Potlatchdeltic Corp (PCH) 2016 Q3 法說會逐字稿

Good morning. My name is Victoria and I will be your conference operator today. At this time I would like to welcome everyone to the Potlatch third-quarter 2016 conference call. (Operator Instructions). Thank you.

I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.

Thank you, Victoria, and good morning. Welcome to Potlatch's investor call and webcast covering our third-quarter 2016 earnings. With me in the room are Mike Covey, Chairman and Chief Executive Officer; and Eric Cremers, President and Chief Operating Officer.

This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides, and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchcorp.com.

I will now turn the call over to Mike for some comments, and then I will cover our third-quarter results and outlook.

Thanks, Jerry. Good morning. All three of our businesses delivered solid third-quarter results. Our earnings leveraged to improved lumber prices was evident in our wood products results and in incrementally higher log prices in Idaho.

Lumber prices improved due to stronger demand amid uncertainty over the future impact of the Softwood Lumber Agreement. The softwood lumber standstill period expired on October 12 without a new agreement. We expect that the US Lumber Coalition will file trade cases soon, taking into account factors that will make the petitions as effective as possible.

Absent a negotiated settlement between the US and Canada, we expect the trade cases to result in countervailing and antidumping duties that will take 5 to 6 months -- and this will take 5 to 6 months after the petitions are filed to become effective.

We believe that field lumber inventories continue to be at relatively low levels and that lumber prices will remain strong in the fourth quarter. This would cap a solid year for our wood products business, with EBITDDA on pace to improve approximately $25 million year-over-year. Despite some operational challenges in our resource business, principally due to unseasonable rain events in the South, we expect to harvest our planned volume of 4.2 million tons this year. Southern pine sawlog prices, which would be a catalyst for earnings growth, remained flat in a largely oversupplied market.

We are encouraged by numerous capacity additions in our market areas, which include a new plywood plant that is operating in Mississippi, and new sawmills announced or under construction in Arkansas, Mississippi, and Alabama. The latest announcement of a new 200 million board foot sawmill in Demopolis, Alabama, occurred just two weeks ago, and the mill is expected to begin production in September of 2017. It will take time for these capacity additions to absorb the oversupply of sawlogs in the market, and we do not expect meaningful changes in log prices for several quarters.

Our balance sheet remains strong, and we have the financial flexibility to execute on a range of capital allocation opportunities. Paying a meaningful dividend and growing it over time remains a top priority. Our Board approved a $60 million share repurchase authorization earlier this year, and we have been very active repaying and refinancing debt. Our stock price is on a nice run, and has increased 30% year to date and approximately 60% since it hit a 52-week low in mid-January. While we still trade at a discount to our net asset value, we opted to keep our powder dry and did not repurchase any shares this quarter. We intend to continue to be opportunistic and execute against our share repurchase authorization when our stock trades at a deep discount to our net asset value.

We reduced leverage $43 million this year, which moves us closer to regaining an investment-grade rating. Our annual interest expense run rate has dropped approximately $5 million as a result of repaying or refinancing debt this year.

Acquisitions represent the one capital allocation lever that we have not pulled this year. As discussed on prior-quarter calls, buying our trees through share repurchases has been more attractive than paying robust prices in the private timberland market. Having said that, we are actively looking for smaller bolt-on transactions near our operating areas that can generate attractive returns.

I'm excited about Potlatch's prospects as we execute against our capital allocation strategy, and the US housing market continues its recovery.

I will now turn it back to Jerry to discuss the quarter, and we'll take questions after that.

Thanks, Mike. So beginning with page 3 of the slides accompanying this call, we reported net income of $27.6 million or $0.68 per diluted share in the third quarter. This compares to a net loss of $31.3 million or $0.77 per diluted share in the second quarter. The second-quarter result included a net loss of $36.7 million on the sale of 172,000 acres of Central Idaho timberland that we announced in April.

EBITDDA for the third quarter was $48.7 million. This was almost double the EBITDDA in the second quarter from recurring operations due primarily to seasonally higher harvest volumes, stronger lumber prices, and increased lumber shipments.

