Jerry Richards - VP & CFO Mike Covey - Chairman & CEO Eric Cremers - President & COO.

Gail Glazerman - UBS George Staphos - Bank of America Merrill Lynch Chip Dillon - Vertical Research Collin Mings - Raymond James Steve Chercover - DA Davidson Paul Quinn - RBC Capital Mark Weintraub - Buckingham Research.

Good afternoon. My name is Sherilyn and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch First Quarter 2015 earnings conference call. [Operator Instructions]. I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer, for opening remarks.

Sir, you may proceed..

Thank you, Sherilyn and good morning. Welcome to Potlatch's investor call and webcast, covering our first quarter 2015 earnings. With me in the room are Mike Covey, Chairman and Chief Executive Officer and Eric Cremers, President and Chief Operating Officer. This call will contain forward-looking statements.

Please review the warning statements in our press release on the presentation slides and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that segment information, as well as a reconciliation of non-GAAP measures can be found on our website at www.potlatchcorp.com.

I will now turn the call over to Mike for some comments and then I will cover our first quarter results and outlook..

Good morning. Thank you, Jerry. On last quarter's call, when I said that we would see some bumps in log and lumber markets along the way, due to weather, inventory levels, currency and other factors, we did not expect lumber prices to roll over as steeply as they did.

We are disappointed that our results missed the expectations we had heading into the first quarter.

Random Lengths noted in an article earlier this month that more often than not, lumber prices increase in the first quarter and that this was the steepest first quarter drop by a wide margin since they began reporting the framing lumber composite price in 1995. A number of factors played a role in the weakness.

Demand was affected by the harsh winter weather in the East and above average rainfall in the South. A mild winter in the West resulted in production of higher than normal volumes and transportation issues were less pronounced than last year. Other factors, such as the strength of the U.S.

dollar, softer export demand and increased imports from Canada, contributed to the oversupplied situation in the quarter, which resulted in the steady march down in lumber prices. As a top ten lumber manufacturer in the U.S., our sales team actively participates in the market on a daily basis.

Our customers continue to believe that we will hit at least 1.1 million housing starts in the U.S. this year and they continue to believe that 2015 will result in higher volumes and sales levels for each of their businesses. We believe the housing recovery will resume as the year unfolds.

Given the focus on seasonally adjusted annual rates, it is easy to forget that a disproportionately large number of housing units are actually constructed in the better weather months.

Stronger job growth, increasing building permits, strong order books reported by the public builders, increasing home builder sentiment and anecdotal evidence that home buyer traffic is up all support our view. In addition, mortgage rates are still very low and lending standards continue to ease.

We are still optimistic about lumber prices and expect our results to be better in the second half of the year. An increase in building activity is expected to correct the oversupplied situation and we expect lumber prices will recover.

Favorable tailwinds, in the form of North American exports of wood and constraints on Canada's ability to supply lumber to the U.S. over the long term, in addition to the U.S. housing recovery, remain and bode well for our business.

We believe that any pullback in the Chinese purchase of North American wood will be dwarfed by the increase in demand due to increasing U.S. housing starts. Value of the company's not changed and our stock price is trading well below net asset value.

Our capital allocation priorities remain focused on sustaining and growing our dividend over time, paying debt as it matures, growing through bolt-on acquisitions and completing high return capital projects in our wood products business.

Turning to our recent acquisition, the integration of the Alabama and Mississippi timberlands is straightforward and continues to go well. The properties are performing as expected and we are on track for the acquisition to be accretive to FAD per share this year.

We continue to look for bolt-on acquisitions in the South, in order to grow our existing platform. During the most recent benchmarking studies we've participated in, all of our mills measure on the first quartile for margin performance and we intend to maintain that position through prudent, high return capital investments.

The first of four significant wood products capital projects planned for 2015 is underway and going well as it nears completion. A second project is scheduled in May and we expect to have the equivalent of three weeks of downtime, related to the two projects in the second quarter.

I'll now turn it back to Jerry to discuss the quarterly results and then the group of us will take questions. Jerry..

