PotlatchDeltic Q4 2024 Earnings Report

PotlatchDeltic EPS Results

• Actual EPS: $0.07
• Consensus EPS: -$0.03
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: N/A

PotlatchDeltic Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $240.45 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

PotlatchDeltic Announcement Details

• Quarter: Q4 2024
• Date: 1/27/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, January 28, 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 Q4 2024 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 4th Quarter 2024 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'd 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 4th quarter 2024 earnings conference call. Joining me on the call is Eric Kremers, 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.potlatchceltic.com.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

I'll turn the call over to Eric for some comments, and then I will review our Q4 results and our 2025 outlook.

[Eric Cremers, President & CEO at PotlatchDeltic]

Well, thank you, Wayne, and good morning, everyone. Thanks for joining us. Yesterday, after the market closed, we reported total adjusted EBITDA of $232,000,000 for 2024. These results reflect the strong performance of our real estate business and the stability provided by our timberlands operations. Our Wood Products results for the year were challenged by a relatively weak lumber pricing environment, which only began to improve towards the latter part of the year.

[Eric Cremers, President & CEO at PotlatchDeltic]

Despite market conditions, we remained focused on effectively managing our controllable operational metrics across all business segments. Additionally, we successfully achieved several strategic initiatives for the year highlighted by the modernization and expansion of our Waldo sawmill. Our Timberlands division generated adjusted EBITDA of $139,000,000 for 2024. We harvested a total of 7,600,000 tons across our northern and southern regions, which was in line with our plan at the beginning of the year. Despite overall softness in lumber markets, log markets in both Idaho and the southern regions showed resilience.

[Eric Cremers, President & CEO at PotlatchDeltic]

In Idaho, stronger cedar prices driven by regional demand bolstered our aggregate sawlog prices. As we move into the new year, we are seeing improvements in Idaho sawlog prices due to improved lumber prices, particularly under our index sawlog arrangements. Meanwhile, southern sawlog prices remained relatively stable throughout the year despite challenges stemming from measured mill consumption and a generally abundant log supply. In our Wood Products segment, adjusted EBITDA was a loss of $8,000,000 in 20.24. However, the division's financial performance shifted positively in the 4th quarter with $9,000,000 in adjusted EBITDA on improved lumber prices.

[Eric Cremers, President & CEO at PotlatchDeltic]

Our 2024 financial performance faced several market dynamics including cautious buyer sentiment, ample lumber supply and soft demand in end markets. These factors exerted downward pressure on lumber markets. Later in the year, lumber markets became more balanced due to capacity curtailments, which we believe have contributed to the recent upward trajectory in lumber prices with the Random Lengths lumber composite spot price increasing $37 or 9% per 1,000 board feet in the 4th quarter alone. And in what is generally a seasonally weak period for lumber prices, the composite has held steady since the beginning of the year. With a more balanced supply demand dynamic, our 2025 outlook on lumber markets is cautiously optimistic, especially as we approach the spring building season.

[Eric Cremers, President & CEO at PotlatchDeltic]

We shipped just over 1,100,000,000 board feet of lumber during the year, setting a new record for the company in annual shipment volume. This achievement came even while we incurred a brief period of downtime during the year at our Waldo sawmill to integrate new equipment for a modernization and expansion project. Regarding the Waldo Arkansas sawmill modernization and expansion ramp up, we are making excellent progress and are firmly on track to achieve the mill's targeted production level by mid year. The successful completion of construction and the positive trajectory of the mill's ramp up is a testament to the team's performance. Would like to take this opportunity to thank the Waldo team for their dedication and effective execution of this project.

[Eric Cremers, President & CEO at PotlatchDeltic]

As a reminder, we anticipate that the project will increase the mill's annual capacity by 85,000,000 board feet. Additionally, we expect recovery rates to improve by approximately 6% and cash processing costs to decrease by about 30%. Once we complete the ramp up phase, we project that the mill will generate approximately $25,000,000 in incremental EBITDA annually, assuming a mid cycle sales environment. With the construction phase now behind us and major capital expenditures completed, our focus is on maximizing returns and generating strong cash flow from this strategic investment. Shifting to our Real Estate segment.

[Eric Cremers, President & CEO at PotlatchDeltic]

This business had a very strong year contributing $147,000,000 in adjusted EBITDA. In our Rural Real Estate division, we sold over 57,000 acres at $2,300 an acre. Our real estate team is focused on pursuing opportunities that drive shareholder value beyond our regular recurring sales of real estate. This was exemplified by the sale of 34,000 acres of very young average aged 4 year old timberland for $57,000,000 or $1700 per acre in the Q2 of 2024. While we don't anticipate a similar sale of this nature and magnitude in 2025, demand for our typical rural properties remains strong.

[Eric Cremers, President & CEO at PotlatchDeltic]

We expect to continue capitalizing on opportunities to sell rural land at significant premiums to timberland value. On the development side of our real estate business 2024, we successfully closed on a $6,000,000 sale of commercial land for $500,000 per acre and sold 135 residential lots at an average price of $146,000 per lot in our Chennault Valley master planned community in Little Rock. Despite a challenging interest rate environment, the number of residential lot sales we achieved this year aligns with our historical average. This year's sales volume highlights the desirability of living in the Chenal Valley community along with the premium lot offerings we brought to the market. In 2024, we made meaningful progress on our natural climate solutions initiatives and are excited about the potential value these opportunities will create in the future.

