Potlatchdeltic Corp (PCH) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 Potlatch earnings conference call. My name is Lauren, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I'd now like to turn the presentation over to your host for today's call, Mr. Michael Covey, Chairman, President, and Chief Executive Officer.

Thank you and good morning. Joining me on the call this morning is Jerry Zuehlke, our current CFO, who will be retiring at the end of this year. I'm also pleased to welcome Eric Cremers, who will assume the title and role of CFO on July 31st, after we file our 10-Q with the SEC.

Eric is new to our industry, joining Potlatch from Albertson's, a leading grocery chain, where he was the head of strategy and business development. This is Eric's second week on the job, and he will now discuss operating results for the second quarter, followed by some additional comments from me on the outlook for the balance of 2007.

Following our prepared remarks, Eric, Jerry, and I will answer questions. Eric?

Thanks, Mike. Before we begin, let me remind you that this call may contain forward-looking statements within the meaning of the U.S. securities laws. These statements include statements about the Company's future business prospects and anticipated performance in upcoming quarters. These statements are not guarantees of future performance, and the Company undertakes no duty to update them.

Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of certain factors that may cause actual results to differ from the results anticipated, please refer to Potlatch's recent filings with the SEC. Also, please note that segment information, as well as a reconcilement of non-GAAP measures can be found on our website as part of the webcast for this call.

I would now like to discuss our second quarter results. We reported second quarter [2000] (sic - see press release) net income of $34 million, or $0.87 per share, as can be seen on page three of the slides accompanying this presentation. In addition, reported GAAP earnings for the second quarter include a one-time, pre-tax charge of $1.4 million associated with the settlement of our union contract for our pulp and paperboard and consumer products operations in Lewiston, Idaho. Therefore, recurring second quarter net income for comparison purposes would have been $34.7 million or $0.89 per share.

In the first quarter, we had a non-recurring after-tax adjustment to earnings of $33.1 million for the loss on the sale of the Boardman Hybrid Poplar Tree Farm operation, and a $2.3 million charge for the resource segment reorganization, resulting in net income for comparison purposes of $5.6 million, or $0.14 per share. Net income for the second quarter of 2006 totaled $2.4 million, which included an after-tax loss of $5.8 million for Boardman operations.

If you will now turn to page four, I would like to discuss second quarter 2007 results from our operations. Our resource segment results for the second quarter were much better than both the first quarter of 2007 and the second quarter of 2006. The first quarter results included the reorganization charge mentioned previously.

Increased volume was a significant contributor to the positive comparison to the first quarter, and to last year's second quarter with lower pricing in Minnesota partially offsetting the comparison to last year's second quarter. Fee harvest in the southern region was up 116% versus the second quarter of 2006, and up 30% sequentially. Pricing has been good in all areas, with the exception of Minnesota and our northern region.

Our real estate segment closed sales totaling $8.6 million during the second quarter, resulting in earnings of $7.4 million. These sales consisted primarily of non-core lands. The level of activity was consistent with the 30% to 40% of total activity previously discussed for 2007. We still anticipate reaching our annual goal with the balance of transactions weighted to the fourth quarter.

Wood products' operating income of $6.4 million for the second quarter was higher than both the first quarter operating income of $2.2 million and operating income of $3.6 million in the second quarter of 2006. The improved sequential performance was due primarily to better lumber pricing and higher shipments of all products.

The improved performance versus a year ago was due to lower wood and conversion costs. The pulp and paperboard segment had operating earnings of $17 million during the second quarter of 2007, versus a loss of $6 million during the first quarter and a loss of $5.4 million during the second quarter of 2006.

The current quarter improvement included a one-time expense of $800,000 in connection with the contract settlement mentioned previously. Both of the comparative quarters included maintenance expense -- $9.2 million last quarter, and $11.9 million in last year's second quarter. The planned future maintenance outage previously announced for the second half of 2007 is scheduled for the fourth quarter and estimated at $5.8 million.

The major drivers to the comparative out-performance for this segment are strong production and shipments together with continued pricing improvement, which is also influenced by our continuing mix improvement.