I will now review the results of our operating segments. Information for our resource segment is displayed on slides 4 through 6. Operating income for this segment was $33.3 million in the third quarter compared to $15.7 million last quarter. The increase in earnings is largely due to seasonally higher harvest volumes and higher sawlog prices. We harvested just under 1.3 million tons in the third quarter, which is below the estimated range that we provided on last quarter's call. I will provide more color as I cover each region.

Turning to slide 5, we delivered 580,000 tons of sawlogs in the North in the third quarter, which is about 200,000 tons higher sequentially. As we discussed on the past two earnings calls, it was an unseasonably warm winter in Idaho. And hauling activities resumed earlier than normal in the second quarter, due to favorable weather conditions and logging roads drying out. As a result, our sawlog harvest volume was well ahead of plan in the North in the first half of the year.

We moderated the third-quarter harvests because mill log inventories in the region were relatively full due to strong second-quarter production and salvage wood from timberlands that burned last year. The shift in the plan temporarily affected logging contractor availability, which resulted in our Idaho harvest volume being about 85,000 tons short during the quarter. We expect to make the shortfall up in the fourth quarter and meet our harvest volume plan for the year.

Northern sawlog prices increased 13% on a per-ton basis in the third quarter. About half of this increase was the result of seasonally lighter logs due to lower moisture content. Log prices are set on a dimensional basis in Idaho, not based on weight.

The remainder of the increase was primarily driven by a continued strong demand for cedar sawlogs. Prices for cedar sawlogs increased 13% sequentially to $282 per ton, and constituted 10% of the northern sawlog sales mix in the quarter.

Moving to the South on slide 6, harvest volumes were under plan in the third quarter due to abnormally wet conditions that interrupted operations. Our team did a good job reducing the shortfall when logging conditions improved in September.

Logging conditions remain favorable thus far in the fourth quarter. Sawlog prices in the South increased to 14%, due primarily to a seasonally higher volume of hardwood logs in the sales mix. Pine sawlog prices were flat sequentially. Pulpwood prices were down slightly, as expected, due to excess supply relative to pulp mill demand in the region.

Results for the wood products segment are displayed on slides 7 and 8. Operating income was $10.6 million in the quarter compared to $4.7 million in the second quarter. This is the fourth consecutive quarter that results have improved, and represents the segment's highest quarterly earnings in two years.

Our average lumber prices increased 5%, and lumber shipments were 3% higher in the third quarter. All of the mills are operating well, and the segment set a quarterly lumber production record in the third quarter.

I will now shift to our real estate segment on slides 9 and 10. Real estate's operating income was $5.9 million in the third quarter, up from $5 million burned from continuing operations in the second quarter. The segment sold 14% more acres in the third quarter as compared to the second quarter.

The current quarter's sales mix was much more heavily weighted to rural real estate, which has lower selling prices than the conservation sale that we closed at an attractive price of almost $2,600 per acre in the second quarter. Real estate's margin increased to 70% in the quarter, reflecting lower land basis relative to the second quarter.

Turning to financial highlights on slide 11, we ended the quarter with cash of $72.9 million. We also have $249 million available on our revolver. We refinanced our $65.7 million, 6% Nez Perce County, Idaho tax exempt bonds in August. The new interest rate is 2.75% and the bonds mature in 2024.

This year, we reduced our interest expense run rate by about $5 million per year by repaying debt or refinancing at attractive rates. Capital expenditures, excluding acquisitions, were $5.7 million in the third quarter. We continue to expect that capital expenditures will be $19 million for the year.

Now I'd like to comment on our outlook, which is summarized on slide 12. We plan to harvest between 1 million and 1.1 million tons in the fourth quarter, with roughly half of the volume in the North and the other half in the South. Sawlogs are expected to comprise approximately 90% of the fourth-quarter harvest in the North and approximately 45% of the fourth-quarter harvest in the South, including stumpage sales. We estimate stumpage sales will be approximately 50,000 tons in the South in the fourth quarter.

We continue to expect that we'll harvest 4.2 million tons in total for the full year. Recall that our planned harvest volume was lowered 200,000 tons due to the Central Idaho timberland sale that closed in the second quarter. We expect northern sawlog prices to decrease up to 15% in the fourth quarter due to seasonally heavier logs and a seasonal decline in the percentage of cedar sawlogs in the sales mix to about 5% of northern sawlogs.