Thank you, Mike. Beginning with page 3 of the slides accompanying this call, our net income was $5.7 million or $0.14 per diluted share in the first quarter.

Earnings in the fourth quarter were $18.6 million or $0.45 per diluted share, excluding transaction expenses of $400,000 and nonrecurring tax benefits unrelated to the acquisition, totaling $1.9 million. I'll now review the results of our operating segments. Results of our resource segment are displayed on pages 4 through 6.

Operating income for the segment was $15 million, compared to $23.9 million last quarter. The sequential decline is due to lower harvest volumes, a less favorable sales mix and lower log prices in Idaho to reflect lower lumber prices on a lag basis, most of which are normal seasonal factors.

As presented on page 5, Northern sawlog prices declined $9.00 per ton or 10% in the first quarter. Idaho sawlogs are priced on a dimensional board foot basis, that are reported on a per ton basis.

A decline in prices paid by customers on a dimensional basis, reflecting lower lumber prices on a lag basis, was compounded by the fact that logs are heavier due to seasonally higher moisture content during the wetter months. The slight decline in Northern pulpwood price in the first quarter reflects an annual reset in the contract price in Idaho.

The decline in our Northern harvest volumes is typical, as winter weather limits operating days. As mentioned on last quarter's call, this has been an unseasonably warm winter in Idaho. Fortunately, temperatures dropped later in the quarter, which allowed us to slightly exceed our planned volume. Moving to the South on page 6.

Sawlog prices declined 13% compared to the fourth quarter, due primarily to a lower proportion of hardwood sawlogs in the overall sales mix. Pine sawlog prices were relatively flat sequentially. Southern pulpwood prices were down slightly from the prior quarter, also due primarily to a lower relative volume of hardwood in the mix.

Sawlog and pulpwood harvest volumes in the region decreased seasonally. Pulpwood harvest volumes were behind planned, due to unseasonably wet weather. We expect to make up the shortfall this year, with the majority of the catch up occurring in the second quarter. The results of our wood products segment are displayed on pages 7 and 8.

Operating income for the quarter was $3.5 million, compared to $9.1 million last quarter. The decline was primarily due to lower lumber prices, higher raw material costs and slightly lower lumber shipments. The magnitude of the price decline was muted somewhat by the fact that we produced higher-value cedar lumber at our St.

Maries, Idaho sawmill in the first quarter. Excluding cedar, the decline in our average lumber prices was 4%. This is just under the decrease implied by calculating the simple average of monthly Random Lengths' framing lumber composite prices, which equals a drop of 4.8%. The results of our real estate segment are covered on page 9.

Operating income for the quarter of $1.6 million was flat, compared to the fourth quarter. The average price for HBU properties sold during the quarter was higher than usual in the quarter, because we sold a small industrial lot in Minnesota. Moving to page 10, we had cash and short-term investments of $28 million at the end of the quarter.

Our $250 million revolver remains undrawn and the facility has a $250 million accordion. We have $22.5 million of debt maturing in the fourth quarter of 2015, which we expect to pay with cash generated by operations. Capital spending was $7.5 million in the quarter and we are on track to spend the $36 million that we budgeted for the year.

Now I would like to comment on our outlook. We plan to harvest between 900,000 and 950,000 tons in the second quarter, with about 60% of the volume in the South and 40% of the volume in the North. The second quarter is traditionally the lowest volume quarter in the North, because spring breakup reduces the number of operating days.

Approximately 90% of the second quarter harvest in the North and approximately 45% of the second quarter harvest in the South, including stumpage, are expected to be sawlogs. We expect Northern sawlog prices to be flat in the second quarter.

The effect of lower dimensional prices, as a result of indexing to lumber prices that have declined, is expected to be offset by seasonally lighter logs due to lower moisture content. We expect the average price that we realize for Southern sawlogs in the second quarter to increase, due primarily to a seasonally higher mix of hardwood sawlogs.

We continue to believe that Southern pine sawlog prices will remain flat this year. We estimate that resource earnings in the second quarter will be slightly lower than the segment's second quarter 2014 earnings.