[Eric Cremers, President & CEO at PotlatchDeltic]

Over the course of 2024, we doubled our solar options under contract and the associated net present value of these contracts. By year end, we had solar option contracts covering over 35,000 acres with an estimated net present value exceeding $400,000,000 We continue to see strong demand for solar projects and do not anticipate this opportunity to subside under the new U. S. Administration. Solar energy can play a crucial role in addressing America's growing energy needs and its pursuit of energy independence.

[Eric Cremers, President & CEO at PotlatchDeltic]

On lithium development, we continue to pursue opportunities to lease subsurface rights on our land in Southwestern Arkansas, where the Smackover formation is partially located. We are currently negotiating a brine lease agreement, which we expect to execute in the coming weeks. The ultimate potential of this and other emerging opportunities in the region will depend on several factors, including the determination of royalty rates and future pricing and demand for lithium. Regarding forest carbon offsets, we are engaged with a couple of well respected project developers to pursue high quality carbon projects under either a build distant scenario for an identified buyer or a broader market opportunity. Given the complexity and care necessary in developing a high quality, high transparent carbon project, we don't expect to bring this project to market this year.

[Eric Cremers, President & CEO at PotlatchDeltic]

In addition to these projects, we are actively exploring other long term natural climate solutions opportunities such as carbon capture and storage. We believe these initiatives will ultimately increase demand for our rural land likely driving Timberland values higher. Moving on to our capital allocation strategy. In 2024, we deployed a balanced and disciplined approach while navigating the challenging lumber markets and macroeconomic uncertainty. Our priorities were centered around returning capital to our shareholders through our quarterly cash dividend and value enhancing share repurchases, investing in high return capital projects such as the Waldo Modernization project and making an accretive timberland acquisition.

[Eric Cremers, President & CEO at PotlatchDeltic]

For the year, we paid $142,000,000 in cash dividends. With our stock trading at levels we believe are well below our estimated net asset value, share repurchases were an attractive option for capital allocation. In the Q4, we purchased $8,000,000 of our common stock bringing our full year repurchases to $35,000,000 averaging $41 per share. This leaves us with $90,000,000 remaining under our repurchase program. Our solid financial position coupled with our liquidity profile allows us to continue being opportunistic with capital deployment as we move into 2025.

[Eric Cremers, President & CEO at PotlatchDeltic]

Turning our attention to the U. S. Housing market. Although the Federal Reserve issued 3 interest rate cuts totaling 100 basis points in September, the rate on the 30 year fixed mortgage actually increased over this period. As a result, the home buying market is still somewhat depressed as elevated mortgage rates continue to influence near term demand and hold back construction activity.

[Eric Cremers, President & CEO at PotlatchDeltic]

Regarding supply, although existing home inventory has risen, it is still below historical levels as 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 this market landscape, the single family homebuilding segment has remained relatively resilient as single family starts have held near 1,000,000 units on a seasonally adjusted basis throughout 2024, bolstered by large homebuilders providing incentives such as interest rate buydowns. On the other hand, the multifamily homebuilding segment remains anemic as an oversupply of multifamily units combined with the restrictive construction financing environment continues to limit multifamily starts. While these trends highlight the current state of the housing market, the long term housing fundamentals continue to remain strong. These fundamentals are supported by an undersupply of homes, favorable demographics and growth in household formations.

[Eric Cremers, President & CEO at PotlatchDeltic]

We believe that improved housing affordability once low mortgage rates take hold, coupled with these strong fundamentals will create significant positive momentum for lumber market demand fueling growth. Looking at the repair and remodel segment, which is the largest demand driver for lumber, activity has remained subdued, particularly in the do it yourself sector. Several factors have weighed on this segment, including a cautious buyer sentiment under an uncertain economic backdrop, suppressed housing turnover and higher financing costs for discretionary home improvement projects. Despite these challenges, the leading indicator of remodeling activity published by the Joint Center For Housing Studies at Harvard University predicts modest gains in 2025 for home remodeling as a solid labor market and rising home values are anticipated to support greater activity. Looking at our own business, we are seeing strong takeaway from our big box retail customers such as Home Depot, Lowe's and Menards.

[Eric Cremers, President & CEO at PotlatchDeltic]

Additionally, medium to long term fundamentals for R and R remain favorable as a number of structural drivers are expected to support the sector, including an aging housing stock with a median age over 40 years, home equity levels at historic highs and people continuing to work from home. As we look ahead in 2025, we are optimistic about the prospects of improving lumber markets driven by capacity reductions, supportive consumer sentiment and a solid employment backdrop. Regardless of market fluctuations, we remain committed to executing our strategy and maximizing operational and financial performance across all of our business segments. Additionally, we continue to focus on our core corporate responsibility initiatives around forest, planet, people and performance. With a strong balance sheet, ample liquidity and a disciplined approach to capital allocation, we are well positioned to deliver long term value for our shareholders.