In the South, we expect sawlog prices to decline approximately 7% due primarily to a seasonal decrease in the volume of hardwood logs in the sales mix. We expect pulpwood prices to be flat in the fourth quarter relative to the third quarter. At these volumes and prices, we expect resource earnings to be higher than the $16 million that the segment earned in the fourth quarter of 2015.

Turning to wood products, we expect lumber shipments to be approximately 170 million board feet in the fourth quarter. Our forecast assumes that the average lumber price realized will be slightly lower in the fourth quarter. Wood products' earnings would be slightly higher than its earnings in the second quarter of 2016 at these volumes and prices.

We expect real estate to sell about 7,000 acres in the fourth quarter at an average price of $1,300 per acre. Approximately 70% of the acres are expected to be rural real estate in the fourth quarter. We estimate that land basis in the quarter will be 10% to 15% of revenue.

We expect that corporate expenses will be $9.5 million, and that interest expense will be just over $7 million in the fourth quarter. We estimate that the consolidated effective tax rate will be an expense of 15% to 20% of pre-tax earnings in the fourth quarter.

To summarize, we expect earnings to be lower in the fourth quarter compared to the third quarter, primarily due to seasonally lower harvest volumes and seasonally lower lumber prices and volumes.

That concludes our prepared remarks.

So, Victoria, I'd now like to open the call up to Q&A.

(Operator Instructions). George Staphos, Bank of America.

This is actually John Babcock sitting on the line for George here. Just quickly on the lumber side of things, I was wondering if you could talk a little bit more about what you saw around the Softwood Lumber Agreement standstill period expiring, and how that impacted demand.

Morning, John. It's Mike. I don't really think that the expiration of the agreement, the standstill period on October 12, really had any noticeable impact in the market on pricing through the quarter. It's been strong but relatively stable, and not particularly volatile. The futures market has moved up a bit, but the cash market has been pretty consistently stable through the expiration of the agreement.

And we are -- well, I think we expect volatility in lumber prices going forward. Any time we have uncertainty brought around by the negotiation that is ongoing over the softwood lumber agreement, we do not have a forecast on prices yet. We won't provide that entailed we prepare our budgets and go through that on our first-quarter call.

Okay, great. And then you with regards to the timing that you set out, the 5 to 6 months, I assume that's really just getting to the preliminary stage of the trade case.

That's typically what's happened in previous trade cases that have been filed, that it's 4 to 6 months before a preliminary determination is made, published in the federal register, and then duties begin to be collected by the US government. Then there is a final determination following that, and obviously an appeal period after that. But we think it's 4 to 6 months before duties would be assessed and begin to be collected.

Okay. Great. All right, that's all I have for now. Thanks.

Gail Glazerman, Roe Equity Research.

Just sticking with the trade case for a moment, what's your sense of the main, key sticking points after feverish negotiation for the better part of a year? And any sense that there might be a last-ditch effort to try to resolve something before the election?

Well, I don't think negotiations have ceased, Gail, from -- our understanding is that the trade representatives in both countries continue to negotiate under the principle that Canadian exports need to be held at or below an agreed-to market share percentage in the US. That was the framework that Trudeau and Obama outlined. So I think against that construct, there's disagreement about how to get there.

The US, I think, is very focused on a quota mechanism to address that. And I think Canada prefers some variation on the tariff structure that we've had in place for the last roughly 10 years. And somewhere in the middle there is probably a negotiated settlement. And there's nothing to stop either country from reaching a negotiated settlement while the trade case is being reviewed; or, at any time, reaching agreement and suspending the trade case. So, we're hopeful that that can happen, but if it doesn't, we're going to pursue the remedies we have under US trade law.

Fair enough. Last quarter, you talked about customer log decks being fairly full. I was just wondering if you can give an update on that assessment.

Yes, Gail, so this is Eric. Yes, generally speaking in the South, what we're seeing on the softwood side with pine mills, both sawlog mills and pulpwood consuming mills are generally running pretty full right now. And on the hardwood side, it's not quite that way. Mills are generally balanced, but they're not full. So, a little bit difference depending upon the species down there.

Now, in the northern region we're heading into wintertime here, so mills are beginning to build their log decks to get through breakup. And I would say that, generally speaking, things are balanced to full, somewhere in that range. They are not completely full, but they're filling up, which is normal.

