Potlatchdeltic Corp (PCH) 2020 Q2 法說會逐字稿

Good morning. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Second Quarter 2020 Conference Call. (Operator Instructions)

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, Megan. Good morning, everyone, and welcome to PotlatchDeltic's Second Quarter 2020 Earnings Conference Call. 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.potlatchdeltic.com.

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

Thanks, Jerry, and good morning. What a difference a few months makes. In a very short period, the lumber market shifted from illiquidity to a historic run. It was not possible to accurately forecast the severity and duration of the effect of the COVID pandemic on our end markets earlier this spring. A massive destocking of lumber in the supply chain sent a signal that led to significant curtailment of North American lumber manufacturing capacity to balance production with existing visible demand. As spring developed, it became clear that industry fundamentals not only remained strong but had strengthened.

Historically low mortgage rates, the millennial demographic cohort entering prime home-buying years and the old age of U.S. housing stock all bode well for housing and repair and remodel demand, both of which lead to higher lumber sales. Additionally, a potential shift from urban to suburban living and continuation of working remotely maybe 2 ways that the COVID endemic positively impacts housing demand.

The atypical early spring pullback in lumber production led to an acute shortage, which underpins the current historic run in lumber prices. It will likely take several months for lumber supply to catch up with demand, particularly given increasing housing unit construction, reports of transportation constraints, traditional holiday downtime and the potential effect of the late summer fire season, which is now upon us.

Turning to the quarter. We generated adjusted EBITDDA of $35 million. Our employees did an excellent job managing through the constraints and challenges imposed by the COVID pandemic. Our 3 business segments performed well during what is typically our seasonally lightest quarter.

As we continue to face this pandemic, operating safely is our top priority and is a core value. As discussed on last quarter call, we have increased the frequency of cleaning, added physical distancing where it's practical and are screening visitors and vendors. We also banned most travel and all group meetings, and most employees that can work from home continue to do so.

While our positive COVID cases have been limited thus far, our mill managers have had to actively and creatively manage work schedules due to absenteeism caused by contact tracing, requirements to self-quarantine or lack of childcare for families. The COVID pandemic presents a risk that could cause our operations to be disrupted and requires continued diligence. I want to thank our employees, especially those in our mills, for their continued efforts and safety precautions during this challenging time.

We are running as much overtime as we can in our sawmills to meet strong customer demand. The home center business remains particularly robust, which benefits our Lake States' stud businesses as well as Southern yellow pine sold to treaters. Our lumber order files currently extend into late August at continued high prices. As a result, we currently expect wood products' adjusted EBITDDA to be over $50 million in the third quarter.

Our industrial-grade plywood facility resumed operations in May after taking 3 weeks of market downtime during the quarter. As a reminder, the specialty and industrial-grade plywood product we manufacture used in the boat, RV and furniture industries in the stay-at-home orders forced many of our customers to shut down in April. Plywood mill rendered a reduced operating posture for the remainder of the quarter to balance production with customer orders and returned to a normal operating posture in July.

In Idaho, our timberlands business was in spring breakup mode before resuming log deliveries in early May. Sawlog demand remains strong in the region, and the third quarter is our seasonally highest harvest quarter. As you know, about 70% of our Idaho sawlog deliveries are pegged to lumber prices through an indexing formula on a lag basis. Therefore, we expect our Idaho timberlands' adjusted EBITDDA to increase materially compared to the second quarter due to higher prices and harvest volumes.

In the South, third-party mill customers restarted operations they had curtailed as a result of the COVID pandemic and our sawlog demand improved as the quarter progressed. While we still do not anticipate making up the volume in the back half of the year, there is a possibility that the harvest shortfall will be less than we originally expected. Sawlog pricing remains relatively flat quarter-over-quarter across all of our Southern markets with little change expected in the second half of the year.