[Eric Cremers, President & CEO at PotlatchDeltic]

I will now turn it over to Wayne to discuss our Q4 results and our 2025 outlook.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thank you, Eric. Beginning on Page 4 of the slides, total adjusted EBITDA for the 4th quarter was $53,000,000 an increase from $46,000,000 in the 3rd quarter. This quarter over quarter increase was driven by higher lumber prices and improved cost recovery in our Wood Products segment. I will now review each of our operating segments and provide more details on our 4th quarter results. Information regarding our Timberland segment can be found on Slide 5 through 7.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

This segment contributed $34,000,000 in EBITDA to our 4th quarter results, which was moderately lower compared to the 3rd quarter. In Idaho, our harvest volume for the 4th quarter was 345,000 tonnes. This volume is seasonally lower than the 427,000 tonnes we harvested in the 3rd quarter. Idaho sawlog prices were 4% higher per tonne in the 4th quarter compared to the 3rd quarter, reflecting increased prices for index sawlogs, which reached their highest price point this year in the 4th quarter. In the South, we harvested 1,500,000 tons in the 4th quarter consistent with our harvest volume in the 3rd quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Our Southern sawlog prices moderated slightly lower in the 4th quarter as compared to the 3rd quarter. This price decline was primarily driven by mix with a higher volume of smaller diameter sawlogs and a lower volume of hardwood sawlogs in the 4th quarter. Moving to Wood Products segment shown on Slides 89. Adjusted EBITDA for the 4th quarter was $9,000,000 an increase of $18,000,000 from the 3rd quarter. The increase was driven by higher average lumber prices and improved cost recovery.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

In the Q3, we incurred the planned downtime and the restart of the Waldo, Arkansas sawmill for the expansion and modernization project. By the Q4, the mill was operational and as we have progressed through the ramp up curve, per unit manufacturing costs and log recoveries significantly improved. We expect to complete the ramp up phase by midyear. Our average lumber price realizations increased $43 or 11 percent from $402 per 1,000 board feet in the 3rd quarter, dollars 4.45 per 1,000 board feet in the 4th quarter. In comparison, random life framing lumber composite average price was approximately 12% higher in the 4th quarter compared to the 3rd quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

It's important to note, our regional mix and product mix differs from the composite and there's also a timing difference between our sales and the composite. Lumber shipments increased by 16,000,000 board feet, rising from 260 7,000,000 board feet in the Q3 to 283,000,000 board feet in the Q4. This increase in shipment volume was due to higher production from the Waldo sawmill following the planned outage in the Q3. Next, let's look at the Real Estate segment on Slides 10 and 11. The segment generated adjusted EBITDA of $19,000,000 in the 4th quarter compared to $32,000,000 in the 3rd quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

In our real estate business in our rural real estate business in the 4th quarter, we sold 5,900 acres at an average of $2,900 per acre. Notably, our 4th quarter results included a conservation land sale in Alabama for nearly $10,000,000 at $2,500 an acre. We continue to capitalize on a healthy demand for rural real estate, particularly for recreational purposes and conservation outcomes. In the development side of our real estate business, we sold 45 residential lots at an average price of $100,000 per lot in the 4th quarter. Demand for lot offerings has remained steady across each of our price points.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

The 4th quarter included a higher mix of smaller lots compared to the 3rd quarter, which featured a significant number of premium lots. Turning to our capital structure summarized on Slide 12. At year end, our total liquidity was $451,000,000 which includes $152,000,000 of cash on our balance sheet, as well as availability on our undrawn revolver. We repurchased 180,000 shares at $42 per share for a total of $8,000,000 in the 4th quarter. We have $90,000,000 remaining on our $200,000,000 repurchase authorization.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Additionally, we refinanced $176,000,000 of debt that matured in the 4th quarter By utilizing $125,000,000 of notional forward starting interest rate swaps within our portfolio, we achieved a weighted average interest cost of 3.2%, which is net of estimated patronage. This strategy enabled us to reduce our annual interest cost by $150,000 and maintain our total weighted average cost of debt at approximately 2.3%. Under the refinance, we also spread the term loan maturities over 3 outer years, smoothing out our debt maturity ladder. We have $75,000,000 of notional forward starting interest rate swaps available for future debt refinancing, which will allow us to maintain a lower cost of borrowing. Capital expenditures were $20,000,000 in the 4th quarter.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

This amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement. I will now provide some high level outlook comments. The details are presented on Slide 13. We plan to harvest approximately 7,400,000 tonnes

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

in our

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Timberland segment in 2025 with about 80% of the volume coming from the South. The modest decline in our planned annual harvest volume compared to the 7,600,000 tons harvested in 2024

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

is

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

attributed to normal variability in our harvest plan and due to our land sales activities. Harvest volumes in the North are expected to be seasonally lower in the Q1 at levels comparable to those in the Q1 of 2024. We anticipate northern sawlog prices to increase by approximately 5% in the Q1 due to higher cedar and index sawlog prices. In the South, we plan to harvest 1,400,000 tonnes in the 1st quarter, and we expect our southern sawlog pricing remain relatively stable. We plan to ship 1,200,000,000 board feet of lumber in 2025.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

This projected shipment volume includes ramping up to the expanded nameplate capacity at our Wallow sawmill by mid year. In the Q1, we expect to ship between $270,000,000 to $280,000,000 board feet of lumber. Our average lumber price thus far in the Q1 is $4.48 per 1,000 board feet, which is roughly 1% higher compared to our average lumber price in the 4th quarter. This is based on approximately 90,000,000 board feet of lumber. Shifting to real estate.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