Okay. Can you just talk a little bit about what you're seeing in the land markets? I guess some trade publications have talked about maybe seeing a little bit of softening and resistance to values in the South. Are you seeing or hearing that? And can you give any sense of what type of magnitude you think things would have to move for you to be more interested in reviewing and maybe returning to a more acquisitive stance?

Yes, so you're referring to timberland --.

Timberland values, yes.

Yes. We really haven't seen a slowdown in activity, Gail. Pricing remains firm. There's a lot of money on the sidelines looking to invest in the asset class. People have an expectation that prices will move higher over the next several years as we continue with his housing recovery. That generally gets built into the models that are used to value timberland. And in a low interest rate environment, high timberland prices are supported. So we've not seen a rollover in timberland pricing at all.

Okay. Can you talk a little about the cedar market, just what's been going on there? I know I saw a headline a couple weeks ago about a processor in Idaho complaining about lack of availability and high costs, kind of really pushing them, obviously. You've seen pretty healthy pricing and were able to flex a little bit to that. Can you just give a little bit more color there?

Yes, so we do produce cedar, as you know, Gail, and it represents about 10% of our product mix; it has for about the past five, six years. And we have another 10 to 15 years of cedar inventory available.

We have seen some mills go down. Mary's River, over in Oregon, closed down, and the -- claiming due to lack of cedar availability, largely claiming it was due to not being able to access federal forests. And then we saw a real small cedar remanufacturing plant here in Idaho go down, but that was pretty small and was remanufacturing, not a normal mill.

So we have seen some small mill closures. The cedar market remains very, very strong. Cedar is generally used for high-end decking, siding, and paneling, and those markets are showing no signs of going down. So, cedar prices are very firm right now, and we anticipate and expect that they will stay that way.

Okay. One last one. Jerry, were there any costs associated with the refinancing in the quarter that --? I didn't see anything called out. Just wanted to double check that.

So Gail, as you point out, we did refinance the $65.7 million of tax-exempt bonds. And we wrote off about $400,000 of deferred loan costs from the old issue, and that did go through interest expense in the quarter. And then the costs that were associated with the new issue were capitalized, and will be amortized over time.

Okay. Thanks very much.

Ketan Mamtora, BMO. Ketan, your line is open. If you are on mute, please un-mute your line and proceed with your question.

Okay. Can you guys hear me now?

Yes.

Okay. So just wanted to touch upon capital allocation here. Obviously you all didn't repurchase any shares this quarter. Your stock has had a nice run. You talked about some bolt-on opportunities.

Can you just provide some more color around this, in terms of just puts and takes, whether it is US South versus North? You talked about valuations holding up quite well; yet southern log pricing actually continues to go down, at least on a reported basis. So just some color around that would be helpful.

Well, maybe to start with, the acquisition lever, which we haven't pulled this year -- I think we made a large acquisition in the South in 2014, buying 200,000 acres in Alabama and Mississippi for $375 million. And we've certainly been happy with that, and it's up and functioning and running well. Our focus has been to improve our balance sheet a bit rather than lever up anymore and pursue more acquisitions.

So I think that's probably a reflection of our strategy more than anything, is trying to delever a bit in these markets when we've had a little bit of an opportunity to do that and be prepared for another opportunity that may come up, down the road. Markets remain firm. You said pricing continues to go down a bit. I think our characterization would be that southern pine sawlog pricing is very flat. I don't think it has changed a bit in several quarters, and we think it's going to be stable for several more. So, I think that, as Eric said, there is a lot of money on the sideline looking at deals. The deals have been, I think, fully priced that we've seen that have come to market.

So I think in terms of capital allocation priorities, paying down debt, repurchasing shares when the price is attractive, and completing our capital investment plans have been the highest priorities; obviously paying the dividend, and the Board will review the dividend in the fourth quarter of this year as to whether or not we increase it further.

Got it. That's helpful. And any secondary impact from Hurricane Matthew on your Alabama lands, or just from that standpoint, anything that you have seen?

Yes, no, we've not seen any impact from Hurricane Matthew. Now, there was a torrential downpour in Louisiana that you may have seen, and that found its way up into South Arkansas, and that's what caused us to miss our southern production by about 100,000 tons. But, as Jerry said, we'll get that in the fourth quarter. And again to reiterate, no impact from Matthew.

