Structured as a REIT,
Potlatch ( PCH - Free Report) owns approximately 1.4 million acres of forestland in Alabama, Arkansas, Idaho, Minnesota and Mississippi. The company also operates five manufacturing facilities that produce lumber and panel products. They are among the top 10 lumber manufacturers in the US.
Additionally, the company conducts a real estate sales and development business through its subsidiary.
The timber REIT reported adjusted earnings of $0.54 per share, substantially ahead of the Zacks Consensus Estimate of $0.30 as they benefitted from rising lumber prices.
Thanks mainly to the 11% surge in average lumber prices, wood products segment’s income was almost three times higher than the income earned in the first quarter.
"The power of our leverage to lumber prices was reflected in our strong financial performance in the second quarter," said the CEO. "Our Wood Products segment shipped a record volume of lumber for the third time in four quarters, maximizing the benefit of robust lumber prices."
Zacks Consensus Estimates for the current and next year have increased to $2.37 and $2.34 respectively, from $2.09 and $2.14, before the results. The following chart shows earnings and price momentum for PCH:
Returning Capital to Shareholders
The company has been returning a lot of cash to shareholders via dividends and buybacks. They have increased their dividend 20% in the last four years. The dividend yield is 3% as of now. They also have about $50 million remaining on share buyback authorization.
Lumber Demand and Price Surging
Lumber prices have been rising this year, thanks mainly to the ongoing trade dispute between the US and Canada. A rising Canadian dollar has also impacted lumber shipments from Canada.
Trump’s plans to renegotiate NAFTA could also lead to lower imports from Canada and drive domestic lumber prices up.
Lumber prices are expected to rise further as a lot of lumber will be required in the rebuilding work in the aftermath of Hurricanes Harvey and Irma.
Of all timber REITs, Potlatch has highest leverage to lumber prices.
The Bottom Line
PCH is a Zacks Rank#1 (Strong Buy) stock with a Growth Score of “B” and industry rank in top 14%. Further, with a juicy dividend yield of 3%, the stock is worth a look.
Disclosure: I own PCH shares in the Zacks Income Investor portfolio.
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