In our real estate business, we remain cautiously optimistic about our Chenal Valley real estate development business near Little Rock. We still expect to sell over 100 residential lots this year. In June, we announced an agreement to sell approximately 72,000 acres in Minnesota to the conservation fund for approximately $48 million. This is a significant milestone on our long-term strategy to maximize shareholder value through the sale of rural real estate. Our partnership with the conservation fund has also been a catalyst to conserve more than 200,000 acres in Minnesota for various conservation purposes once this transaction and others underway are completed. We expect this sale to close in the fourth quarter, and the proceeds will further enhance our already strong liquidity position and flexibility.

During the second quarter, we returned $30 million to shareholders in the form of dividends and share repurchases, including the purchase of $3 million of company stock. In aggregate, over the last 2 years, we've spent $41 million to purchase 1.2 million shares of PotlatchDeltic stock at an average price of $34 per share.

To wrap up my comments, business conditions are extremely good, and we expect to report extraordinarily strong results in the third quarter. PotlatchDeltic is well positioned to take advantage of favorable industry fundamentals, and our strong liquidity provides a high degree of flexibility as we seek to maximize shareholder value.

I'll now turn it back to Jerry to discuss second quarter and our outlook.

Thank you, Mike. Starting with Page 4 of the slides. Adjusted EBITDDA was $35.3 million in the second quarter compared to $47.6 million in the first quarter. A sequential decline in the second quarter is normal due to seasonally lower harvest volumes during spring breakup in Idaho. Having said that, lumber prices and shipments both exceeded our expectations for the quarter.

I'll now review each of our operating segments and provide more color on the second quarter results. Information for our Timberlands segment is displayed on Slides 5 through 7. The segment's adjusted EBITDDA was $25.6 million in the second quarter compared to $35 million in the first quarter. We harvested 303,000 tons of sawlogs in the North in the second quarter. This is down seasonally from the 434,000 tons that we harvested in the first quarter. Northern sawlog prices were 6% higher on a per ton basis in the second quarter compared to the first quarter. The higher sawlog prices were the result of the positive effect of a normal seasonal decrease in the density of logs and slightly higher index prices.

In the South, our harvest volume was lower quarter-over-quarter as expected, due to market curtailments taken by third-party mill customers. Sawlog deliveries increased each month during the quarter as mill customers restarted their operations. Our Southern sawlog prices were 1% lower in the second quarter compared to the first quarter.

Turning to Wood Products on Slides 8 and 9. Adjusted EBITDDA was $10.9 million in the second quarter compared to $13.2 million in the first quarter. Lumber shipments declined from 283 million board feet in the first quarter to 249 million board feet in the second quarter. Our sawmill production hours were constrained in the quarter for multiple reasons, particularly in April when we lost a week of production at our Warren, Arkansas mill due to a tornado-caused power outage. We resumed production overtime hours near the end of April when the pace of lumber orders increased.

Our average lumber price realization increased 4% from $396 per thousand board feet in the first quarter to $412 per thousand board feet in the second quarter. To provide context, it is helpful to look at our lumber prices by month. Our average lumber price realizations were below our first quarter average in April, increased modestly in May, and accelerated to $452 per thousand board feet in June or $40 higher than the quarterly average.

Moving to real estate on Slides 10 and 11. The segment's adjusted EBITDDA was $9.3 million in the second quarter compared to $7.3 million in the first quarter. An increase in rural acres sold more than offset slightly lower Chenal Valley lot sales.

Shifting to financial items, which are summarized on Slide 12, our total liquidity remains strong at $460 million. This amount includes cash of $81 million and availability on our revolver, which remains undrawn.

As Mike mentioned, we spent $3 million to purchase 89,000 shares in the second quarter for an average of $33.81 per share. We plan to refinance $46 million of debt scheduled to mature in December 2020 and have locked the interest rate. Annual interest expense will decline approximately $900,000 on this debt beginning in December.

Capital expenditures were $10.8 million in the second quarter. While we currently expect that our capital expenditures will be $40 million to $44 million in 2020, we are reviewing options to pull some 2021 high-return mill projects forward to this year. Note that the amounts I just mentioned include real estate development expenditures, which are included in cash from operations in our cash flow statement and exclude timberland acquisitions.

