Deltic Timber Corp. (DEL) filed Quarterly Report for the period ended 2009-09-30.
Deltic Timber Corporation is a natural resources company engaged primarily in the growing and harvesting of timber. In addition to their timber operations Deltic is engaged in the manufacture and marketing of lumber and in real estate development projects. Deltic Timber Corp. has a market cap of $511.8 million; its shares were traded at around $41.14 with a P/E ratio of 117.5 and P/S ratio of 3.9. The dividend yield of Deltic Timber Corp. stocks is 0.7%. Deltic Timber Corp. had an annual average earning growth of 1.6% over the past 10 years. GuruFocus rated Deltic Timber Corp. the business predictability rank of 2-star.
Highlight of Business Operations:
The Company recorded net income of $.2 million for the third quarter of 2009, compared to income of $2.5 million for the same period of 2008. Serving as the Company’s core operation, the Woodland’s segment provided operating income of $4.6 million during the third quarter of 2009, a decrease from $5.1 million in the third quarter of 2008. Deltic’s Mills segment reported operating income in the third quarter of 2009 of $.1 million compared to $1.8 million in the third quarter of 2008, the decrease is due to lower average lumber sales prices and volumes. The Real Estate segment recorded a loss of $.8 million in the current-year quarter compared to a loss of $.5 million for the corresponding period of 2008. Deltic owns a 50 percent interest in Del-Tin Fiber L.L.C. and recorded related equity income of $.6 million for the third quarter of 2009, a decrease from $.7 million for the same quarter of 2008.
For the third quarter of 2009, both the pine sawtimber harvest volume and average sales price per ton declined seven percent when compared to the third quarter of 2008. In the current period, the pine sawtimber harvest decreased 10,167 tons to 137,269 tons and the average sales price decreased $2 per ton to $27 per ton versus the third quarter 2008 amounts. The change in harvest volume was due to wet weather conditions while the price was affected by reduced demand. Since Deltic follows best management practices and guidelines from the Sustainable Forestry Initiative and Arkansas Forestry Association when harvesting timber, fourth quarter harvest levels may be affected by the unusually wet weather currently occurring in our region. The Company harvested 79,914 tons of pine pulpwood during the third quarter of 2009, a decrease of 4,224 tons from the same period of 2008. The average sales price was $10 per ton, a 23 percent decrease from $13 per ton for the third quarter 2008. Pulpwood volumes and price have been affected by logging conditions and decreased fiber requirements by area papermills. Sales of non-strategic hardwood bottomland were approximately 649 acres at an average price of $1,682 per acre, yielding a net margin of $.8 million during the third quarter of 2009. This compares to sales of approximately 185 acres at an average price of $1,469 per acre, which provided a net margin of $.2 million for the same period of 2008. The Woodlands segment reported hunting lease income of $.5 million in the third quarter of 2009 and $.4 million in the third quarter of 2008. Because of the low historical cost basis in its timber and timberlands, the Woodlands segment is generating positive margins on current sales activities and management does not expect this to change in the future.
Deltic currently has under lease approximately 31,500 net mineral acres in the area known as the “Fayetteville Shale Play,” an unconventional natural gas reservoir in the state of Arkansas that is currently being developed. The Company received gas royalties from the defined Fayetteville Shale Play area of approximately $119,000 per month during the third quarter of 2009 compared to $132,000 per month during the same period of 2008. Although natural gas prices have declined from a year ago, this has been somewhat offset by higher volumes due to the increased number of producing wells. Total oil and gas royalty income, including the gas royalty from the Fayetteville Shale Play, was $.4 million and $.5 million for the third quarters of 2009 and 2008, respectively. Oil and gas lease rental income was $.5 million for the third quarters of 2009 and 2008.
The Mills segment continues to experience negative market pressures caused by a slump in the overall new housing market. Even though the segment has benefited from lower log stumpage prices in its operating region, current quarter results have declined from a year ago. The third quarter of 2009 had income of $.1 million compared to income of $1.8 million in the third quarter of 2008. The average sales price was $261 per MBF in the third quarter of 2009, a 15 percent decrease from the third quarter 2008 average sales price of $307 per MBF. The current quarter of 2009’s lumber sales volume decreased 5.3 million board feet to 64.1 million board feet from the same quarter of 2008. During the current quarter, Deltic’s sawmills continued to improve hourly production rates and other operating efficiencies. The Company will continue to manage controllable costs and operate its mills on reduced schedules to balance production with market demand. In addition, the Mills may be impacted by reduced log supply due to the wet weather conditions in its operating region.
Operating income decreased $1.9 million. The Woodlands segment decreased $.5 million mainly because of lower pine sawtimber and pulpwood harvest volumes and average per-ton sales prices, partially offset by increased sales of recreational-use hardwood bottomland. The Mills segment’s operating income decreased $1.7 million due to a lower per-unit average sales price and reduced sales volume, partially offset by lower log cost and improved operating efficiencies. The increase in operating loss from Real Estate operations was mainly due to reduced residential sales margins. The improvement in the Corporate segment was due to no acquisition-related professional fees in 2009’s current period.
Operating income decreased $4.8 million. The Woodlands segment decreased $4.2 million mainly because of lower harvest volumes and per-ton average prices for pine sawtimber and pine pulpwood, and a lower margin from sales of recreational-use hardwood bottomland, partially offset by increases in hardwood sawtimber and pulpwood revenues, oil and gas lease rental and royalty income, income from well-site damages, and reduced cost of fee timber harvested. The Mills segment declined $2.2 million mainly because of a lower average unit sales price and sales volume, which was partially offset by lower log costs and the benefit of improved operating efficiencies. The Real Estate operating loss increased $.8 million primarily a result of fewer residential lot sales and lower operating income from Chenal Country Club. Corporate general and administrative expense decreased $1.7 million due to lower professional fees and incentive plan expense.
DEL is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, John Keeley of Keeley Fund Management.
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