Consumer products reported second quarter 2007 operating income of $4.1 million versus $4.8 million last quarter and $7 million in last year's second quarter. In the most recent quarter, the division incurred $600,000 of the union settlement costs discussed previously. The sequential comparison reflects the slight increase in shipments and an improvement in costs, other than pulp, which is more than offset by lower pricing due primarily to mix. The year-over-year comparison is driven by lower volume, which is partially offset by higher pricing and lower costs other than pulp.

Eliminations added $4 million to operating income during the second quarter compared to $4.9 million last quarter, and $1 million in last year's second quarter. The main driver for both the first and second quarter this year has been the significant volume of high margin cedar logs moving from inventory through the Idaho sawmills and sold externally this year versus last year's second quarter.

Corporate administration, including interest expense, totaled $17.2 million for the quarter. Interest expense totaled $7.3 million, which will decline by $200,000 per quarter, now that the revolver is totally undrawn-upon.

EBITDA totaled $68.3 million in the second quarter, versus $27.1 million in the first quarter and $33.1 million in last year's second quarter. Funds from continuing operations, or FFO for the quarter totaled $54.7 million versus $24.8 million sequentially, and $27.6 million a year ago.

The Company paid a normal distribution of $19.1 million during the quarter. The next page, page five, provides additional details by segment for the variances I have described.

I would now like to turn the discussion over to Mike to provide some additional comments about our operations, including an overview of our markets.

Thank you, Eric. We're very pleased with our operating results for the second quarter. We made significant progress in our business plan in real estate, we shifted harvest levels across regions to capture value spikes in log pricing, we had strong operating results in our paperboard business, and we expanded our FSC sales focus into paperboard.

During the first half of 2007 we significantly increased harvest levels in the southern region to capture a rebound in pricing that began early this year. Drought conditions throughout Arkansas in 2006 caused widespread retraction in saw log prices, and to a lesser extent a decline in plywood log prices. With wet weather returning to the central U.S. south this winter, coupled with strong lumber prices -- stronger lumber prices than late 2006, saw log prices have increased by approximately 5%.

Our willingness to defer harvests in 2006 resulted in an increased harvest opportunity this year, allowing us to capture additional value from both pricing and volume growth.

Northern region log markets have not been as volatile as the south. Log prices remained firm with strong demand and stable pricing. Cedar log prices continue to rise in the region due to record pricing levels for cedar lumber. Despite persistent weakness in U.S. housing starts, lumber pricing has improved since last fall, due in part to the weakness of the U.S. dollar.

Our outlook for the balance of this year is for stable log pricing with possible seasonal spikes due to weather events, particularly as it relates to concerns about wildfires in the west over the next two months.

During the first half of this year we made significant progress selling land that is not part of our core, long-term timber holdings. Our first half sales of nearly 7,500 acres represented about 40% of our annual plan, right in line with our expectations for the first half of this year.

It's also consistent with what we discussed in December of 2006 when we identified approximately 250,000 acres of non-core land and land with high recreational value that we plan to sell over the next decade.

To the degree possible, we also plan to manage our real estate business to avoid triggering built-in gains tax, which will be a factor for about another 8.5 years, or 10 years from the date of our REIT conversion. To date we've been able to complete most of our land transactions through 1031 like-kind exchanges, which allows us to defer the built-in gains tax.

We are affirming our plan to sell approximately 20,000 acres this year, mostly non-core property that will be priced at values similar to what sold in the first half.

Switching gears to our manufacturing businesses, we are encouraged by some strengthening in wood products prices during the second quarter, and the continued profitability of our cedar business in Idaho. However, we do not expect fundamental improvement in lumber prices for the balance of 2007.

Depending on the duration of a potential labor dispute in Canada and an active western forest fire season, we may experience some upward momentum in lumber prices in the short term.

Our pulp and paperboard outlook is for continued improvement in the performance of our mills and continued strengthening in paperboard prices for folding cartons, liquid packaging, and cut stock. Our paperboard production was 14% higher in the second quarter than it was in the first quarter of this year, and by a similar amount compared to a year ago.