We expect to sell approximately 26,000 acres of rural land and 130 residential lots in Chennaw Valley during 2025. For the Q1, we plan to sell approximately 7,000 acres at an average price of $3,100 per acre and approximately 10 residential lots at an average price of $100,000 per lot. Additional details regarding real estate can be found on the slide. We estimate that net interest expense will be approximately $2,000,000 in the Q1 and about $10,000,000 per quarter for the remaining quarters in 2025. Interest expense is lower in the Q1 as this is when we receive our annual patronage payments from the Farm Credit Banks.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

These amounts also include non cash interest charges and our net of estimated interest income, which we expect to be lower in 2025. Regarding capital expenditures, we are planning to spend between $60,000,000 excludes a final closeout payment of $6,000,000 for the Waldo Saw Mill project and any potential Timberland acquisitions. With the construction of the Waldo's modernization and expansion project completed, our planned level of capital expenditures for 2025 returns us to a more normalized spending level. Overall, we estimate our Q1 2025 total adjusted EBITDA will be in line with our 4th quarter results. This forecast anticipates slightly higher average lumber and index sawlog prices and an increased level of rural land sales activity, balanced out by seasonal decline in timberland harvest volumes.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

That concludes our prepared remarks. Rob, I'd 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 George Staphos from Bank of America. Your line is open.

[George Staphos, Analyst at Bank of America]

Thanks. Hi, everyone. Good morning. Thanks for all the details, guys.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Good morning.

[George Staphos, Analyst at Bank of America]

And congratulations on the year. I guess the first question I had, I know you attributed it to normal variability in the harvest profile and that is pretty much all encompassing. But if you step back and say where you were 6 months ago, would you been expecting to harvest only about 7,400,000 tonnes for 'twenty five? On the margin, things look like they're getting better. You said you're cautiously optimistic pricing is up in lumber.

[George Staphos, Analyst at Bank of America]

Is there anything else behind normal seasonality excuse me, normal variability in terms of why we aren't seeing a little bit more in terms of timber harvest? A related question just in general on harvesting. We've seen in the cellulose markets a bit more of a premium than normal on softwood versus hardwood, again, in the pulp markets. Are you seeing any of that filter into demand for softwood pulpwood and in turn demand in the next couple of quarters?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. George, this is Wayne. So taking your first question on the harvest volumes for 2025, it really comes down to a couple of things. So as we discussed in our prepared remarks, first, it's normal variability of our harvest volumes. Every year we have fluctuations, it can fluctuate either way a couple of 100,000 tons.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

2nd thing is land sales activities. Now our land management practices always aim to maintain a sustainable harvest profile, but that's impacted by forest growth rates, how we maximize NPV generated by our timber harvest. But now on the land sales activity, we're portfolio managers, we're always looking at options to generate attractive returns. For example, in Q4, we sold a larger track for conservation purposes. This is at a premium that timberland value at almost 3 times TMV.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And we had that initially in our 2025 harvest plan, now which we had to adjust our 2025 outlook because of that land sale. So it really comes into play those two pieces.

[George Staphos, Analyst at Bank of America]

Understood. And just on softwood and in particular pulpwood, if you can talk a little bit about what you're seeing there just with the perspective of what's going on in the pulp markets?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. On the pulp side, certainly that hardwood volume has an impact on our pricing, our average pricing from period to period given the level of how much hardwood is in the mix. Certainly, I think right now what we saw in the Q4 on the pulpwood side, it depends each market is unique. I think some of our markets we saw a little bit elevated mill inventories on the hardwood side, which pricing may have come down maybe 1 or 2 percentage points. On the flip side, we also saw other markets that were more tensioned and pricing was actually up several basis points.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So it really depends on the unique market where we're at overall. So and I think that will hold true as we continue to move forward on the Hardwick side.

[George Staphos, Analyst at Bank of America]

Okay.

[George Staphos, Analyst at Bank of America]

So what you're saying Wayne is you're not really seeing any sort of greater than normal versus recent period demand for softwood pulpwood given what we're seeing in terms of the cellulose markets themselves kind of steady as she goes at this juncture, that would be

[George Staphos, Analyst at Bank of America]

fair?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. That's right.

[George Staphos, Analyst at Bank of America]

All

[George Staphos, Analyst at Bank of America]

right. So based on all that dialogue, I would imagine you're not seeing much in the way of log cost inflation over the next couple of quarters in the Wood Products business, but how would you have us think about that across the geographies? And then kind of my last question, and it's one you get periodically, and we all appreciate how thoughtful you are about capital allocation at Potlatch. But you talk about buying stock back opportunistically. You talk about paying portfolio managers.

[George Staphos, Analyst at Bank of America]

You talk about the fact that the NAV is much higher than the current value. Why do you have to be necessarily opportunistic with your buybacks? Why not just if with things getting better and the NAV being where it is relative to the price as you see it, why not be a little bit more aggressive there? Thanks, guys. I'll turn it over.

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So thanks George. I'll answer those questions. So on the log cost side as it relates to Wood Products, we did have a little bit of a favorable P and L effect here in the Q4. I think our benefit was about $2,000,000 Going out into 2025, we expect log costs to be relatively flat across the whole company.