I will now provide some high-level outlook comments. The details are presented on Slide 13. Harvest volumes in the North are planned to be seasonally higher in the third quarter compared to the second quarter. We expect Northern sawlog prices to increase significantly in the third quarter due primarily to higher indexed prices. Higher volumes in the South in the third quarter are expected to increase seasonally. We expect Southern sawlog prices to be comparable to the second quarter.

Lumber prices continue to increase in the third quarter at an accelerated pace. Our average lumber price thus far, including orders that extend into late August, is approximately 30% higher than our second quarter average lumber price. As a reminder, a $10 per thousand board foot change in lumber price equals approximately $12 million of consolidated EBITDDA for us on an annual basis. We plan to ship 270 million to 280 million board feet of lumber in the third quarter.

Shifting to real estate. We expect to sell 11,000 to 12,000 acres of rural land and approximately 20 Chenal Valley lots in the third quarter. For the year, we now expect to sell 93,000 to 97,000 acres of rural land, including the 72,000 acre Minnesota transaction that we announced in June and expect to close in the fourth quarter. Virtually all of our remaining 102,000 acres in Minnesota are now under contract in transactions expected to close through 2022. Given that the bulk of the rural acres that we sold historically were in Minnesota, the focus of the rural land sales program will shift to Arkansas in the future. As a reminder, the 2018 Deltic merger included approximately 57,000 acres that we identified as having value higher than timberlands, including a portion proximate to Little Rock as well as the Chenal Valley master plan community.

Overall, we estimate that third quarter total adjusted EBITDDA will be at least 3x higher than second quarter due to significantly higher lumber prices, including indexed Idaho sawlog prices, a seasonal increase in harvest volumes and higher lumber shipments. We believe that the primary risk to achieving our third quarter outlook remains the COVID pandemic's potential to disrupt our operations or to cause further damage to the economy. We're very well positioned to take advantage of favorable industry fund.

That concludes our prepared remarks. Megan, I'd now like to open the call to Q&A.

Our first question comes from John Babcock with Bank of America.

Starting out, I want to obviously talk about lumber prices. We've clearly seen a sharp rise over the last couple of weeks, which you indicated. And so I was wondering if you could share how you're thinking about pricing levels from here? And what factors you see is likely to drive reverse on these trends at some point, whether it's demand or supply driven? And ultimately, how that might work?

Yes, John, so this is Eric. Well, we began 2020 on very solid footing with our Q1 prices about 8% higher than our Q4 2019 prices, largely driven by better-than-expected housing starts. Forecast for housing starts for 2020, we're moving into the $1.4 million, or even $1.5 million range, the highest since the Great Recession. And then the pandemic hit late in Q1, customers stopped buying lumber and liquidated inventories, and our prices in April dropped about 8% from where they were in March. And then you saw, as Mike mentioned, a massive curtailment by the industry. And some people are reporting that, that curtailment represented as much as 40% of industry capacity. Roughly 20 billion to 25 million board feet of capacity came off the market.

So the pandemic then resulted in millions of people staying at home basically with nothing to do. What do they do with their time? Well, they've turned to repair and remodel projects. Furthermore, weather across the U.S. has been very favorable for outdoor R&R projects, so demand really didn't collapse nearly as much as expected and prices firmed up. Our May lumber prices were up 3% over April, and then June was up 13% over May. In total, Q2 was up 4% over Q1, but that was heavily impacted by a relatively low April. Just to give you a sense of it, 3 months ago, we expected North American demand to be down about 6 board billion feet for the year, and now they expect it to be down just 2 billion board feet. And so while they thought R&R expenditures were going to be down roughly 5% year-over-year before, they now expect them to be up 2% year-over-year. So you've had a huge, huge change.