The effect of lower Northern sawlog prices on a year-over-year basis and higher Southern depletion rates are expected to exceed the benefit of higher harvest volumes. We estimate that lower diesel prices will increase earnings by approximately $3 million over the final three quarters of the year.

This is beginning to show up in the second quarter and is dependent on diesel prices remaining at the current level. Turning to wood products, we expect to ship approximately 165 million board feet of lumber in the second quarter. Lumber prices have moved lower in the first three weeks of April.

We expect that it will take some time for the oversupplied situation to correct and that prices may not begin recovering until June. Our sales mix will also be negatively affected by the absence of cedar lumber in the second quarter.

Our forecast assumes that our average lumber prices for the second quarter will be about 5% lower than the first quarter. Wood products earnings would increase modestly on a sequential basis at these volumes and prices. This is because the benefit of higher shipments would more than offset the effect of lower prices.

Shifting to real estate, we expect that the second quarter will look virtually identical to the first quarter. This comment applies across the board and includes revenue, operating income, EBITDA and number and composition of acres sold. Our guidance that we will sell approximately 20,000 acres this year is unchanged.

In other words, we expect our real estate activity to be heavily weighted to the second half of the year and that earnings will be stronger in the third and fourth quarters. We expect that corporate and interest expense will each be slightly higher than the first quarter amounts.

We estimate the consolidated tax rate to be in the range of 10% to 15% for the full year. The downward revision, compared to guidance provided on last quarter's call, is the result of lower wood products earnings in the first half than previously expected.

To summarize, we expect earnings to decline in the second quarter, due to seasonally lower harvest volumes in the North, weakness in lumber prices and relatively modest real estate activity.

We continue to believe that housing starts will hit the 1.1 million mark for the year, that lumber prices will recover and that the second half of the year will be much better than the first half. That concludes our prepared remarks. Sherilyn, I would now like to open the call up to Q&A..

[Operator Instructions]. Your first question comes from Gail Glazerman with UBS..

I guess going to your initial comments about what happened in the first quarter, can you maybe rank order or just highlight what you think the biggest couple of factors were and weather has obviously improved the last few weeks.

Are you seeing any signs that things are improving?.

Yes, Gail. So this is Eric. I think if I had to put them in rank order, what typically happens as you go from the fourth quarter to the first quarter is that dealers will start to build inventories in anticipation of the spring building season. And this year we had weather events in Q1 that caused dealers to get complacent about their inventory levels.

So basically they didn't replenish inventory. That's what precipitated the drop in pricing. And lumber prices as you know were extremely volatile and there is some psychology involved here. As the dealers watch these prices drop, they're hesitant to step in and buy more inventory. So it exacerbates the downward pressure on pricing.

Eventually, that turns and as we now get to better weather and we hopefully will start to see better housing starts, dealers are going to not only have to replenish their inventories that have been pulled down but also buy more lumber for the coming building season.

So I think weather is what triggered the whole thing at the start and then you've had other factors like the West Coast port strike that impacted things a little bit. Certainly currency has impacted things a little bit.

But frankly, we have not seen volumes really drop off from Canada to China and we've seen only a modest pickup and that was really in the month of March for the Canadians exporting lumber to the U.S. In fact, that was probably largely due to the Canadians wanting to beat the export tax which went into effect in April.

So there is a lot of different factors at play here but it was really weather that started the whole thing..

Okay, and just again, optimistic that things will get better. We have had several weeks of I would assume more normal weather.

Are you starting to see any of that reverse at this point?.

Well, I think our sense is that things are bottoming. It doesn't feel like things are getting worse. Virtually all the pundits speculated back in Q4 that Q1 lumber prices would rally $15 to $30 a thousand. That has not happened. In fact, this year the exact opposite has happened.

You're now hearing some talk from some of the pundits, they're speculating that some mills are running below cash cost, particularly in interior BC and those same pundits are speculating that could in fact result in production curtailments. Housing should begin to materialize now that the weather is getting better.

Virtually everybody thinks housing starts are going to be higher this year and given that supply chain inventories are relatively low, we think they need replenishing. So demand for lumber ought to start to improve from here. We think we're now at the point of maximum pessimism as we speak today..