[Eric Cremers, President & CEO at PotlatchDeltic]

There will be a little bit of benefit in Q1. We're estimating it to be about $1,000,000 But generally across the whole business, we expect things to be relatively flat for the year in terms of log costs for Wood Products. Now regarding capital allocation, I think we've said in the past that we're never going to move fast on any one capital allocation opportunity. We move slow and steady and we do that intentionally. And the reason is as we sit here today, we can look at it and say, yes, wow, with $41, $42 stock price, we're trading well below NAV.

[Eric Cremers, President & CEO at PotlatchDeltic]

And certainly by virtually every analyst, we are trading well below NAV. But that doesn't mean it can't trade even lower. And we're in this period of time where who knows what Trump is going to do with these tariffs and what's going to happen to the world economy and what's going to happen to interest rates and housing. And so we always want to remain open to having options down the road. And if we spend our cash ward now buying back stock, that means we can't take advantage of an even bigger opportunity down the road.

[Eric Cremers, President & CEO at PotlatchDeltic]

So while I find today's prices attractive, they could get even more attractive and they could also get less attractive if markets play out the way we plan. But I think you can look at our $200,000,000 repurchase authorization and see that we put our money where our mouth is and we bought back $110,000,000 of stock now. So slow and steady wins the race in our mind as it relates to capital allocation.

[George Staphos, Analyst at Bank of America]

Okay. We appreciate the thoughts. Thanks, Eric.

[Eric Cremers, President & CEO at PotlatchDeltic]

Thanks.

[Operator]

Your next question comes from the line of Ketan Mamtora from BMO. Your line is open.

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

Thank you very much. Perhaps to start with, pretty good progress on getting those unit costs down with the startup of Waldo, and certainly more than what we were expecting. I'm just curious as we move into Q1 and into the first half of twenty twenty five, how much more do you think you've got coming at you in terms of lower unit costs?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So quarter over quarter, I do think there's more room for us to push unit costs down. And certainly, you'll see that as you move into Q1. We expect cost to come down not as much as we saw Q3 to Q4, but there's probably another couple of $1,000,000 of cost to come down. And then when we get to Q2, we expect to have Waldo fully operational.

[Eric Cremers, President & CEO at PotlatchDeltic]

So we won't see further benefit as we get to Q2. But there's a little bit more room here in Q1.

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

Understood. Okay. That's helpful. And then switching to Timberland deal activity. Eric, I'm curious kind of what you're seeing out there in the market right now.

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

And as you think about your portfolio, curious kind of what is your appetite for larger deals?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. Ketan, that's a good question. The Timberland M and A market, it's pretty quiet right now. Over the past several years, generally $3,000,000,000 to $4,000,000,000 at Timberland changes hands each year. And I think last year only something like $1,000,000,000 traded hands.

[Eric Cremers, President & CEO at PotlatchDeltic]

I continue to think sellers are holding off on marketing their properties, maybe waiting for housing to improve, lumber prices to improve, interest rates to come down or for maybe carbon deals to become more mainstream. And to the to your second question about will we do more large deals, I think we would certainly be open to doing large timberland deals. The one caveat is it has to be at a price that creates shareholder value. And we're not going to chase the Timberland deal if it comes in with the IRR that's less than our cost of capital. Then our cost of capital today at the low end sits at around 6% real.

[Eric Cremers, President & CEO at PotlatchDeltic]

So while our competitors may make timberland acquisitions and do it at prices that drive IRRs below cost of capital, that's not something we're going to do. And I do think there will come a point in time, where things will get back into balance, either prices will come down in the M and A market or returns are going to come up to justify a higher price, 1 of the 2. But we've been on the sidelines for the past couple of years, and I think we'll continue to be on the sidelines until something changes.

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

That's helpful. And then just one final question for me. We've seen a number of sort of pulp and paper mill closures here in the U. S. South over the last few years.

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

Curious from a timberland perspective kind of impact for you guys and also as we think about sawmills and finding a home for those chips, how do you think about that as you think about next 2, 3, 5 years?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. I think we've when we look at it, it's each market, Timberland market is very unique. Each interval 1 is unique. So we look at it market by market. When we look at M and A deals for Timberlands, we're certainly looking at what's the current market look like, how tensioned is it, where do we think it's going to go.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And that certainly plays into how we put together our long term harvest profile, either our current one or when we're doing M and A deals. So I think we certainly factor that in on our viewpoint of what markets look like, but it's definitely market by market and very each one is unique. So but I think overall, we have positive outlook. We think generally the markets will become more pensioned just with all the opportunities out there from biofuels emerging technologies for uses of timberland and timberland byproducts. So I think we're still very optimistic and positive about the outlook.

[Eric Cremers, President & CEO at PotlatchDeltic]

And on the residual side, Ketan, I would just say, we've got a great team that handles the residuals that come out of a sawmill and we've got supply arrangements and consuming pulp mills in the various areas that we operate in. It's challenging. I feel like every year I see lower and lower residual costs as pulp markets continue to dry up. But there are like Wayne said, there are a number of new technologies coming, whether it's bioplastics or sustainable aviation fuel or pellets or Drax has got this carbon capture and storage BEX project they're working on to spend $12,500,000,000 in the South. I do think people see an opportunity to utilize low cost pulpwood in a variety of applications.

[Eric Cremers, President & CEO at PotlatchDeltic]

And it's just going to take time for all those facilities to get built.