So as you know, lumber prices are -- they're very hard to predict, but we have very good visibility here into Q3 as we're roughly 2/3 through the quarter at this point in time with our selling. We know that inventories are very lean through distribution channels. Our order files are very long, and demand remains very firm. So as Mike and Jerry mentioned in the call script, prices are roughly up 30% Q3 over Q2. So the real question is what happens as we get into Q4. You are likely to see a typical seasonal slowdown that wouldn't be unusual. And you probably will see some pricing pressure in the fourth quarter. What's probably going to happen is R&R work is going to start to slow, but you're probably going to see that offset by new home construction. If you've been following the past couple of days, the builders have been releasing their results, and their June orders are very, very strong, 50% up year-over-year, for example.

So roughly, R&R is going to come down, but new home starts are going to continue to increase. And hopefully, the starts offset the R&R decline. Does that help answer your question?

Yes, partly. I mean I guess I was kind of -- because obviously, like typically, when we see in-prices spike like this and maybe it continues higher, there's typically some sort of bounce back on the other side of it. And so I guess I'm trying to get a sense for what might cause that. And I guess maybe the next part of -- the next question I had, which is just generally what's kind of keeping the lumber supply from entering the market might help answer that. But any -- if you could just kind of comment on that supply and whether you're seeing any new supply enter the market at this point, obviously, being kind of the supply that was taken out, that might be helpful.

Yes. I think any of that, that 40% of curtailment that I mentioned previously, all that has come back on. Everybody, I would guess, is running as hard as they possibly can, given these prices. But I had a conversation with the sales department yesterday and said, "Hey, are you seeing any signs of a slowdown?" And they said, "Absolutely not. There's no sign of a plateauing here." In fact, if you go look at lumber futures on the CME, you see that prices are continuing to rally. So there's no sign of this thing rolling over. And if you had any lumber capacity whatsoever, you're using it to produce lumber.

Yes. John, this is Mike. I don't think there's any known mill startup scheduled. The Canadian mills that are down would have been restarted already. They're down due to log supply constraints. It's challenging to run -- in a COVID environment to run overtime and to add more shifts or more people. So I think the supply is what it is.

Do you have a sense for what percent of the market ultimately has been impacted by the log constraints?

By the what?

By the log constraints, log availabilities.

Yes. I mean what's been commonly reported, John, this is Jerry speaking, is about 2 billion board feet of capacity in Western Canada was shut down as it relates to the log constraints. I mean obviously, the roughly 40% curtailments that Eric just mentioned a bit ago in response to the question, that was really market curtailments, temporary downtime. But in terms of permanent due to log supply, like I said, it's around 2 billion.

Okay. And you said that of the 40% that went down, basically, all of those are back up and running at this point?

Virtually all, yes.

Okay. Well, and then just next question, I guess, before I kind of turn it over. I was just wondering if you can talk about the Southern solid markets. I mean it seems like volumes are still pretty decent during the quarter. Have you seen any notable changes in that market, particularly, I guess, with the rise in lumber prices and curtailments now kind of coming to an end and those resuming production?

Well, I'll make a general comment, and Eric can add detailed color to it. The story of Southern log pricing and Southern log markets just does not change quarter-over-quarter. It's -- while prices remain in a very narrow band between $40 and $45 a ton, and they have kind of through thick and thin, we get small temporary spikes due to weather and harvesting constraints, and then they quickly revert and normalize again.

Yes. And the only thing I would add to that, John, is if you -- FDA just hosted a webinar, I don't know, a month ago. And one of the topics they covered was growth to drain in the U.S. South. And what you're seeing is that timber inventories are continuing to increase in the U.S. South. So it's hard -- it's all about supply and demand at the end of the day. And as long as you've got incremental growth that's outstripping demand, or harvest volume, it's hard to see prices turning up.

So I think I'll just finish by adding that's, I think, one of the strategic and unique benefits that we have with the position of our company is with a large Southern manufacturing business, we can capture these converting margins, especially in this environment in our Wood Products business well. The trees continue to grow and provide stable returns to support the dividend.

Our next question comes from Ketan Mamtora with BMO Capital Markets.