Got it. And then just very briefly, can you just talk about your plywood operations this quarter? In terms of prices and volumes, how did that do?

Well, in terms of volume, we continue to do very well there. The mill operates very, very efficiently and productively, so no impact or change to volume. On the pricing side, we are seeing large numbers of Brazilian imports into the US market, largely competing on the low-end side of things. And our plywood business tends to be more industrial in nature, and, to some extent, immune from those lower-end markets.

Now, that being said, there's always some overlap, some market areas where you could use one versus the other, and we are seeing a price impact in those markets. So, I don't know. I'd say maybe one-third of our product mix is somewhat vulnerable to price competition from these imports, but 60% of it or so is immune.

Got it. That's very helpful. I'll turn it over. Good luck in the back half of the year.

Collin Mings, Raymond James.

Just to start, going back to some of the conversation about the lumber price outlook, maybe just a drill down a little bit more into the fourth quarter. In the prepared remarks. You sounded pretty upbeat about the market overall, and just that you referenced a slight decline in the guidance. So just maybe talk a little bit more about what maybe you expect between now and year-end as far as lumber pricing.

Colin, this is Eric. As I think Jerry mentioned in his opening remarks, we might see a real slight rollover in lumber pricing in Q4. And that's consistent with what the external pundits are forecasting, maybe a 1% or 2% rollover in pricing.

Generally speaking, markets are well-balanced. Our order book is solid. As you know, we sell forward our lumber production, so we're out into the first or second week of November at this stage. And so we feel very good about where lumber markets are at, at this stage of the game.

Just the general backdrop here, if you think about it, we've got demand, which remains strong. Of course, the housing market data -- starts data is volatile from month to month; but, generally, we are seeing starts increase. We are seeing strong R&R, repair and remodel, activity. And we're seeing strong commercial/industrial activity as well. And with industry-wide capacity utilization now moving up from the mid- to the upper- 80s, and supply chain inventories, as Mike had mentioned, remain very low, we think lumber prices are well supported here.

Okay. And then to your comments, and recognizing the timing aspect of everything, are you actually tracking ahead through this part of the fourth quarter, relative to the first few weeks of the third quarter? As far as pricing quarter over quarter, would you be tracking ahead at this point?

No. I'd say we're tracking comparable to our third-quarter results.

Okay. And then switching gears a little bit to just the real estate front, I think -- recognizing it was only, like, 370 acres -- but the HBU development pricing was a little bit stronger this quarter than it had been really over the last year or so. Anything in particular that sold that would be driving that?

We're looking here. Collin, we'll get back to you on that, off-line (multiple speakers). I think, generally speaking, no; we probably have -- I can't recall, but I think we had something that had commercial value, near a highway or interchange, that goosed the number a little bit. But overall the markets for both rural recreational real estate and the kind of HBU that we have are relatively stable.

Okay. As far as -- another topic I wanted to touch on, given the investment in your mills over the last couple of years, you guys have spent a lot of time talking about some of the capital improvement projects. And again this quarter, record shipments. How should we think about, on an annualized basis, what type of shipments or production capacity you guys have going forward, given some of the improvements over the last couple of years?

Collin, this is Eric. If you go back to 2014, we produced about 660 million feet of lumber that year. And this year we're on track to produce about 680 million feet. Now, we did have downtime at our Warren sawmill during the year that cost us about 11 million feet of production. So, theoretically, we could have done another, who knows, 10 million, 12 million feet more. But I got to caution you that, in any given year, we may have some maintenance project or some project install which causes us to throttle back production.

But I think if you look at the 680 million run rate that we had in 2016, that's probably a decent benchmark. Could be a little bit higher, given that we had the Warren downtime be a little bit longer than we would've liked. So, I'd say somewhere between 680 million and 690 million on a go-forward basis.

Okay. Very helpful. And then one last one for me, going back to the last question as far as capital allocation. Just curious, given that there were points during the most recent quarter that the stock price was only maybe about $1 or so above what the average purchase price was during the second quarter. Any other thoughts about price sensitivity as far as capital allocation is really the share repurchases. Is there a particular trigger point you're thinking about? Or was it just the decision to keep the dry powder, given overall during the quarter it wasn't maybe as compelling of an opportunity to buy back stock as it was earlier in the year.

