PotlatchDeltic Corporation PCH is well positioned to reap benefits from solid U.S. housing industry, strong repair and remodel market, and liquidity position. Also, the impressive Timberlands and Wood Products segments performance as well as accretive acquisitions are encouraging.
Its shares have gained 3.5%, outperforming the Zacks Building Products - Wood industry’s 1.4% growth in the past three months. Impressively, the company has outperformed other industry players like Floor & Decor Holdings, Inc. FND, Masonite International Corporation DOOR and JELD-WEN Holding, Inc. JELD in the said period.
This outperformance can be primarily attributed to PotlatchDeltic’s impressive surprise history. Notably, its earnings surpassed analysts’ expectation in 11 of the last 13 quarters.
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Here are a few factors that are driving growth of this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.
Solid Q1 Results & Prospects
The company posted strong first-quarter 2021 results, with earnings of $1.94 per share against a loss of 25 cents a year ago. Revenues improved a notable 69.6% on a year-over-year basis. Adjusted EBITDDA also increased a significant 310% year over year. The robust performance is reflective of improving housing market activity and historically high lumber prices.
For the second quarter, it expects to harvest 1.1-1.3 million tons in the Timberland segment. Whereas, harvest volumes in the North are planned to be seasonally lower due to spring breakup. Meanwhile, it expects Northern sawlog prices to increase in the to-be-reported quarter, primarily due to higher index sawlog prices. Both the metrics in the South are expected to be comparable sequentially.
In April, the company witnessed nearly 18% higher average lumber price than the first quarter, including orders booked but not yet shipped. The company plans to ship 275-285 million board feet of lumber in the second quarter.
In Real Estate, it expects to sell 2,500 acres of rural land and 15 Chenal Valley lots in the second quarter. Moreover, it intends to sell approximately 145 lots in 2021.
Total adjusted EBITDDA for the second quarter is likely to be sequentially higher.
Strength in Housing Industry
Housing markets are booming owing to lack of existing homes for sale and continuation of the low-rate environment. Demand for housing and wood products has been improving amid COVID-related disruptions and rapid lumber market swings. Apart from the remarkable recovery in single-family housing construction, repair/remodel activity has also been robust, supported by do-it-yourself and professional activity.
This year, various macroeconomic tailwinds like preference for larger single-family homes (given ongoing work-from-home flexibility & mortgage interest rates near record lows); strong homebuilder confidence; record low inventory for existing home sales; demographic trends supporting growing millennial homeownership while older adults are deciding to age in place; as well as the possibility of a federal tax credit for first-time homebuyers under the Biden administration will continue aiding U.S. housing activity.
PotlatchDeltic has been improving the business portfolio through various strategies. One of those is the acquisition of Timberland. Timberland acquisitions are capitalized, based on the relative appraised values of timberland, merchantable timber, pre-production timber (young growth that is not yet merchantable timber), logging roads and other land improvements. During 2020, it invested $6.9 million on timberland acquisitions.
This apart, on Feb 20, 2018, Deltic merged into a wholly-owned subsidiary of Potlatch. Deltic owned approximately 530,000 acres of timberland, operated two sawmills, a medium density fiberboard facility and was engaged in real estate development, primarily in Arkansas.
Rewarding Shareholders & Stable Balance Sheet
PotlatchDeltic keeps on rewarding shareholders through dividend payments. The company paid nearly $27.5 million cash dividends in first-quarter 2021 and $107.9 million in 2020. The move is a reflection of its strong cash position and sound capital allocation policy.
The company’s cash and cash equivalents at first quarter-end were $382 million, up from $252.3 million at 2020-end. Moreover, cash from operations for the quarter was $170 million compared with $48.1 million in the year-ago period. It used a major portion of this cash to strengthen the balance sheet by redeeming some of its debt maturities.
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