Mike, Jerry and Eric, obviously, a much different discussion from 3 months back, but that's how it goes sometimes. First question, maybe just -- you mentioned in your prepared remarks that you're running the sawmills on overtime. You're pulling back some projects from FY '21 into 2020. Maybe just without getting into specifics, if you all don't feel comfortable at this point, but maybe just give us some sense of what incremental room you'll have to increase capacity on the lumber side? And kind of what kind of projects you are looking at that may be pulled forward into -- from 2021?

Yes. So Ketan, this is Eric. We are looking at a number of projects here. We haven't talked to our Board about this yet, so I don't want to get too far ahead of myself, but it roughly totals $5 million. And the improvements that it would make to the business include things like improved rate yield, increased production volume, decreased labor costs, expanded product mix. So there's nothing extraordinarily unusual about these projects. They're all kind of at the margin, incremental in existing mills. We're not talking about a greenfield mill or anything like that. So some of that money, roughly $5 million, some of that would get spent this year, but some of that would get spent in early next year. And I would expect that on the next call, we'll provide more color about those projects.

But Ketan, every -- you asked a question about our incremental production volumes. Every year, we find a way to eke out anywhere from 2% to 5% volume gains. And I don't want to talk about 2021 production volumes yet because we're not prepared to give guidance, but I don't think it would be out of the ordinary for us to announce come January that 2021 is going to see higher production volume in our mills than 2020.

Got it. Okay. So that's very helpful. So you still think that there is room at your existing mills where you all can do things and add capacity, reduce cost? You still think there is room there?

Yes, absolutely. What I'd remind you is that just this year -- with our forecast this year, we expect to be 3% higher than what we did last year, which -- this will be a record year for us. But even this year, we had to take out roughly 40 million feet of production due to COVID. That was over time that we took out in Q1 and Q2. So if we have margin in our mills next year, we're going to get that extra 40 million feet.

Got it. That's helpful. And then just sticking with lumber for a second. Do you think there is any risk with the kind of rally that we've seen in lumber prices for imports from Europe to go up?

Yes. I mean I think at the margin, they can go higher. I mean you're starting to see the dollar roll over a little bit here, which is -- I think it's down year-to-date now, which is helpful. There might be a little bit more room, but I think we're talking about maybe this being measured on in terms of 100,000, 200,000, 300,000 board feet. Central Europe has been pushing lumber into this market now for past year or 2, and it appears that there isn't a whole lot more room for them to produce more lumber. And by the way, the quality of that lumber is not as high as what is produced here domestically, so I think it can go higher. Can it go a lot higher? I don't think so.

Got it. That's helpful. And then just turning to capital allocation priorities. Obviously, Q3 you will have a big windfall from these record lumber prices. But sort of how do you think about capital allocation at this point, given how much things have changed from what we're talking in April and May to what we are seeing right now?

Well, this is Mike. You can't get -- with such a cyclical lumber market, and we've been through this many times in the past, you can't get carried away with these increases or big fallouts that happen periodically. I guess as a reminder, we've increased our dividend about 116% since 2012. And almost all of those increases in our dividend have come from sustainable changes in our timberland earnings stream, whether it's through acquisitions or price recovery, especially in Idaho. We have refinanced just about all the debt that we can. We have, as Jerry mentioned, 1 small tranche left of $46 million that will mature at the end of this year that we'll refinance. Our stock has appreciated 50% since the start of Q2. And prior to that, we purchased $41 million worth of stock at a price of $34. And as Eric mentioned, we have just a small handful of capital projects that we'll try to pull forward.

So really, it comes down to looking and waiting for timberland acquisition opportunities that makes sense to grow the company and to grow the dividend. That's what we've had a history of doing and being patient and looking for those. So that's where our focus will shift in these better markets.

Our next question is from Mark Weintraub with Seaport Global.

Had a slew of questions, but the great majority have been answered. So a little bit peripheral perhaps, but as you think about all this, the cash that you're generating and you -- on the capital allocation question, you noted either growing the dividend slowly over time or -- sorry, growing the dividend or timber acquisitions. Conceptually, in the past, you've talked about wanting to kind of match that dividend to the underlying timberland business and its ability to generate cash. Would you shift when you have quarters like what the third quarter of north of $100 million in EBITDDA that you essentially are building potentially a bank of cash? Would you contemplate using that and thinking of amortizing it and increasing the dividend as opposed to just thinking about using the cash-generating capability of the timber holdings as your core base? Hopefully, the question was kind of clear.