Demand for our coated two-sided sheet, or C2S in the commercial print market continues to grow, including interest from customers who demand products certified by the Forest Stewardship Council or FSC. FSC sales in this end-use market segment are now 8,000 tons year-to-date.

Much of the improvement in paperboard results is due to increased pulp production and sales from our Idaho mill. Pulp sales contributed an incremental $6.4 million in revenue compared to the second quarter of '06, primarily due to an 85% increase in volume from our pulp driers, or an incremental 8,467 tons, and a 24% increase in selling price, or $120 per ton. We expect continued increases in pulp output in the second half of '07.

For the balance of '07, we have also hedged a bit more than half of our natural gas usage at prices between $6 and $7 per unit. We feel this is prudent insurance in the event we have an active hurricane season in 2007, which can cause a spike in gas prices.

As we mentioned last quarter, we expect a decline in wood chip prices in the west. Residual wood chip costs dropped $12 per ton during the last quarter, or about 10%. We expect them to drop another $10 a ton from current levels during the third quarter and remain flat for the balance of '07.

Profitability in our consumer products segment continues to be under pressure from rising pulp costs. After slower-than-expected sales during the early part of the second quarter, activity is increasing and July sales will be stronger than any of the previous three months. Pricing remains flat despite the added costs of pulp sequentially and year-over-year.

Absent price increases, we expect our second half performance in this business to be slightly weaker than our results year to date, due to pulp pricing. We continue to strip costs out of this business with increased converting capacity in the Midwest. Our strategy to add converting capacity in the Chicago area continues to reduce our freight expense because we can ship parent rolls manufactured in the west, rather than case goods, which are bulky and expensive to ship.

Last week, our board of directors reaffirmed our $0.49 per share quarterly dividend -- our seventh regular dividend since becoming a REIT. Including this dividend and the cash dividend paid upon the REIT conversion, we have now returned $222 million in cash to shareholders over the past 18 months. Cash flows from our timber and land business remain strong. We are gaining confidence and experience in our ability to generate consistent cash flows and premium values from our real estate program.

We have also been successful in identifying and selling non-productive assets as well as growing the land base with the addition of 76,000 acres in Wisconsin earlier this year.

The overall timberland market remains competitive. However, we believe there are opportunities to complete acquisitions that are both cash flow accretive and adjacent to or within the range of our current land ownership footprint. Acquisitions also serve an important tactical purpose for Potlatch as we manage our built-in gains tax from our land sales program.

We're very pleased with our progress since the REIT conversion 18 months ago, and I believe Potlatch is well positioned for future growth and value creation for our shareholders.

Lauren, we will now take questions from all call participants.

(OPERATOR INSTRUCTIONS) Rich Schneider with UBS.

Hi, Mike, good quarter -- excellent quarter. Could you discuss the increase in fee harvest in the south? Particularly you were up by, I know, 116% year-over-year, but more in line with the big increase versus the first quarter of 30%. And are those kinds of levels sort of sustainable?

Good morning, Rich. Well, I'll repeat again -- the reason for the big variance in harvests sequentially and year-over-year has to do with the fact that last fall, we deferred over 200,000 tons of saw log harvests alone. We just felt the markets were weak and we could gain more value by letting the trees grow and saving the harvest for another day.

This year, when we saw markets begin to rebound -- primarily due to weather conditions, not because of a robust lumber market -- we decided to step in and increase harvest levels. We had the contractor base to do that. So the increase that you saw is related to really the drop that we had last year.

That kind of an increase will not be sustainable. We'll tend to level back out again, although long term we still think there's an upside harvest case in the south, but we haven't quantified that yet.

So looking to 2008, that could come back down by how much?

Well, we increased it about 200,000 tons this year to capture what we didn't cut last year. So absent any changes in our long-term plans, and we haven't really focused on 2008 harvest levels yet, but just roughly speaking it would come down by a couple hundred thousand tons.

One question on your harvest stats that you've been posting. The quarterly data seems to be changed. What's gone on? Are you going to give us the -- you know, I'm just curious. The initial numbers you gave us on harvest levels by quarter in the north and the south are now a little different than they were originally given back in the fourth quarter. But what has gone on with the change in the stats that have been published?