I think it was probably more the latter than the former, Collin. But we purchased $6 million of stock at $35 in Q2. And the open window period -- because we don't have a trading plan in place for the regular purchase of stock -- the open window for us didn't open until about 1 August. The stock was over $38 at that point in time, and it drifted down a little bit towards the start of September when the open window closed again.

So, the trading range was really between $38 and $36 or $37 in that period of time, and I think we felt that -- and the stock has been on an upward trajectory. It had a good run for the year, and we felt it was just prudent to keep a bit of dry powder and wait for a better opportunity.

Okay. I appreciate that, Mike. I'll turn it over.

Chip Dillon, Vertical Research.

First question is on the tax rate in the fourth quarter. Normally, you guys hit close to zero, and maybe that's a function of conservatism, and maybe a little bit because wood -- the non-REIT business is seasonally softer. But I was a little surprised to see it was going to be as high as it is. Is there anything that you can point to that would make this unusually high for the fourth quarter?

Yes, that's a good question, Chip. This is Jerry. In terms of that fourth-quarter tax rate, it's always driven by our taxable REIT subsidiary. So it's wood products manufacturing, and most of our real estate sales. And it's really a statement that wood products is much stronger this fourth quarter than you might have seen, certainly last fourth quarter as a point of comparison. So, I think it's -- for us, it's not necessarily a good thing to pay tax; but it is, in this case, because it means those parts of those businesses are doing much better.

Okay. So that's really the main factor. Okay. And secondly -- by the way, I noticed in the fourth quarter of 2014 you guys made $9 million, but you still had a zero tax rate. But I know typically you don't usually have that strong of a fourth quarter.

The second question is on the corporate expense. I know it's -- it looks like, to me, you are guiding to something around $39-ish million, which would be up $10 million from last year. Is that pretty much all based on the fact that it's a better year, the stock is up, and so compensation is up? Is that the only factor, or are there any other things that we should look at, especially as we try to forecast next year's corporate expense?

No, absolutely. Chip, this is Jerry again, and I think you hit the nail on the head. When you look at year-over-year corporate expense, the two largest factors are the bonus, which we had none paid out last year, and we are back to performing much better in a more normal bonus. And then you also touched on the mark-to-market, given our stock price. So last year, our stock price was going down and that was certainly a benefit in the P&L. And this year, our stock price has been on a nice run, and it's been an expense.

So, those are two big components. And then the last item to point out is pension has certainly gone up, and that's a non-cash expense. But as discount rates go down, that has pushed that pension expense up, as well.

Okay. And if you were to make a guess next year -- because I know rates are one of the -- the packaging companies were saying that they were -- it had been worse, but now it's only about a 50 basis point decline. Are you thinking that maybe next-year pension, if we froze rates where they are, would be maybe a few million higher? Is that a good guess?

Yes, that's one, Chip, I'm not going to guess at this point. We'll go through a year-end valuation as of December 31, and then we'll talk about pension our fourth-quarter call.

Okay, okay. And then the last question I have is -- you mentioned a number of projects, which is really encouraging, in some of your wood baskets. Any update on the big pulp facility that an Asian company is considering in Arkansas, that you've heard that's -- in terms of the timing of that?

Chip, this is Eric. We continue to hear that they're going to break ground sometime in the first half, next year. They are still working on their permits and whatnot. And then they expect to start up in 2019. A lot of uncertainty regarding that timing, obviously. But that's the latest that we've got.

Okay, great. Thank you very much.

Paul Quinn, RBC Capital Markets.

You get a lot of leverage to lumber in general, so I'll ask a couple of softwood lumber questions here. One is just on -- it sounds like you expect a countervail duty and antidumping. What is your assessment of the current negotiations? And given your expectation of duties, you are giving low probability to success in negotiations.

Well, I think it's impossible for us to handicap where we're at. We're probably too far removed, other than to say that the two governments continue to negotiate. I think the uncertainty over the US election -- maybe not the outcome, but at least the process -- has slowed things down. And so, maybe after that process is completed, it will be re-energized a bit. But the US certainly is on course to file, and plans to file a trade case at the appropriate time. And we fully expect there will be both countervailing and antidumping duties assessed as a part of that. And we expect those to hit the market sometime in the second quarter of 2017.