No. I understand the question, and it's a discussion that periodically we have with the Board. I think whenever we have these markets that are just so toppy, it's a good reminder to look back at as recently as 2019 when our Wood Products business generated $12 million in EBITDDA in total. So things have -- things can change very quickly. And that's why we've -- at a premise to really kind of underpin the dividend with the timberlands earnings stream. And certainly, this excess cash that we're going to have and in part from the sale of Minnesota, I think, certainly would give us more confidence to help support or increase the dividend over time if we can't find an acquisition opportunity that makes sense. We can't sit on cash forever. It needs to be returned to shareholders, and certainly increasing the dividend would be one way to do that.

Makes sense. And any update on what might be happening in Chenal Valley and all these different changes? And anything that you can provide to us, any color about if there are certain trends that might be more recent to think about?

Well, this is Eric, Mark. What I would tell you is that we have been very happy with the performance of Chenal. When the pandemic hit, everybody thought residential real estate, commercial real estate would completely collapse. And certainly, our lot sales are going to be less than we expected at the start of the year. I think we guided to 140, and we're now expecting, I don't know, 100 to 120, something like that. The business is coming back and holding up better than we had expected it would given the pandemic. And I am hearing that there's commercial activity kicking around in Chenal, which it surprises me, frankly, that there'd be commercial activity anywhere, but there's interest in Chenal because it's such a hot product in Little Rock. And I would tell you that our lot sales will come in below what we guided to earlier in the year, but they're holding up better than we had expected. So we're very pleased with how Chenal is coming along.

Great. And I almost would have expected to hear that it might have proved to be better with all the homebuilders now talking about getting more aggressive about buying lots, et cetera. Are you seeing any evidence that the setup for next year could -- you could make up ground next year? Or is it too early to comment on that?

Yes. I hate to give guidance for 2021. We've got a precedent that we'll give guidance for the year in January when we release our fourth quarter results. But I would -- certainly, given what I'm looking at right now, I would expect next year to be better than this year. That's for sure.

Our next question is from Steve Chercover with D.A. Davidson.

Yes. So my first question pertains to Minnesota and that sale that closes in Q4. It looks like it's big enough that you're not going to run it through the income statement or at least as -- it will be treated as extraordinary. Is that accurate?

Yes. Steve, this is Jerry. So we actually will run it through the income statement. Our expectation is you would see it run through real estate revenue and real estate cost of sales just like all the other land sales. I mean this is certainly a large transaction, larger than most and certainly in my memory. But from time to time, we have some pretty large rural sales as well. So at least how I'm scoring it internally, I'm planning on running it through normal results.

Okay. Well, we'll have some good guidance in 3 months. With respect to the conservation group, will they continue to manage it as commercial timberlands with obvious eased restrictions as to future development? Or is that volume out of the market?

No. I think, Steve -- this is Eric. I think their intention is to continue to operate it as timberland. Now will they hold the land? Not likely. They have a tendency to flip these properties to other conservation groups. But in all likelihood, this will be a conservation outcome with continued harvest activity.

Got you. Which is not a bad thing. Can you tell us what the financial contribution that it's been making on an annual basis in terms of maybe EBITDDA?

Yes. In terms of timberland contribution, our timberland business in Minnesota is a pretty nominal contributor. In fact, it pretty much covers holding costs to be the way I think about that, Steve. When we think about Minnesota, it's really a real estate land play. And certainly, you can see the track record over time on rural land sales. So that would be the, I think, more appropriate way to think about it.

So no lost EBITDDA, a nice check of change for future reference. Okay. Switching gears to log prices in Idaho. Since there's such a substantial lag and since we're still going [parabolic] on lumber in Q3, does that imply that we're going to have extraordinarily strong log prices in Q4?