Well, I'm not sure that I totally understand your question, Rich. I guess if it is are we harvesting more than maybe we had indicated last fall or at the start of the year, I think that's probably true. We've had some good markets to take advantage of, and we're perhaps a little bit ahead of schedule. But I'm not sure that was your question.

Well, no. You published a number of 2,566,000 tons for '06, and the numbers that so far have been published, you know, as you go year over year and you look at them are coming up with a number below that for '06, for example, the northern region. But I can go offline on this. The numbers are a little different than were quarterly published when you came out with these numbers in the fourth quarter of last year.

If you follow up with Doug, we'll try to clear up the confusion.

Okay. Also, looking at the saw log/pulp wood mix, could you give us an idea of what you're at right now, maybe by region?

I don't have those numbers right in front of me. We'd be happy to get those to you.

Okay.

The pulp wood mix in Idaho is fairly insignificant in the big picture of things. It's really an issue in the southern region.

Okay.

And pulp wood pricing in the southern region has been strong. It's also been strong in the west, so that's an area that we're focused on a bit more strongly than we normally would be.

Okay, great. And could you give us some idea on trends in cedar pricing, and how much of your lumber mix is now coming from cedar?

The trends in cedar lumber pricing is at record levels. It's gone up by approximately 50% over the last couple of years -- I don't have the numbers exactly in front of me. Log pricing has lagged that trend, and hence we've had really attractive margins in our cedar lumber business.

We only manufacture cedar lumber at two mills in Idaho, one in Lewiston and one in St. Mary's. And as a total of our percentage, cedar output as a percentage of our total mix of our lumber business. We'll have to give you an exact number, but it's maybe 10% or something like that. It's a small number in total, but it's a big piece of the Idaho business.

Log prices are now catching up with a really robust cedar lumber market, so the margins are becoming smaller, although they're still very, very attractive in the cedar business.

(Inaudible.)

Cedar only makes up about a little bit less than 20% of the forest land -- of the species mix in our Idaho forest. Cedar's a little bit less than 20%.

Okay. And then switching gears and looking at pulp, what would you -- with the increase in drying capacity that you're pushing through on pulp, where would you put your pulp capacity for outside sales? I mean, obviously it's a moving number right now.

Well, it is a moving number. We only sell pulp on the outside from our Lewiston, Idaho mill. We don't sell any from our Cypress Bend mill. The external pulp sales in --

I mean, last quarter it was 18,500 tons, and is that number moving up from there?

Last quarter's number is probably absent any outages or downtime that we have to take in paper mills for maintenance. Last quarter's number is probably a run rate that we'll be able to hit here for the next couple of quarters.

Okay. And just last question, could you go back -- I was a little unclear on it -- to the maintenance schedule and the expenses related to it? When the schedule was originally given out, second quarter was supposed to have and probably did have maintenance expenses of $1.4 million. And then the third quarter was $7.5 million and the fourth quarter $1.1 million. Are those numbers still good?

This is Jerry. When we originally put it out, we had anticipated -- I'll answer the second half question first -- we anticipated about $7.4 million in the second half and we thought it might fall in the third quarter. Turns out it's going to be in the fourth quarter, and it's going to be $5.8 million now. And that's all at Idaho Pulp and Paperboard.

The first quarter costs, as Eric mentioned, were about $9.2 million, and the second quarter didn't have any.

Okay. And so when you originally indicated it was going to be $19.1 million for the year, we're now looking at more like $15 million for the year for --

Yes, it's a couple million less.

That's correct.

Okay. Okay, terrific. Thank you.

Thank you.

The next question comes from the line of Mark Weintraub with Buckingham Research.

Thank you. Just if you could tell us why are you expecting it now to be less than the $19 million?

Well, the major thing is there was one piece of environmental-type maintenance equipment that we were thinking we would install that we're now not going to. It's not a requirement, and that's about a couple million dollars. That's the main driver to it.

Okay.

It was another -- Mark, there was another small kind of couple million dollars -- a little bit less than that -- related to some repairs on our boiler, which we feel we can defer into next year.