Okay. And then in terms of the timing of that filing, some people -- obviously the US coalition was in a position last week to file. It's been delayed. Is that a function of the progress in the negotiations? Or is that more of a function of nobody wants to work during Thanksgiving week?

Yes, I've heard that about the Thanksgiving week. I find that a little hard to believe. I think it's more a function of the US filing its case at the appropriate time that will put our best foot forward with the Commerce Department. I think that's the bigger function, rather than a holiday period.

Okay. And then you guys referenced that Two Rivers sawmill coming up in Alabama. When I pull up Demopolis on my map -- and not being an expert in the US South, it doesn't seem that close to your timberlands in either Mississippi or Alabama -- what do you expect that to be, incremental gain? Or is that just a sign that you're pointing out that people are increasing lumber capacity in the US South?

No. So, this is Eric, Paul. Yes, no, that mill is going up in Alabama. We expect to deliver some wood to that mill. But any time you have a mill goes up that's remotely close to your wood basket, things change in these micro markets. So we're very optimistic about the activity going in in the South, and in particular in Alabama with that mill.

If you look at where Newton, Mississippi, which is on I-20, and Demopolis, which is a little bit south of I-20 in Alabama, and you put 50-mile working circles around both of those mills that are coming up for the transportation circle for southern pine log, I think a lot of it hits -- if it doesn't hit our timberlands completely, it certainly has a ripple effect to it. So we're excited about both of them.

Fair point. Okay. And lastly just on capital allocation. It sounds like you guys, because of the way you are doing the share buybacks, are really frozen out for most of the quarter. Is there a way to get around that so that you're not -- you've got more opportunity to be able to buy back shares if they dip down below a certain threshold?

Paul, this is Jerry. Certainly we have the opportunity, when we're in an open window and are not in possession of material inside information, to put a trading plan in place. We've not chosen to do that at this point, largely because we want to stay in control of the decision of when we do and don't purchase, and at what price.

All right. That's all I have. Best of luck, guys.

Roger Spitz, Bank of America.

You mention investment grade in your remarks. Can you remind us what you have said about how important it would be to get to high G rating? And given the SLA, how does a resolution work into that?

Roger, this is Jerry Richards, and you're correct. We did mention investment grade, and I would describe it as an aspirational goal. It was something that we were investment grade up until the spring with one of the agencies. And it was the softness in lumber pricing, I think, was the key that drove that rating down a notch. And I think when you ask about softwood lumber agreement, again, you've heard the comments here this morning.

But the broader thing that I think supports us moving back is either one of two things: paying some more debt down, or lumber prices strengthening. And certainly if we were at a midcycle EBITDDA level, which is what the rating agencies focus on, that certainly would improve our metrics dramatically.

I appreciate that. Thank you very much.

Mark Weintraub, Buckingham Research.

First, congrats on the refinancing; very good terms on that. A couple questions, really follow-ons. First, you mentioned the Board is going to be meeting, contemplate the dividend later this year. Historically, I think you've referenced that it's a window on the timber resources business that was most important in the decision-making as to what would potentially happen with the dividend. It's kind of interesting, this conversation. A lot of the upside talk has been focusing on the wood products side, the lumber business.

Even in the answer to that last question, you referenced -- for investment grade, you referenced lumber pricing as being a variable at play. Have you shifted at all in the way you are thinking about the longer-term profitability of the business, and the importance that lumber plays in the thinking for dividends and suchlike?

No. I think lumber pricing drives log pricing, and I think that's what really gets our focus around lumber. And we do have a lot of leverage to it, but we are a timber company. We're not pure play, but we are a timber company.

The majority of our EBITDDA and earnings stream comes from the timber business, both in the North and the South. And the catalyst for an incremental dividend increase from where we're at I think is really going to come from improvement in log prices, southern pine log prices, is really where we're at.

We don't have a lot of levers to pull on the incremental harvest volume. And the volatility of the cash flow stream from our wood products business has been extremely volatile. All you have to do is look at the slides to see that. We've been as high as $60 million in EBITDDA, and I think last year it was $3 million. And the Board is very reluctant to build a dividend commitment around that kind of volatility. So, the focus continues to be on timber.