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

Thank you. That's very helpful. Good luck in 2025. I'll turn it over.

[Eric Cremers, President & CEO at PotlatchDeltic]

Thanks.

[Operator]

Your next question comes from the line of Michael Ruxland from Truist Securities. Your line is open.

[Niccolo Piccini, Equity Research Associate at Truist Securities]

Thank you, Eric and William for taking my questions. This is Nico Baccini on for Mike Ruxland. I guess starting out, the new U. S. Administration has suspended funding from the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, also suspending offshore and onshore wind power leasings and paused some of their approvals, permits and loans.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Do you have any early read on

[Niccolo Piccini, Equity Research Associate at Truist Securities]

the impact of Natural Climate Solutions, mainly around CCS and wind? Because as I understand, I think solar has been left out from all those pauses and temporary holds.

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So we're following this, needless to say, very, very closely. I do think that some areas of NCS are more vulnerable, than other areas of NCS, from government cutbacks. And my sense, our sense is that solar is going to be unscathed. I think lithium is going to be just fine.

[Eric Cremers, President & CEO at PotlatchDeltic]

I think carbon credits gets a little bit dicier. Now you're at the beck and call of what do companies want to do to pursue their net zero initiatives that they have and there may be less government pressure on them to pursue net zero. So that could change the outlook for carbon offsets. And then I think CCS is the most vulnerable of all the different NCS opportunities. And that one to me is going to be highly dependent on government subsidies.

[Eric Cremers, President & CEO at PotlatchDeltic]

So I do think it does vary from category to category. And thankfully, most of the near term opportunity for us is in solar and lithium, and those 2 are continuing to move on down the track.

[Niccolo Piccini, Equity Research Associate at Truist Securities]

And maybe just, sorry, some further clarification. What for solar specifically gives you confidence that

[Niccolo Piccini, Equity Research Associate at Truist Securities]

that won't be dragged into this future?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes.

[Eric Cremers, President & CEO at PotlatchDeltic]

I think something like I've heard that like 80% of the money is getting spent in red states at the end of the day. And I read that 18 House members sent Speaker Johnson a letter saying don't touch this money. So I haven't heard Trump say anything negative about solar. I'm sure he's not happy about solar panels being manufactured in China by and large. But he's really come out pretty publicly against offshore wind as well as lithium EV mandates.

[Eric Cremers, President & CEO at PotlatchDeltic]

But those two areas are get the most of the attention from him and not the other areas. Nobody really knows what's going to happen in the end, but it's just a it's a bit of a guess right now reading between the lines. But he seems to be after the EV mandate. And so we'll see how that plays out.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. And I would add that on the solar side, even post election, we continue to see strong interest from solar developers. We're continuing to pursue additional option contracts with these developers. And yes, I think we just yes, continued to see that strong activity after the

[Eric Cremers, President & CEO at PotlatchDeltic]

election. Yes. And just to give you a sense of it, I mean, we're at 35,000 acres as we said in our prepared remarks now. Our plan has us by the end of the year to be at something like 45,000, 46,000 acres under solar options. So like Wayne said, we see no slowdown in that part of our business.

[Niccolo Piccini, Equity Research Associate at Truist Securities]

Understood. So it sounds like solar is maybe safer and then forced carbon and CCS on the other end of that spectrum?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Correct. Perfect. I appreciate the color.

[Matt McKellar, Vice President at RBC Capital Markets]

I'll turn it over. Thank you. Thanks.

[Operator]

Your next question comes from the line of Gregory Andriopoulis from Citi. Your line is open.

[Gregory Andreopoulos, Equity Research Associate at Citi]

Hey, good morning, gentlemen.

[Eric Cremers, President & CEO at PotlatchDeltic]

Good morning.

[Gregory Andreopoulos, Equity Research Associate at Citi]

Just a quick one on Southern log prices. Good morning for 2025. We've seen some wood products capacity come out of more coastal Southern markets this year.

[Gregory Andreopoulos, Equity Research Associate at Citi]

Would you say you're more positive on those coastal markets or more of the inland markets in 2025 in terms of year over year log price growth? And then based on your view there, does that inform your decision on 2025 harvest plans for inland legacy PCH lands versus the coastal lands you acquired in the CatchMark deal?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. On the looking at pricing for 25%,

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

we would our view would be that

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

the coastal area timberlands have more of an opportunity to increase in pricing. Those are the more tension markets for us. So when with a little more pricing demand pickup, we would see pricing move there first. On our inland side and Gulf South, we haven't seen prices even with a softer demand dynamic. Those prices have remained a little more stable.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So we wouldn't see those have as much price appreciation as the coastal areas. From a harvesting profile perspective, look, we have solid demand across our portfolio in the South. And yes, that hasn't the pricing or where we see it going has an influence for harvest plan is. We maintain a long term sustainable harvest yield and plan and we're focused on that.

[Gregory Andreopoulos, Equity Research Associate at Citi]

Understood. Thank you. And then just one quick follow-up on solar. So you mentioned doubling your option contracts from $200,000,000 to $400,000,000 NPV or above $400,000,000 NPV. Is there any way to quantify your ambitions for 2025 in terms of options?