Okay, and so just to make sure I understand that right, so it's basically zero in the third quarter and $5.8 million in the fourth quarter now?

As planned, that is correct.

That's correct, yes.

Okay. Even with that $9 million swing on maintenance, you still had phenomenal improvement in the pulp and paperboard business -- about $14 million. And I know you were talking about better volumes, etc. Your revenue in total for the business was up, oh, what, $18 million, and your overall margins in that business are 10%.

So maybe just talk through a little bit more of how you saw as strong an improvement and how sustainable is this, and what type of seasonal issues should we be thinking about for this business into the second half of the year, because obviously the run rate here seems to have just changed dramatically.

Well, there's several components to it. We saw a little bit of relief in wood costs in the quarter, which we talked about. The incremental output from our pulp business -- external pulp sales in Lewiston, Idaho, has very high margins to it -- more than the typical margin that you'd see from the statement. We were able to increase that capacity significantly.

We had record operating results at both of our Arkansas and Idaho mills on several months during the quarter independently at each of the mills. We feel that the level of production that we're at, absent outages for maintenance, are sustainable for the rest of the year. We continue to see paperboard price increases in the marketplace, and we'll continue to feel the benefit of those as we go throughout the year.

So as we look at the second half versus the first half, again adjusting for maintenance expenses and outages, I think the second half's going to be stronger than the first half. It should be. Pricing's stronger, pulp pricing's stronger, and if we continue to operate the mills at the levels that we have, there's no question that the fourth question will be better than the first question.

Right, well --

Second and third ought to be pretty similar.

Right. And why would the fourth quarter, other than the $6 million on maintenance, what would make the fourth quarter necessarily that different from the third quarter?

It's a shorter quarter in terms of number of operating days, and whenever we get into the winter months, we typically don't have quite as strong an output as we would in the third question.

Okay, great. How much in the way of cedar logs do you still have in inventory? It sounded like you were going through some of your inventory, helping you out there. What's the situation? How long is this elevated level of profitability going to be sustainable?

Well, maybe there's two parts to your question. In terms of cedar logs in inventory, we have very little. This is the time of the year in the summertime when we don't carry much inventory in our Idaho mills. So that cedar log inventory will build as we approach the winter months. So we don't have much inventory, but in terms of the production levels that we produce cedar at, we expect the second half cedar production to be very, very similar to the first half.

We are able to run our Idaho sawmills about 25% of the time on cedar, and we expect that to continue.

Okay, great. And then lastly, how do you think about share repurchase and the value of your stock relative to going out there and making timberland acquisitions? Conceptually, at least.

Well, I think we should think about capital allocation. You always have to consider whether the best timberland buy is to buy your own trees back. And certainly that's something that we look at and share with our board, in terms of what we think the net asset value of the Company is, and where our stock trades and whether or not that makes the most sense.

I mentioned in the call and we also think about -- at least on a smaller or tactical basis -- the importance of timberland purchases that we can use to match off built-in gains taxes on our real estate program. We view that that tax strategy is a very important tactical move, not necessarily a large, strategic move.

Thank you.

Welcome.

Your next question comes from the line of Steve Chercover with D.A. Davidson.

Thanks and good morning. Switching gears a little, on tissue, clearly you're a price taker since you're private label and pulp is a headwind. Do you have any indication from the big players that they are going to try and support their own margins and raise prices in the marketplace?

Steve, that's an area that we just don't comment on. Obviously, we follow the trends of Kimberly-Clark, Georgia-Pacific, and Proctor & Gamble, who produce the large, branded tissue products, and we follow them closely in the market. And that's really about as much as we can say about that.

Okay, thanks. And on the paperboard, which is just doing very well, does the success there make you reassess whether you ought to try and grow the business, or conversely does it open a window in which you might monetize it? It was always my impression that Potlatch would be as pure as possible on the timber side, and I'm just wondering if these cash flows are addictive.

Well, the outsized performance on paperboard is certainly very welcome, but it hasn't changed our focus and strategy, and that is to grow our timber and land business. When we converted to a REIT, that was our focus and it remains our focus today.

