Deltic Timber Corp.’s net income for the first quarter of 2015 was down $3 million from the first quarter of 2014 – due mainly to a March fire at the Del-Tin Fiber plant, 757 Del-Tin Highway, and “persistent winter weather,” according to Ray C. Dillon, president and chief executive officer of Deltic.
He said preliminary net income for the first quarter of 2015 was $1.9 million, 15 cents a share, compared to net income of $4.9 million, 39 cents a share, for the first quarter of 2014.
The decrease was mainly due to two factors, according to Dillon. The first was lower operating income for the company’s manufacturing segment as a result of the negative impact on the lumber market caused by persistent winter weather conditions hampering construction in much of the United States for the first quarter.
Second was the financial impact of a fire that occurred in the press at the MDF (medium density fibreboard) plant during the quarter, which halted production for just over a month. With the weaker lumber market, Deltic realized a decrease in both lumber sales volumes and average sales prices received, he said.
In connection with the fire, the company recognized the expense associated with the insurance policy deductibles for its property damage and business interruption insurance policies. Net cash provided by the company’s operating activities for the first quarter of 2015 was $9.2 million, compared to $3.7 million a year ago.
The decreased MDF sales volume was due to a fire at the MDF facility that occurred on March 10, which interrupted production for the remainder of the month of March through mid-April. The company has both business interruption and property damage insurance coverage on the facility and has recorded a receivable for the cost of fire clean-up and repairs and business interruption impact that are in excess of their respective deductibles. Any resulting gain from involuntary conversion of assets and recovery of lost profit from the business interruption coverage will be recorded in the period of actual claim settlement, Dillon said.
“Harsh winter weather conditions existed for much of the United States during the first quarter,” Dillon said. “The negative impact on the lumber market was reflected in reduced demand for lumber and decreased lumber sales prices. In our woodlands segment, the prices we receive for the timber harvested from our timberlands are gradually rising, as expected.
“In addition, we achieved an increased harvest volume for pine sawtimber, consistent with our plan for the year, as a result of the timberland acquisitions we made in 2014. Extremely wet weather conditions in our operating area affected these efforts slightly, but now that spring has arrived, ground conditions are improving rapidly and logging activity is increasing.
“At our MDF plant, we have repaired the damage from the fire and are back to producing board. During the period the plant was down, we had adequate inventory to ship and meet customer needs. Additionally, while the plant was down, we accomplished most of the maintenance scheduled for our summer maintenance outage,” Dillon said.
“In our real estate operations, we are actively developing additional lots to be offered for sale soon,” he said.
The woodlands segment had operating income of $6.5 million for the first quarter of 2015, compared to $5.3 million for the same period of 2014, a 22 percent increase. The company harvested 231,534 tons of pine sawtimber during the current period of 2015, a 10 percent increase from the 209,548 tons harvested in the corresponding quarter of 2014.
The average per-ton sales price for pine sawtimber in 2015’s first quarter was $26, an 8 percent increase from the $24 per ton during the first quarter of 2014. The increase in pine sawtimber harvested was the planned result of Deltic’s timberland acquisitions in recent years.
The company continues to harvest the timber growing on its timberlands on a sustainable-yield basis. Pine pulpwood harvested in the first quarter of 2015 totaled 91,673 tons, a 16 percent decrease from the 109,009 tons harvested for the same period in 2014.
The average per-ton sales price was $10 for the current period of 2015, compared to $8 per-ton for 2014’s first quarter. The quarter-over-quarter decrease in pulpwood harvest volume was mainly due to weather, timing and the mix of products growing on the tracts harvested.
Oil and gas lease rental and net royalty income totaled $1.2 million for the current period of 2015, compared to $1.4 million during the same quarter of 2014. The decrease was due to lower oil and gas lease income, as a portion of the revenue from the amortization of lease rental payments previously received from leased mineral acreage ceased as a result of the period underlying the lease rentals expiring, with the acreage now held by production.
Deltic’s manufacturing segment reported operating income of $3.5 million for the first quarter of 2015, compared to $8.3 million in 2014’s first quarter. During the first quarter of 2015, the company sold 61.3 million board feet, a decrease of 3 million board feet when compared to sales of 64.3 million board feet in 2014’s first quarter, as the company decreased lumber production to match market demand, which was impacted by winter weather conditions.
The average lumber sales price was $358 per thousand board feet in the first quarter of 2015, a 5 percent decrease from the $378 per thousand board feet realized for the first quarter of 2014. MDF sales volume in the first quarter of 2015 was 26.4 million square feet, a 7 percent decrease from the 28.5 million square feet sold during the first quarter of 2014. The average sales price for MDF sold during 2015’s first quarter was $573 per thousand square feet, which compares to $577 per thousand square feet reported in the first quarter of 2014.
The company’s real estate segment reported an operating loss of $.8 million for the first quarter of 2015, which compares to operating income of $.2 million for the same period of 2014. Residential lot sales totaled two lots in 2015’s first quarter versus 23 lot sales in the first quarter of 2014. The decrease in residential lot sales was largely impacted by the timing of new neighborhood lot offerings at the end of 2014. Due to the mix of lots sold, the current quarter’s average per lot sales price was $51,200, a decrease of $37,700 per lot when compared to first quarter 2014’s average per lot sales price of $88,900. There were no commercial real estate acreage sales in the first quarter of either year.
Corporate operating expense was $4.6 million in the first quarter of 2015, which compares to $4.8 million for the corresponding quarter of 2014. Income tax expense for the first quarter of 2015 was $1.1 million, which compares to $2.8 million in the prior year’s first quarter. The decrease was due mainly to lower pretax income for the first quarter of 2015. Interest expense in the first quarter of 2015 was $1.6 million, compared to $1.2 million in 2014’s first quarter. This increase in interest expense was due to borrowings for timberland acquisitions in March and June of 2014.
Capital expenditures were $5.7 million in 2015’s first quarter, compared to $3.1 million for the corresponding period of 2014. Timberland acquisition expenditures were $.1 million in the first quarter of 2015, compared to $106.6 million for the first quarter of 2014.
Regarding the outlook for the second quarter and year of 2015, Dillon said, “At this time we anticipate the pine sawtimber harvest to be 200,000 to 225,000 tons and 725,000 to 765,000 tons, respectively. Finished lumber sales volumes are anticipated to be 65 to 75 million board feet for the second quarter and 265 to 285 million board feet for the year. MDF sales volumes for the second quarter and year of 2015 are estimated to be 25 to 35 million square feet and 110 to 130 million square feet, respectively. Actual sales volumes for both finished lumber and MDF are dependent upon market conditions. Residential lot sales are estimated at 10 to 20 lots and 75 to 100 lots for the second quarter and year of 2015, respectively. Even though commercial acreage in Chenal Valley has received interest from potential buyers, it is difficult to anticipate future closings due to the volatile nature of commercial real estate transactions and the significant number of factors related to any sale.”
Deltic held a conference call on Tuesday, to discuss first quarter 2015 earnings. The call will also be broadcast live over the Internet and can be accessed through the Investor Relations section of the Deltic website, at www.deltic.com. Online replays of the call will be available through the Deltic website, and a recording of the call will be available until April 28, by dialing 1-888-286-8010 and referencing replay passcode identification number 11309428.