? And why do you think that?

[Eric Cremers, President & CEO at PotlatchDeltic]

Well, it's a two year lag as I understand it, Mark. And I didn't do the analysis on that. I just read it somewhere. It was either FDA or REC or one of the other industry pundits that covers the sector that they forecast a 15% duty next year. So I could be wrong. I don't have any detailed analysis on that.

[Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners]

Got you. And then kind of last kind of a bigger picture question. So since the start of 2023 and I recognize that earnings have been depressed in this period. So it was very different in 2021 or 2022. But corporate has been equivalent to almost 25% of EBITDA on average.

[Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners]

Are there things you think you can and should be doing to be scaling up or making other adjustments to make that less of a drag percentage basis, again recognizing that we've been in tough times these last few years?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes, Mark. I mean, think it's not really fair to compare corporate overhead in a period of time when we are at kind of trough earnings. There's a base level of corporate overhead that it takes to run this business, particularly in Wood Products, which is a very people intensive business, lot of IT solutions that sort of thing. So it looks like it's outsized when you get into a period of time like we're in right now. But if lumber margins are where they're supposed to be which over the long term average it's $100 a thousand, We're making a $120,000,000 in wood products, and suddenly our corporate overhead doesn't look all that large in comparison.

[Eric Cremers, President & CEO at PotlatchDeltic]

But we're always analyzing our corporate overhead departments, making sure that the money is well spent and that we're only doing what we have to do.

[Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners]

Well, and maybe coming at kind of from the other way, if you were adding scale either through wood products manufacturing, what have you, I mean, sort of said that given the arbitrage publicprivate maybe buying timberlands doesn't make a lot of sense. Would that be accomplished without corporate really going up? That sort of there's I guess the question of scale that I'm sort of trying to think about.

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. No, for sure. If we added a mill, if we added timberland, we wouldn't be adding corporate

Participants

Executives

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

Analysts

• Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets
• Anthony Pettinari, Research Analyst at Citigroup
• George Staphos, Managing Director at Bank of America Merrill Lynch
• Kurt Yinger, SVP & Research Analyst at D.A. Davidson Companies
• Matt McKellar, Vice President at RBC Capital Markets
• Mark Weintraub, Senior Analyst & Head - Business Development at Seaport Research Partners