Well, yes, it all depends on how lumber prices play out, Steve. But what I'd tell you right now is certainly in Q3, we're seeing very strong log prices in the 25% -- kind of plus 25% kind of range. So we'll see how Q4 plays out. But I would expect Q4 to be pretty strong as well.

Well, how long is the lag, Eric?

It's 6 weeks. 6 weeks.

6 weeks. Got you. So if you've got visibility on lumber almost at the end of September, then at least the first half of Q4, you should see some pretty dynamite pricing.

Yes. You'll start to see the log density factor work against us as we get into the Q4 as logs get denser on a per ton basis. But nonetheless, we still expect really strong pricing in the fourth quarter.

We've also had a nice uplift on cedar log prices, which, as you know, make up about 10% of our mix.

Got you. Okay. Final question, and Mike kind of alluded to how quickly things can change. And with $12 million in EBITDDA out of lumber in 2019 after a phenomenal 2018, so you go from feast to famine. And knowing that and having experienced it recently, do you think the industry can try and prevent another unhappy ending? Is there anything that we -- any lessons learned or maybe just start to bottle back even though the pricing is good due to seasonality?

Yes. We're just not going to -- we just will make comments about supply and demand kind of industry fundamentals. It's an antitrust red flag, and we won't touch that question.

Our final -- our next question is from Paul Quinn with RBC Capital Markets.

Mike, Eric, just, I guess, starting with the Wood Products. Just trying to understand this shipment guidance of 270 to 280, I mean you have the capability to run a lot higher than that. And given the unprecedented lumber prices here, I would have thought you've been doing as much as you can, if not adding shifts and overtime to it.

Yes, Paul. So our guide is 270 to 280. I think there's a pretty strong chance that we beat that number. And we are running our mills as hard as we possibly can, and we're shipping everything that we possibly can.

Okay. And then just -- you guys are 50-50 sort of random length versus stud. We've seen a huge shift in that where stud has been, I guess for the last number of years, down, and now it's [stuck] above. What do you associate that with?

Well, I think to a large degree, it's related to the home center demand. That's -- it's not going for construction purposes. It's going for DIY purposes. But out of our 2 Great lakes stud mills, where we produce, I don't know, 350 million to 400 million feet of studs, the home center demand is more than 50% of each of those product mixes, and we just can't -- absolutely cannot keep up with it.

Okay. So then given your comments that you think repair and remodel will slow down but you're seeing a pickup in new home construction, do we expect sort of that interplay between stud and [random] prices to revert back to what we saw in the last -- a year ago?

I don't know. It's impossible to predict what's going to happen there. I think stud prices are at all-time record levels, so you'd have to assume that that's not going to continue forever.

Okay. And then maybe just an update on what's going on with your industrial plywood business. Does that come back through the quarter?

Well, yes, it's definitely gotten better. We made money in the first quarter in plywood, we lost money in the second, and we'll make money in the third quarter. The mill is not running as hard as we would like it to. We'd like to put on overtime. But the sales team is out working, trying to extend the order file. And we'd like better performance but market conditions -- furniture demand is still not back to where it needs to be. So there's still some market segments that are under pressure, but it is getting better.

Our final question is from Ketan Mamtora with BMO Capital Markets.

I want to come back to sort of capital allocation again. And you've been pretty clear about how you think about the regular dividends and share repurchases. I'm just curious, absent M&A, how do you think about sort of special dividends or kind of onetime dividend? How do you kind of think about it?

Well, I can give you my perspective and time to time, we've discussed it with the Board, but I can't speak for them. But I think it's our job to put the cash to work to create long-term shareholder returns, and a special dividend doesn't do that. And I don't think we get any credit for it in the market for doing it. It's quick and forgotten and done, and I think that would be absolutely the last resort that we'd come to. And it's up to us to find ways to put the money to work to enhance returns.

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

All right. Thank you, Megan, and thanks, everyone, for your participation on the call. Look forward to following up on any detailed modeling questions, be available the rest of the day. And I hope everybody has a good day. Talk to you soon.

This concludes today's conference call. You may now disconnect.