That said, is there any ability to continue to grow this? I mean, do you think that this level of performance -- we understand that with the new accounting, it'll be a bit lumpy because of the nature of expensing during the quarter. But the run rate, does that look good through '08?

Well, you know, we've made -- we have two paper mills, two paperboard mills -- one in Arkansas and one in Idaho, as you know. The Arkansas mill is a newer mill, a single-line mill. It's had very consistent financial performance for a long period of time, kind of through market cycles.

The Idaho mill performance has been much lumpier, but the group in Idaho under the leadership of Harry Seamans has just done a terrific job, improving quality, productivity, and safety along with the people in that mill. And I think we have turned a corner there in terms of product quality, consistency in output, and performance. And the price has certainly helped. But I think that the future for that mill is much brighter than it used to be. There's no question about that.

That said, we tend to invest around $10 million in this paperboard business a year. That's mostly in maintenance capital -- small amounts of very high payback discretionary capital to improve quality or operating results. But we do not expect incremental levels of capital investment just because we have a strong market.

Great, thanks. And final question, you certainly made it clear that the priority would be to add timberlands that are if not adjacent, certainly close to where you're already operating. Would you consider looking at other areas, whether it's kind of the Georgia-Florida area, or New England?

No, and for a reason that I think that as competitive as the timberland market is, if you don't have a presence in the market or an understanding of the real estate segments that support timberland purchases, I just think that there's too many other experienced players and you probably can't' be competitive. And if you are competitive, you should maybe ask yourself why. So we are very focused on the central south, the lake states, and the west, where we think we understand the business and have a presence.

Okay, thanks. And thought I would just shout out to Jerry, thanks for all your help over the years.

You bet, Steve. Thank you.

Your next question comes from the line of George Staphos with Banc of America.

Hi, everyone, good morning. This is Mike [Roxland] in for George Staphos. Congratulations on a great quarter.

Thank you.

Just got a couple of quick questions. I know you mentioned that your remaining land sales, you're expecting to hit the upper end of the range you gave us -- 15,000 to 20,000. Could that potentially be higher this year?

In all likelihood, no. And the reason for that is we think the markets are still attractive, we've had good, strong demand in what we feel is very acceptable pricing for the kind of product that we're selling. But we're just six months into this execution strategy, and I think really in all material respects if we're going to hit the 20,000 acre number we have to have most of that business kind of booked and under contract by the end of the third quarter.

And I think to go above that at this point would be a stretch for us. But I do think we talked about the fact we'd start at this level, and it would ramp up as we move into next year and beyond.

Yes, you said most of the remaining stuff, you're going to hit the upper end, you've sold about 7,500 acres, so the remaining, let's say, 12,500 acres are going to occur in 4Q, is that correct?

Well, the closing of that -- most of that will be weighted to the fourth quarter. There will be some in the third, but it's heavily weighted to the fourth quarter closings.

Got you. Can you provide some guidance on basis in the land?

As you probably know, this is -- the legacy ownership of Potlatch, the land ownership in some cases goes back over 100 years. And the basis in our real estate sales in the first half of the year was about 4%.

Got you, okay.

Of sales price.

Okay. Is that something that's expected to remain relatively constant, given that the timberlands are -- that you've owned them for a while? Given the legacy ownership?

Yes, that'll remain constant with the exception that as we execute a small land sales program associated with our Wisconsin acquisition, which we bought this year, the basis there would be much, much higher.

Moving on to pulp and paperboard, obviously Lewiston is running much better. Do you really feel at this point that there's any room for additional operational improvements, or will a lot of the gains from now on come from more mix in prices?

No, there's absolutely room for more improvement in virtually I think every area that we've got, and that's not to say that we haven't made a lot of progress, but I think the paperboard leadership team and the crews in Lewiston would say that, you know, we're not all the way there on quality, we're not all the way there on wringing out productivity or costs out of the business. So I expect it to continue to improve.

Got you. Just lastly is with tissue. I know you don't want to comment on whether any of the majors have announced price increases or any price initiatives, but are there any other steps that you can take, aside from price, whether it's sheet count or something else, to improve margins in that business?

