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Plum (PCL) Tones it Down-- CEO R. Holley says housing market still "anemic."

Plum (PCL) Tones it Down-- CEO R. Holley says housing market still "anemic." | Timberland Investment | Scoop.it

Via Jack D Bridges
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Jack D Bridges's curator insight, July 29, 2014 12:58 AM

What follows is a quick look at Plum Creek's (PCL) Q2 Conference Call. 

 

On the housing market, Mr. Holley strikes quite a different tone than he did in early 2014. To wit, we'll call this section humble pie.

 

Mr. Holley begins, "The economists have moderated their growth expectations for residential construction this year, in part due to the lackluster activity during the first six months of the year."

 

Holley continues, "As housing demand improves, we expect to see increased lumber demand and increased lumber production and log prices in the U.S. South. However, the overall pace of demand growth in 2014 is not as robust as originally expected and we have moderated our price growth expectations to Southern sawlogs in the second half of 2014.

 

This reduced view of demand / pricing in the US South is why PCL is deferring so much previously planned harvest (500K--1M tons deferred, in fact).


In Holley's own words, "With this in mind, we have chosen to defer a portion of our sawlog harvest to certain other southern micro-markets and as a result we now expect our harvest to be at the low end of our 20 million to 21 million tons harvest range we gave you at the beginning of the year. The great thing about timber is that we are not foregoing this income or cash flow; we are simply delaying its delivery."

 

And, while my thoughts on the SE cabal of optimists are well known, this isn't a bad move for Plum, given their views of the future. I just think we'll see more unscheduled deferrals when the Southern Sawlog revival keeps getting pushed out another year at a time.

 

So, what does Mr. Holley feel is ailing the housing market?

 

Steven Chercover- DA Davidson

Go it. And then finally, would be willing to hazard a guess as why the housing recovery in so anemic; is it lack of lots of labor jobs or policy?

 

Rick Holley - Chief Executive Officer

All the above. We want to learn that from your guys, but no, I think it’s all the above. I just think it’s a jobs thing, it’s a housing formations thing, it’s still tough for young couples to get a mortgage and then they are trying to improve some of that. The outlook for most people and job out don’t feel good to people, so I think it’s why I can come up with a better word; it’s anemic. It’s just kind of, it’s not there yet. So it’s a combination of all the above.

 

And, then Mr. Holley addresses the broader timberland marketplace in the US: 

 

Rick Holley - Chief Executive Officer

There is still at any point in time, two or three or four five transactions in the market place, generally kind of 40,000 to 60,000 acres. A lot of the TMOs are bringing some lands outs of the funds that they’ve had over time and bringing them back to market. So a lot these are in the U.S South and we look at all of them and as the question was asked earlier and the ones that have transacted generally been north of $2,000 an acre and I think it’s justifiable given the productivity, a lot of those properties that they have come to market.

 

I think one of the things that a lot of investors probably, or just even Plum Creek for a long time maybe we are behind on is how productive these lands are with some of the silvicultural treatments that we’ve all put in place over the last couple of decades, and how much cash flow they are going to generate off that productive and then you start to see a better pricing  environment. You can clearly justify our per acre number with a two in front of it.

 

But there’s always a few things in the market place and I think they seemed to get snapped up pretty quickly, so there’s still lot of capital looking at those.

 

Moving onto Rick Holley's thoughts on rural / raw land markets:

 

Rick Holley - Chief Executive Officer

Well, one of the comments that I made in my prepared remarks today was that some of the markets that have been pretty dormant the last several years like Montana have kind of lit up again, so we see a lot more interest in lands in some of those areas. A lot of the buyers are places from like Texas. Some of those market places are looking at Montana now.

 

Clearly we see a lot more recreational interest in the south. Values still aren’t where we expect them to be longer terms, so we’ll be pretty stingy about selling a lot of these higher various properties in the south, but we are starting to see some movement in the market place and prices are starting to recover a bit.

 

But we’re very pleased to see Montana, because it was a great market a number of years ago as you know and it just went to sleep for the last years. It’s awake now, so that’s a positive trend.

 

Wrapping it up:

 

Me again. In keeping with my recent post about the Rodney Dangerfield-like treatment of the Lake States region, the Plum conference call barely even mentioned the northern resources segment at all--excluding the planned Wisconsin divestiture which closed this summer. 

 

Looking at the equity market reaction to Plum's reduced harvest forecast (and lowered profit / revenue for the remainder of 2014), the stock was off about 3% after-hours. The damage should be mitigated by the accretive value of the 500K MWV acreage Plum diluted shareholders to buy.

 

But, it also bears mentioning how many shares of PCL are shorted--some Wall St. types think betting against Plum is a good way to short the housing market. There are better ways to execute this view--and whatever I think about management's housing forecast, I wouldn't want to bet against Plum Creek. Maybe if the equity market ever corrects, it does drop below $40 for a little while. We also know that's the magic number where Mr. Holley starts talking about buying back stock. 

 

Here is the full Plum CC transcript link:

 

http://seekingalpha.com/article/2350265-plum-creek-timber-company-pcl-ceo-rick-holley-discusses-q2-2014-results-earnings-call-transcript?part=single

 

And, what a 10-year chart of Plum Creek equity looks like--

 

http://screencast.com/t/7u9qwBibAbu

 

JDB

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Timberland Preemption [opinion]

Timberland Preemption [opinion] | Timberland Investment | Scoop.it

Maybe it's me, but this paragraph from a cover letter to Wells Timberland's annual investor update reads like it's preparing investors for some unpleasant valuation news...

...

Timberland's valuation will be subject to a variety of factors, many of which will be company-specific, and not directly related to the timber markets. To me, it looks as if the macro economic outlook for timber, via a housing recovery, is the best it's been in a long time.

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Major timberland sales top $200 million at year-end

Major timberland sales top $200 million at year-end | Timberland Investment | Scoop.it

[Editor: nice summary and commentary from RISI]

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Timber ETFs To Benefit From Housing Recovery

Timber ETFs To Benefit From Housing Recovery | Timberland Investment | Scoop.it
Timber ETFs To Benefit From Housing Recovery-Any pickup in the housing construction and remodeling activities will result in increased demand for wood.
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Buy a 2-by-4, help the economy

Buy a 2-by-4, help the economy | Timberland Investment | Scoop.it

"It has taken only six years to lose 294,000 jobs in the timber industry. From Portland, Maine, to Portland, Ore., more than 1,000 sawmills have closed permanently with a loss of $7 billion in wages."

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Maine must decide future of interior forest: highway, park, or something else?

Maine must decide future of interior forest: highway, park, or something else? | Timberland Investment | Scoop.it

The woodlands of central Maine, long dominated by logging and papermaking, are in the midst of a painful shift. Timber firms are abandoning the state, selling off vast tracts of pine and spruce. The disruption raises the question of what should come next: a transition to a tourism-based economy, or an all-out effort to bring in new industries.

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'Sustainable' is difficult to accomplish and hard to define

'Sustainable' is difficult to accomplish and hard to define | Timberland Investment | Scoop.it
Sustainable is the environmental buzz word of the decade. The word is typically coupled with environmental resources regarding their maintenance, stewardship and long-term use. But what does it really mean?
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The St. Joe Company (JOE) Shares Downgraded by Zacks Investment Research to “Neutral”

The St. Joe Company (St. Joe) is a real estate development company. The Company owns approximately 577,000 acres of land concentrated primarily in Northwest Florida. St. Joe is engaged in town and resort development, commercial and industrial development and rural land sales. It also has interests in timber.

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