Okay. And then additionally, there was a reference to the cedar harvest, and I think you had mentioned you had 10 to 15 years of inventory. Just want to make sure I understood what's being said there. So, is the amount of cedar that's being produced -- are you at a sustainable, long-term level? Or is that a business where there is decline that will take place further into the future? I wasn't quite sure how to interpret those comments.

Mark, it's Eric. Yes, cedar is a species that's very, very hard to reestablish in the forest. So when we clear cut, we go in and we replant trees, very rarely will we go in and replant cedar seedlings. They just don't survive. Animals like to eat them, and the success rate doing that is very low. It's never going to go to zero. There's always natural regeneration out in the forest. But we think we have enough cedar to harvest at these levels for the next 10 to 15 years, and then it gradually ramps down to some lower level.

And I don't want to speculate on what that lower level is, but it may be -- I don't know, in the 3% of our volume kind of range. But this is a long-term issue, not anything short-term.

Okay, great. And then lastly, there obviously -- you mentioned a lot of money on the sidelines in the timberland space. There's also been talk that there could be a fair amount of timberlands come onto the market as some of the TIMOs with their funds getting to expiration dates. Are you seeing any evidence of that yet, or are you not really seeing a lot of new properties come onto the market yet?

We've seen some; and there's others that are rumored to be either close to or ready to go to market, and those are coming out of the portfolio that Hancock owns in Louisiana and Texas. Molpus bought the first tranche of that about a year ago, and there's another large package on the market now in that same area.

So, we're starting to see some of the TIMOs recycle the timberland, as their vintage funds reach a 10- or 15-year period and it comes back on the market. From where we sit, I think there's a willing number of buyers and a willing number of sellers, and prices have held pretty constant due to that.

Great. Thanks very much.

(Operator Instructions). Steve Chercover, Davidson.

It's a little bit late in the session, but I wanted to get a sense, as well, on how these sawmills in Arkansas and Mississippi and Alabama impact you. I heard the comment that you don't anticipate any tension in the log markets for several quarters. But do you think when they are all up and running, perhaps 2018, we should start to see that ramp?

Steve, this is Eric. We are seeing a fair bit of activity all across the South, frankly, in terms of incremental capacity going in. And that's true whether it's pulpwood or sawlog type mills. I read a Forest2Market study just a couple days ago. And in our market area, they anticipated prices rising slowly over the next two years, about 10%. With all this activity that we're seeing place that's going to drive incremental demand for sawlogs and pulpwood, a 10% rise in log prices feels about right to us.

And Mike was pretty clear that ultimately it's lumber prices that drive log prices, which -- doing a DCF drives land prices, so that helps to explain why the US wants to limit Canadian imports. But are you concerned that, as log -- sorry, as the lumber capacity comes onstream, it actually limits the appreciation in lumber, and to the detriment of your business?

No. I don't think so, Steve. I think we're in a multi-year run here with housing starts. The economy slowly is grinding higher. If you take a look at it, net-net, across North America, incremental capacity is coming online to the tune of maybe 700 million to 800 million board feet a year. And think about what's happening to demand right now across North America. It's going up -- who knows? -- 3 billion board feet a year. So 700 million feet of incremental capacity is way below the 3 billion of incremental demand. And that's, I think, a three-year outlook that I recently read a report on. So, I don't think -- I don't anticipate it putting downward pressure on lumber prices anytime soon.

That sounds like a pretty good backdrop. And then finally, just to define how big bolt-on acquisitions, would it be safe to say that a bolt-on is below $50 million, and anything above that threshold becomes a major deal? Or where is the threshold?

Yes, I think -- I would characterize it more as $25 million and less I think of as more of a bolt-on, and we just take cash and buy it and move on. And anything above that we'd probably access the credit markets. So I'd say the threshold is $25 million, if you want to pick a point. These guys are nodding their (multiple speakers).

And there are currently no further questions.

I'll turn the call back over to the presenters for any closing remarks.

All right. Thank you, Victoria, and thanks to everybody for your interest in Potlatch and your time this morning. Look forward to chatting with you on the next earnings call.

Again, thank you for your participation. This concludes today's call. Participants, you may now disconnect.