Plum Creek 3Q15 Earnings Call Notes

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Plum Creek Timber (PCL) Rick R. Holley on Q3 2015 Results

Lumber manufacturers have had a challenging year so far

“Lumber manufacturers have had a challenging year so far. North American lumber prices have been under pressure as mill operators contended with uneven demand growth and the impact of shifting exchange rates on supply. ”

Weaker Canadian dollar has improved position of Canadian producers

“The weaker Canadian dollar has improved the cost position of Canadian producers allowing them to produce more lumber. The production increases came principally from the Canadian provinces of east of the Rockies, primarily there in Alberta. ”

Lumber producers have adjusted their supply as prices have come down

“In response to low lumber prices, we have recently seen softwood lumber producers throughout North America adjust their production schedules to more closely match current supply and demand. As a result, inventories have come down and lumber price have improved and are trending up.”

We have reduced harvest below where we initially expected

“We have reduced harvest in areas where we believe we can realize future pricing uplift. As a result, we now expect our 2015 harvest to be approximately 18.5 million tons. That’s less than our initial plans to harvest between and 19 million and 20 million tons this year. As a result, we expect to be on the lower end of our earnings guidance for the year. While this decision, reducing harvest, impacts our fourth quarter earnings, it’s the right thing to do from a shareholder value perspective.”

Recent price trends are encouraging

“We view the recent lumber price trends as encouraging. We see no change in longer term demand trends.”

The Chinese have destocked their lumber inventory

“just as we went through a little bit of an inventory cycle here with lumber, over in China that same thing has occurred. Their log decks now are down 30% from where they were earlier in the year. I think they’re starting to purchase wood. They really had a slow purchase rate in the third quarter as they were trying to rebalance it. So even though their fundamental demand isn’t picking up, I think their log purchase activity will start picking up and will feel a little bit better. We’ve seen prices in the Chinese markets firm in the last month or two and turn upwards’

Homebuilders are dealing with land and labor shortages

“I think the headwind that housing still has is the very thing you mentioned, is labor. In some markets, labor is challenging for a lot of homebuilders. The lack of lots, developed lots that are ready to build on, is a challenge in many of these markets which – Seattle is a perfect case. Put a house in the market in Seattle and it’s sold in a day. There’s just not a lot of land to build additional properties on new homes, so it’s a challenge.”