[Gregory Andreopoulos, Equity Research Associate at Citi]

And then kind of relatedly, when should we start expecting these option contracts to convert into full lease agreements? Is that 2025, 2026 or further down the line?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So our plan this year anticipates us getting another 10000 to 12000 acres under option for the year, which would have an NPV of approximately $151,000,000 So by year end, we expect to be somewhere 45,000, 47,000 acres or roughly $575,000,000 of net present value. That's not the end of the opportunity for us in solar. There'll be more beyond what we get done this year and we'll talk about that at a later date. But in terms of when we see these options actually get exercised, we don't anticipate 1 getting exercised this year.

[Eric Cremers, President & CEO at PotlatchDeltic]

I do think 2 to 3 could get exercise next year. That's about the earliest we could see one happening. And then in 2026, we might or 2027, we might see quite a few get exercise, but it will really start happening next year, not this year.

[Gregory Andreopoulos, Equity Research Associate at Citi]

Got it. Thank you very much.

[Operator]

Your 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. So a couple of follow ups. One, is there any meaningful contribution you expect in 2025 from any of the natural climate solution profit pools or is that now likely 26, 27?

[Eric Cremers, President & CEO at PotlatchDeltic]

No, Mark, we're getting option payments. As we sit here today, it's probably, I don't know, dollars 4,000,000 more or less, those option payments. So we're getting money today as we sit here for doing absolutely nothing and we manage that timberland at our own free will. So that's where we sit here today. We'll get a little bit more when we get this first lithium brine lease executed.

[Eric Cremers, President & CEO at PotlatchDeltic]

But this is not big money. The big money will come at a later date, but we're getting a little bit as we sit here today.

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

Got you.

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

2nd, in terms of mix, just remind us what was the sawlog mix in the U. S. South in 2024? Is that similar to what were you expecting in 2025? Or is there a change?

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

And if there's a change, why the change?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

No. There's we don't expect the mix. I think in the sawlog volume, we were roughly around 55%. We continue to our outlook is near that 55% level. That's in the U.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

S. South. And our mix our sawlog mix in Idaho is very heavily weighted towards sawlog, and we don't see that changing that drastically.

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

Okay. Good. And Just one point of clarification. So stumpage in the U. S.

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

South, is that considered pulpwood or is that a mix?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

That's a mix. So it's both sawlogs and pulpwood.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

And our outlook,

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

when I give our outlook guidance there where that 55% is sawlog, well, that includes stumpage as well.

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

Okay. Got you. All right. And then lastly, you've kind of raised a little bit about tariffs and obviously we also have the potential for likelihood of higher duties from Canada later this year as well. Can you maybe just provide a little bit more color on your thoughts of potential impacts from those variables recognizing there is uncertainty?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So there's a lot of moving pieces right now as you can imagine, in terms of lumber price outlook, Mark. And a lot of it stems from this possibility of tariffs. What we do know is that duties are going to go up. It was going to be August and I think the government has pushed it back to November, but the lumber duties from Canada to the U.

[Eric Cremers, President & CEO at PotlatchDeltic]

S. Are going to go up from 14% to somewhere between 25% 30%. And I heard one firm estimate it could go as high as 40%. So duties are going to go up no matter what. There is a potential for tariffs to go up any day depending upon what Trump decides to do.

[Eric Cremers, President & CEO at PotlatchDeltic]

And I think what that's going to do is that's going to raise the floor on pricing for the Canadians. And I heard a large Canadian producer a week or 2 ago make a comment that if there's a duty put in place, they plan on raising their prices to their U. S. Customers to capture 100% of that duty. Now will they be able to get all that 100% of whatever the duty is or not?

[Eric Cremers, President & CEO at PotlatchDeltic]

Who knows what will ultimately wind up happening? But their plan is to pass that along to consumers. And I'm frankly a little bit surprised that lumber markets haven't moved on some of this talk, because that we're not very far away from that. I think Trump's talked about a February 1 tariff date. Now he's known to talk a lot and then do other things, but we really haven't seen much lumber price movement as it relates to the potential for tariffs.

[Eric Cremers, President & CEO at PotlatchDeltic]

But I think as we move through the year, the trend is going to be for prices to move higher, even without that tariff, given that the duty is going to be increasing pretty significantly come November. And as you know, BC produces, I don't know, 6,000,000,000 board feet of lumber today, and Canada exports, I don't know, 25% or the U. S. Market needs Canadian lumber, roughly 25% of U. S.

[Eric Cremers, President & CEO at PotlatchDeltic]

Consumption comes from Canada. And I think after these duties get passed along, the B. C. Mill, the medium B. C.

[Eric Cremers, President & CEO at PotlatchDeltic]

Mill is going to need north of $500 lumber just to breakeven. And SPF today, Western is probably, I don't know, dollars 4.50 more or less. So when I think about the lumber price outlook, to me, the risk is clearly to the upside from here, not to the downside. And this Canadian producer that I referenced at the start of my comments, they talked about lumber prices fluctuating between $425 $500 for the year. And that actually feels like a reasonable forecast to me.

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

Certainly interesting times. Thank you very much.