Okay.

And taking a longer term view, any incremental noise about potential improvement in your Southern wood basket, any activity going on?.

You know, there is always activity. We're now in three states, Gail and I can point to 13 different projects, whether pulpwood demand or sawlog demand, that are taking place across our three states in the South.

Some of these are firm and they're under construction as we speak and some are somebody's announced a pellet mill and they've cleared the property but they haven't yet started construction. So we're in various stages of implementing those projects associated with that new demand.

By the way, that new demand totals in our estimation 7 million to 8 million tons in our different wood baskets, about 2/3rds of that is pulpwood and 1/3rd sawlog. So we’re seeing improved demand in the South but these things don't happen overnight. They just take time..

Okay. And maybe some comments on the underlying land markets, what type of opportunities are you seeing more or less maybe over the last six months, a year in..

Was your question about timberland markets, Gail?.

Yes. Industrial timberland markets..

It's been a pretty quiet start to the year. The last large transaction's really the one we completed in Alabama and Mississippi in the fourth quarter. It's been relatively quiet with very few advertised properties on the market.

So I don't think there has been any fundamental change in valuations, if there is going to be a flurry of activity it hasn't started yet..

All right, I don't know if you looked at or have any comments on the Foley land that's on the market..

We have no comment..

All right. And just a little bit more color on the wood cost issue in the lake states.

Can you just give a little bit more color, how things are progressing?.

Well, there has been a run-up in log prices, particularly at our Gwinn mill. Pulp mills in that region have taken down their inventories over the past year or two and they got what I would say dangerously low here over the past several quarters. And as a result, they have been trying to replenish those inventories at almost any price.

And that has put upward pressure on log prices, again particularly for Gwinn. It feels to us like things are starting to moderate and prices could begin to roll over in the next couple of quarters, but we'll have to wait and see..

Your next question comes from George Staphos with Bank of America..

Maybe segueing on Gail's question and maybe this is the answer as well, when I look at wood products and I look at the profit reduction that I would calculate just from looking at the price change, I don't get quite the same realized profit reduction you saw in the quarter versus the year ago.

So there was certainly a bigger pickup in manufacturing cost than I would have expected. Was that largely centered in wood? Was it largely centered in the lake states or could you give us a bit more color in terms of what was driving that..

Yes, George, that was really driven by higher log costs, both out in the lake states and in our St. Maries mill here in Idaho. So it wasn't just about price this quarter. There were other factors as well..

Recognizing it's kind of hard to predict this sort of thing, should we expect elevated wood costs for at least another quarter? One of your peers yesterday at least in the paper forest products industry broadly was saying that they really don't expect to see any kind of reduction in wood cost the rest of the year, although it's more of a geographical mix factor they'll need to contend with.

So from the standpoint of converting logs into wood products would you expect to get any kind of benefit say by third quarter?.

It really does vary dramatically by region, George. So in South, Southern yellow pine, there really hasn't been a run-up in price. So we don't really expect there to be a fall-off in price either. So that's that mill. Our St. Maries mill, our log prices are indexed to lumber.

We have seen a rollover in lumber prices, so we do expect to see log prices easing for our St. Maries mill. Now out in the lake states as I just mentioned, particularly for our Gwinn mill, we still think pulp mills are relatively low on inventory. We think that's going to start to moderate around the third quarter.

So we could see price pressure start to ease as we get into the third quarter. But I don't expect it in the second quarter..

But George, to clarify our guidance, we said we expect our wood products performance in 2Q to be just slightly better than Q1. Mostly on the heels of a little stronger shipment activity in the second quarter, but this margin squeeze that we're experiencing along with weak wood product pricing continues.

The month of April is pretty much in the books and the pricing that we booked in April is significantly below where it was in March. So we're not going to climb out of this quickly in the second quarter.

We're optimistic that we're going to see better margins and improved performance in the second half of the year, especially in the third quarter, but not in second quarter..

Two questions and I'll turn it over. Different general buckets. First of all, can you provide a little bit more detail in terms of what the capital projects that you mentioned, the four are designed to do or what you're doing from a manufacturing standpoint. And then you may have covered this in the past.

