Potlatch posted 1Q 2007 net loss of $29.8 million

May 02, 2007. /Lesprom Network/. Potlatch Corporation reported on April 26, 2007 earnings from continuing operations of $5.4 million, or $0.14 per diluted common share for the first quarter of 2007. This compares to earnings from continuing operations of $69.3 million, or $2.33 per diluted common share, for the first quarter of 2006. Earnings for the first quarter of 2006 included a tax benefit of $51.2 million, or $1.72 per diluted common share, related to the company's January 1, 2006, conversion to a real estate investment trust (REIT). Overall, the first quarter 2007 results were a net loss of $29.8 million. The results included an estimated after-tax charge of $33.1 million for the asset write-down and costs related to the pending $65-million sale of the company's hybrid poplar tree farm in Boardman, Oregon, to a private-equity tree farm investment fund. The sale is expected to close in the second quarter. The loss on disposal and the operating loss for the Boardman operation for the quarter ended March 31, 2007, are classified as discontinued operations in the statements of operations and comprehensive income. Overall results for the first quarter of 2006 included an after-tax loss from discontinued operations of $3.6 million related to the Boardman operation. "As we move into 2007, Potlatch continues to demonstrate the strong fundamentals that underlie our core resource, real estate, paperboard and consumer product businesses," said Michael J. Covey, Potlatch chairman, president and chief executive officer. "Although wood products will continue to be challenged, absent a rebound in housing, we are positioning the company for stronger performance in the second quarter, having completed major maintenance in paperboard and positioning our real estate business to complete closings in the second quarter." Net revenues from continuing operations for the first quarter of 2007 were $386.2 million, compared to $401.2 million for the first quarter of 2006. Wood products For the first quarter of 2007, the wood products segment recorded operating income of $2.2 million, compared to income of $7.4 million in the first quarter of 2006. Lower selling prices and shipments for lumber were largely responsible for the unfavorable comparison. The lower lumber shipments for the first quarter of 2007, compared to the same period in 2006, were due primarily to the company's Prescott and Warren, Arkansas, lumber mills reducing their daily operations from three shifts to two shifts during the fourth quarter of 2006. This decision was made to optimize the operating efficiencies at each mill. The company's results were positively affected by continued strong cedar lumber sales, which are trading at near record levels. Pulp and paperboard The pulp and paperboard segment reported an operating loss of $6.0 million for the first quarter of 2007, versus income of $3.0 million in the first quarter of 2006. Results for the first quarter of 2007 were significantly impacted by a planned major maintenance outage to repair the recovery boiler at the company's Lewiston, Idaho, pulp and paperboard mill. The major maintenance costs and downtime associated with the outage were $9.2 million, or $8.3 million higher than last year's costs. In addition to the planned maintenance downtime, results at the company's Lewiston mill continued to be unfavorably affected by high wood fiber costs, which on a per-ton basis were up approximately 73% compared to one year ago. "Markets for our pulp and paperboard products remained strong throughout the quarter and we are encouraged because, for the first time in six months, we are starting to see some relief in wood fiber costs and improved availability. Adequate log inventories are in place at most wood products facilities to allow sawmills and plywood plants to operate at full capacity during the traditional Spring break-up season. These log inventories, combined with higher output at regional sawmills of residual chips, should help reverse the recent trend of very high costs for chips and sawdust," noted Mr. Covey. Outlook "During the first quarter of 2007, we substantially completed the valuation and listing process in connection with the 15 000 to 20 000 acres of our timberlands we expect to sell in 2007," said Mr. Covey "As we also previously announced, our goal is to utilize section 1031 like-kind exchange transactions for tax efficiency, thus maximizing cash flows. For example, we intend to match a large portion of the purchase of approximately 76 000 acres of high-value timberlands in Wisconsin, which closed in the first quarter, with the sale of our hybrid poplar tree farm in Oregon. As a result, we will not be subject to the built-in-gains taxes on the sale of the tree farm." "We expect overall timber harvest levels and revenue to increase in 2007 due to an increased harvest in the Southern region and the acquisition of the Wisconsin timberlands," added Mr. Covey. Harvest activity in Arkansas was deferred in 2006 due to unfavorable market conditions. "Our two pulp and paperboard operations continue to experience favorable market conditions. Additional production of high-end paper grades for the commercial print market has allowed the segment to continue improving its returns and take advantage of the favorable markets," said Mr. Covey. "We expect paperboard markets to remain strong throughout the remainder of 2007. Although some relief from the acute residual wood shortage that has significantly impacted our Idaho pulp and paperboard operation is anticipated as we move further into Spring, wood fiber costs for the Idaho operation are expected to remain at high levels for the remainder of 2007." Markets for the company's consumer tissue products are expected to remain relatively strong through 2007, and operating results should be favorably affected by sales mix improvements. However, continued high pulp costs are expected to have a significant impact on results for the consumer products segment through 2007. Although some improvement in lumber markets is expected during the normal building season, markets for lumber in general are expected to remain weak through the remainder of 2007. Potlatch is a REIT with approximately 1.5 million acres of forestland in Arkansas, Idaho, Minnesota, Wisconsin and Oregon. Through its taxable REIT subsidiary, the company also operates 13 manufacturing facilities that produce lumber and panel products and bleached pulp products, including paperboard and tissue products. Potlatch, a verified forest practices leader, is committed to providing superior returns to stockholders through long-term stewardship of its resources.