PotlatchDeltic Corporation (PCH) Q3 2025 Earnings Call Transcript

Lumber production: The Wood Products segment reported an EBITDA loss of $2 million in Q3 due to weak lumber prices. However, operational performance was strong, with 333 million board feet in shipments and the lowest average manufacturing cost per thousand board feet since Q2 2021.

Real estate development: The real estate division delivered strong results, including two large transactions in Georgia totaling $39 million in revenue and a commercial land sale in Chenal Valley. Residential lot sales were also robust.

Natural climate solutions: Progress in solar energy with 34,000 acres under solar option agreements, expected to grow to 40,000-45,000 acres by year-end. Additionally, a new mineral lease agreement with Saltwerx LLC for lithium development was signed, covering 4,200 surface acres.

Merger with Rayonier: A proposed merger with Rayonier will create a combined company owning 4.2 million acres of timberlands across 11 states, with synergies estimated at $40 million. The merger is expected to close in late Q1 or early Q2 2026.

Housing market outlook: The U.S. housing market shows potential improvement with mortgage rates trending lower and long-term fundamentals like housing shortages and millennial household formation remaining intact.

Timberlands harvest: Q3 harvest volume was 1.9 million tons, with Idaho producing its highest quarterly volume of the year. Sawlog prices in Idaho softened, while prices in the South remained stable.

Cost optimization: Operational efficiencies led to the lowest average manufacturing cost per thousand board feet since Q2 2021 in the Wood Products segment.

Sustainability and climate solutions: The company is expanding its portfolio in forest carbon offsets, carbon capture, and storage, alongside solar and lithium development initiatives.

Capital allocation: Repurchased $60 million of common stock in H1 2025. Pending merger limits further repurchases, but the company maintains a strong financial position with $388 million in liquidity.

Market Conditions: Historically weak lumber prices due to muted demand and persistent oversupply, compounded by Canadian mills accelerating shipments into the U.S. ahead of higher duties and financial support from the Canadian government to its lumber industry.

Regulatory Hurdles: Pending merger with Rayonier is subject to regulatory approvals and shareholder approvals, which could delay or complicate the transaction.

Supply Chain Disruptions: Elevated mill log inventories and seasonal increases in log supply in the South, along with longer haul distances and steep terrain logging operations in Idaho, have increased costs.

Economic Uncertainties: Weaker consumer confidence and affordability challenges in the U.S. housing market, with many prospective homebuyers waiting for mortgage rates to move lower.

Strategic Execution Risks: The merger with Rayonier involves significant integration challenges, including achieving $40 million in estimated synergies and operational efficiencies.

Operational Challenges: Wood Products segment reported an EBITDA loss of $2 million in Q3 due to lower lumber prices, despite strong operational execution.

Real Estate Market Risks: Potential headwinds in solar development due to adjustments in green energy incentives and regulatory environment, though interest from developers remains solid.

Merger with Rayonier: The merger is expected to close in late Q1 or early Q2 of 2026, subject to regulatory and shareholder approvals. The combined company will own nearly 4.2 million acres of timberlands across 11 states, operate a wood products manufacturing business with significant capacity, and have a diverse real estate portfolio. Synergies of $40 million are anticipated, primarily from corporate and operational cost optimization.

Lumber Market Outlook: Lumber prices are believed to have stabilized and are expected to improve due to higher Canadian softwood lumber duties, 10% Section 232 tariffs, and supply reductions from mill curtailments. The company is optimistic about improved domestic lumber pricing as the year progresses.

Solar and Lithium Development: The company expects to grow its solar option agreements to 40,000-45,000 acres by year-end. Additionally, it has signed a new mineral lease agreement for lithium development, increasing its total surface acres under mineral leases in the Smackover formation to over 5,000 acres.

U.S. Housing Market: The company anticipates a more favorable housing environment ahead due to declining mortgage rates and easing interest rates by the Fed. Long-term fundamentals, such as a housing shortage and demographic tailwinds, are expected to support future growth in housing activity.

Repair and Remodel Market: Demand for home improvement is expected to remain stable in the near term, with modest growth projected for 2026. Long-term drivers include an aging housing stock, high home equity levels, and the persistence of hybrid and remote work.

Timberlands Segment: The company plans to harvest 1.7-1.8 million tons in Q4, with 80% sourced from the South. Idaho sawlog prices are expected to decline by 13% in Q4 due to lower index prices. Southern sawlog prices are anticipated to decline slightly based on mix and inventory levels.

Real Estate Segment: The company expects to sell approximately 5,000 acres of rural land at an average price of $3,200 per acre in Q4. Additionally, it plans to close on 46 residential lots at an average price of $95,000 per lot.

Share Repurchase: In the first half of the year, we repurchased $60 million of common stock through our 10b5-1 program. Due to our pending merger with Rayonier, our ability to repurchase shares has been and will be limited prior to closing.