But can you refresh our memory collectively, the Southern timberlands that you purchased in the fourth quarter, should we expect any significant differences in mix relative to your existing business? I wouldn't think so, but just wanted to have that for our files. Thanks..

So gorge George, I'll take the first one as it relates to capital projects. We've got four big ones as you mentioned and they're each roughly $4 million to $5 million apiece. Two projects are basically very similar. One is at St. Maries and one is at Warren Lumber.

They're replacing our planers and with optimizers and effectively the benefit with this project is to reduce trim waste and it's to reduce manpower. And it's also to increase grade yield. So both those projects are pretty much the same and have kind of the same kind of impacts and both have got IRRs roughly of 25%.

And those IRRs are based upon kind of seven year average lumber selling prices, not where we were at kind of at the end of last year or something. So we feel very good about those projects. They're really not based on increased throughput but rather improved grade yield and less waste and less manpower. So that's the first two projects.

The next project is out at our Gwinn lumber mill out in Michigan where we're replacing our small log line. That project has got really four different benefits. The first one is increase in recovery, so that should help ease some of the pressure on log prices.

We also expect to get improved yield coming out of the product mix, slightly higher production from this project and also reduced man power and again, that project's got about a 23% - 24% IRR.

And then the last project, the one that we're implementing as we speak is at our Bemidji mill and that's a new chip and sawlog turner infeed system and that should in fact result in increased production and improved grade yield. When you think about what production might look like next year, could be who knows 25 million feet higher than this year.

And that project has a 21% IRR. So couple different projects going on but generally they're around reducing costs and improving efficiencies..

And then George, this is Jerry Richards. I'll take the second question you had in terms of kind of harvest profile. And maybe to set the table, of our total 4.5 million tons we plan to harvest this year, about 2.3 million tons was in the South. And of that, we said 1.3 million tons of the Southern harvest was pulpwood.

And if you do the math that takes you up to like 55% - 56% of the overall harvest.

So to get specific to the acquisition which really manage that as part of the Southern portfolio, but to give you some color, stocked comparably it's kind of normal Southern timberlands about 50:50, however it will be a little heavier to pulpwood as indicated by that overall guidance just given current market conditions..

Your next question comes from Chip Dillon with Vertical Research..

Just to clarify, I think this is the obvious but when you said that the second quarter will be little lower than down earnings, you were referring versus the first quarter, is that right, on an EPS basis?.

Yes, that is correct, Chip..

Okay. And then just what you were going through the full year harvest you mentioned 2.3 million tons in the South, 1.3 million is pulpwood.

What will be the Northern harvest -- even if it hasn't changed, well could you refresh our memories on that?.

Absolutely. The Northern harvest was 2.2 million tons with 90% of that being sawlogs..

And now, one thing I've noticed in the past is in your Northern segment you do have a more or less unique situation among some of the publicly traded companies in that I think some of your log prices in Idaho in particular are tied to what is happening to lumber.

I guess that are you anticipating a decline in the second quarter because of the decline in lumber? I don't recall what the lag mechanism is there. And let's say lumber does turn around in June.

Would it still be later in the year before you would see any turnaround in some of those log prices because of the way the index works?.

Yes, so Chip, this is Eric. We actually expect Northern sawlog prices to be slightly higher in the second quarter, basically relatively flat. You've got two different things at play there. The first is that we do expect lumber prices to be a little lower in Q2 versus Q1. So that would drive down log prices on the one hand.

On the other hand, you've got this issue with the weight of the logs that we've talked about. The logs are going to be a little bit drier in the second quarter therefore they'll weigh a little bit less. So on dollar per MBF basis that will pull things up. So those two basically offset each other we get slightly higher prices in the second quarter.

As you get out into the third quarter we do expect prices to improve and that will be driven by two different things.

One is improved lumber prices which if our thesis plays out and we do see higher lumber prices that got to play it's way through at a higher log prices number one, and then number two our cedar mix will tend to jump in the third quarter and it gets up to about 9% as we get out into Q3..