Well, there's a number of things, both on the -- I'll call it the revenue initiative side, as well as on the cost side. We continue to implement both sheet size reductions and sheet count reductions to match and mimic what the brand leadership companies are doing. And we're not all the way there on that; there are small, incremental improvements left there. Changing sheet size on our thousand-count rolls of bath tissue, for example. We're not quite finished with that. There are some initiatives in towels that are very similar.

And then most importantly for us, there's really cost reductions in the business and that largely comes in the area of freight and optimizing where we convert parent rolls into finished goods. We've added capacity in our Chicago plant, and that's had a significant impact on our ability to ship parent rolls from either Lewiston, Idaho, or Las Vegas to convert them in Chicago, rather than to make the case goods in either of those other two locations and ship them across the country. So that's an area.

Natural gas initiatives to reduce the use of gas and to hedge our pricing help our margins in this business, as well. Those are just two examples.

Got you. And just real quick, any -- one of the questions that I asked Doug a while ago is whether you guys intend to provide any color during the quarter on land sales. Is that something that you intend to do going forward? Actually during the quarter rather than waiting to quarter end?

Likely not. I don't think that -- the nature of our land sales business is just very lumpy, and not only by the timing of closings, and it's very hard to predict what those are going to be, but the values of the land vary by its type, whether it's higher and better use land that's got a high recreational potential and higher values, or it's non-core land, it's more plain vanilla.

As well as kind of adding to a third level of variability there is the prices in Arkansas versus Minnesota versus Idaho can be very different. So I think we'd be having to provide weekly information to keep you current on our activity, and we just don't plan to do that.

Got you. Thank you very much, good luck in the quarter.

Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Arun Viswanathan with J. Goldman.

Hey, guys, thanks for taking my question. First off, I guess with the land sales for the remainder of the year, I guess I assume they'll be all non-core, rural type of properties? Are any HBU or anything in the development portfolio that's ready to go?

No, there may be a very small piece or two of higher-valued recreation land, but primarily the non-core piece was what we had ready to go, and our guidance, if you will, is that the price range that you should expect out of our land sales for the remaining acreage to be sold this year is very similar to what we have booked in the first half.

Okay. And then as far as -- you mentioned acquisitions briefly. Have you noticed any deterioration in timberland values with end markets such as wood products and housing, or are those holding up pretty well?

Well, I'm not aware of any real current transactions in the last quarter or so. There was some activity earlier in the year. But by all appearances, it looks to us like the timberland markets still remain very strong. There certainly is not any evidence of a fall-off in price.

And is it very competitive out there for properties, or? I mean, how does your pipeline -- are you looking at anything that's attractive, or?

Well, the market remains very competitive. There still is a lot of institutional and private capital that's targeted at this asset class, and the fallout in the financial markets that's begun to happen maybe will change that trend a little bit. But there's still a lot of -- this is a very attractive asset class for long-term investors, and it's been very competitive.

Would you consider some of the larger properties that are potentially coming to market as well from some of the pulp and paper companies?

Depending on where their location is. As I mentioned before, if they're approximate to our geographic footprint in the central south, the lake states, or the west, absolutely.

Okay. And then along those lines, you talked about bleached board and wood products. In the past you've talked about growing timber. What's kind of the strategy for those non-timber-related businesses? They're operating very well now, and you have some pricing in bleached board coming. How do you look at that longer-term?

Well, I think we've been clear about that, that we do not intend to grow the businesses. We are not going to add capacity. We'll maintain them, and certainly the cash flow from those businesses is attractive in markets like this. But it is not a strategic growth vehicle for us.

Right, but would you become more aggressive on exploring strategic alternatives to those businesses, and why not, if no?

Well, I guess to kind of reaffirm what we've said in the past, if somebody thinks that they're more valuable to them than they are to us, we'll certainly talk to them. But we do not have a plan to market these businesses.

Okay. Great, thanks a lot.

Thank you.

And there are no further questions in the queue. I'd now like to turn the call back over to management for closing remarks.

We don't have any remarks, and we'll talk to you next quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.