[Operator]

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

[Matt McKellar, Vice President at RBC Capital Markets]

Good morning. Thanks for all the detail and for taking my questions. You touched on it briefly in your prepared remarks. I was wondering if you could just provide a little bit more detail on your forest carbon initiatives, including how project redesign under the core carbon principles have gone? And what you're thinking in terms of time line to achieve the sale of credits, given you're not expecting any sales this year?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. Like we said in the prepared remarks, we're certainly pursuing carbon credit project. We're actively working with carbon credit buyers and top quality developers to design a project. Now this project buyers can be a targeted specific buyer, so a project that is built to suit just for them. So we're exploring that.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

But we're also looking to a project for the broader market. So we'll see where the best opportunity lies. We're still in the due diligence phase of identifying how to take this project. But nonetheless, we'll develop a high quality project and we feel that would command certainly higher pricing. But I guess from a timing perspective, keep in mind these projects, they're very complex.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

They take time to develop anywhere almost probably 18 months to 2 years. And with that time line, that puts us probably closer to the end of 'twenty six to bring a project to market. So really there's much work to do there, but we're actively pursuing it.

[Matt McKellar, Vice President at RBC Capital Markets]

Okay. Thanks very much. And just one last cleanup for me. Can you give us a sense of when you expect better clarity on what the lithium royalty rates in Arkansas will be and what that the size of that opportunity looks for

[Matt McKellar, Vice President at RBC Capital Markets]

you?

[Eric Cremers, President & CEO at PotlatchDeltic]

Yes. So that's a tough one for us given that we're highly dependent upon well, 2 things. 1 is lithium pricing. And if you go look at lithium prices, how volatile they've been, you'll get a sense where it's really hard to forecast where lithium is going.

[Eric Cremers, President & CEO at PotlatchDeltic]

But then the other big unknown is what does the Arkansas Oil and Gas Commission, what royalty rate do they set for mineral rights owners in Arkansas. The range is somewhere between 2% 12%. And so the order of magnitude of profits that we get from our lithium deposit could vary dramatically. So it's just we're at the mercy of the AOGC and we expect they were supposed to resolve this, I believe, in the Q4 of last year and then there was talk of the Q1 and that seems to have slipped. And so who knows, we're at the mercy of the AOGC.

[Eric Cremers, President & CEO at PotlatchDeltic]

But I think it will get resolved by the end of the year.

[Matt McKellar, Vice President at RBC Capital Markets]

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

[Operator]

Your next question comes from the line of Kurt Yinger from D. A. Davidson. Your line is open.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Great. Thank you and good morning everyone.

[George Staphos, Analyst at Bank of America]

Good morning.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

I wanted to start off with the home center business. It sounded like that was a point of strength in the order book.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Are you seeing orders kind of up nicely year over year or just maybe tracking with what you would expect seasonally? And I guess as you talk to those customers, do you get the sense that that's advantageous buying just at what are still kind of relatively depressed prices or actual kind of sell through activity that they're seeing improving as well?

[Eric Cremers, President & CEO at PotlatchDeltic]

No. I think the home center business to us looks like it's starting to turn. It's always been very strong, very steady, very stable for us and they'll take every one of our premium studs that we produce. The thing that gives me the most confidence is saying the home center business is turning. I think in fact the entire R and R market is starting to turn is if you look at the home center comp store sales forecast for 2025, Now this is the analysts that cover Home Depot and Lowe's because they're publicly of course those analysts spend their life studying what happens to Home Depot and Lowe's.

[Eric Cremers, President & CEO at PotlatchDeltic]

The consensus is for both of those two companies to have positive comp store sales in 2025 in the order of 1% to 2%. Now 1% to 2% may not sound like a lot, but over the past 2 years, comp store sales for those two companies have been running negative. And I think that the worst point, they were negative 5% more or less. So for them to be turning positive gives me confidence that 2025 looks to be like a pretty good year. And it's consistent with what they're telling us that they're seeing in their business that they expect to have a strong year.

[Eric Cremers, President & CEO at PotlatchDeltic]

Lots of things can happen. It's early in the year, but we think the outlook looks pretty good for R and R.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Got it. Okay. And then second, I just wanted to follow-up on the Southern harvest expectations for this year. And I appreciate the comments on variability in land sales. I guess as we look at the 5,900,000 tons, how should we think about kind of a level set range kind of sustainably going forward from here?

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

And does that 5,900,000 dollars kind of fall at the low end, the middle? How should we think about that?

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Yes. I won't give specific guidance on future periods or years. But what I would say is we look ahead, we do maintain and analyze long term harvest profile. And we look, say over the next, for example, 25 years of our current land base, some years it's higher, some years it's slightly lower. But over that period of time, our total harvest volume can range, I would say, between 7,100,000 and 8,200,000 tons.

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

So as you can see over time, we'll have some variability.

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

Okay,

[Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies]

perfect. Thank you for the color. Appreciate it.

[Operator]

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

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

Thank you. I appreciate your

[Wayne Wasechek, VP & CFO at PotlatchDeltic]

interest in PotlatchDeltzkin and 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

• George Staphos, Analyst at Bank of America
• Ketan Mamtora, Director - Building Products Equity Research at BMO Capital Markets
• Niccolo Piccini, Equity Research Associate at Truist Securities
• Matt McKellar, Vice President at RBC Capital Markets
• Gregory Andreopoulos, Equity Research Associate at Citi
• Mark Weintraub, Senior Analyst and Head of Business Development at Seaport Research Partners
• Kurt Yinger, Associate Vice President, Research Analyst at D.A. Davidson Companies