And could you -- make sure I got this right. You mentioned several projects. Did the first two that you mentioned, I forget, did they also have 20% plus IRRs. I know the last two did..

Yes, they did. One is 28% and one is 23%..

Your next question comes from Collin Mings with Raymond James..

Couple of questions here. First, just on if you can -- switching gears a little bit, and talking a little more about the sawlog prices in the U.S. South. But now with really a couple of different woods baskets you have exposure to there, can you maybe give us some color on if you're seeing any differences regionally across your U.S.

South bucket now?.

No, you know, Collin, this is Eric. So we are in three different states, Arkansas, Mississippi and Alabama. And I would tell you that the wood baskets in each of those three regions I would generally characterize them as oversupplied relative to demand. We don't think prices are going any lower. There is a lot of work under way.

I just mentioned all these capacity expansion projects that are under way in the South and a lot of those are in our areas. So eventually that's going to have a positive effect on pricing but in our three wood baskets prices are relatively flat..

Just as it relates to your strategy in the U.S. South, I know you recently hired someone that was going to be geared towards looking for any sort of incremental acquisitions as far as bolt-on deals in the U.S. South. I know you talked overall the deal environment being pretty quiet to start the year.

But anything coming across the table for you guys to look at as far as some of the smaller land deals in the U.S.

South given that strategy?.

Yes, there is a handful of bolt-on acquisitions we're evaluating. These are in the size that I'd say anywhere from 5000 to 20,000 acres in size is kind of what we’ve targeted for that strategy and we're looking at a number of those. But none of them are high profile deals that are going to move the needle but they certainly complement our strategy..

Okay. And then well also just as it relates to the strategy in the U.S. South, how do you think about potentially pursuing some standalone wood products facilities in the region? I know in the past guys we've talked a little about it and you guys have expressed a willingness to go after kind of combined timberland with mills.

I think that is something different from you versus a lot of your peers are willing to look at that.

But just given the expanded presence in that region now, is there any more willingness to maybe go after just a standalone mill?.

Well, we've been fairly clear and remain so that any wood products acquisitions would have to be complementary to the fee timberland base that we own and certainly we have 100,000 acres each you now in Mississippi and Alabama you which gives us a small footprint to work with for a strategy of an additional wood products facility, still 400,000 acres in Arkansas.

Our preference is still to look at a combination of wood products and timberland investments rather than standalone wood products..

Okay. And then just a couple of quick ones on the capital allocation front, just recognizing it's been a challenging start to the year, but clearly the timberland deal from last year is going to be accretive to cash flow all else equal this year.

Just how are you and the Board starting to think about any potential move on the dividend, payout ratio last year was conservative and still some challenges to start this year on the wood products front. But maybe just some things that are going on as far as that conversation as you look out to the back half of the year..

Well, we typically evaluate our dividend at the end of each calendar year. That's been our habit in the past is to reset it if need be in the fourth quarter of the year and I expect we'll take that same review process under way as we get through the third quarter and see how the results look.

I think just to reiterate, kind of the capital allocation strategy for the company, I think we stick to the plans that Eric's touched on some of those. One is we've got a $36 million capital investment program this year on high return projects in our mills.

We've got $22 million worth of debt maturing in the fourth quarter that we still intend to pay off with cash at least at this point in time.

We've got a dividend of $1.50 a share which is about 4% today which we certainly want to sustain and hopefully grow over time and really the last thing to think about is share repurchase and with the significant falloff in our share price this quarter with the falloff in lumber that certainly looks very attractive but we also have to have the cash to execute such a program and that doesn't exist today.

We expect to build cash in the third quarter of the year with a very strong volume quarter and improvement in the wood products business in the third quarter but we don't have surplus cash today. We had $75 million of cash on hand in the fourth quarter of last year that we made a strategic decision to invest in growing the business in timberland.

So we made that bet last fall. We think it's a very good one but it's kind of taken the share repurchase program to the back seat for the time being..

Okay.

I guess on that front, Mike, just curious, given some of your peers have highlighted the potential to sell off some assets, kind of prove out NAV and recognizing your portfolio's a little bit different but have you guys considered at all maybe unlocking value if you will, maybe some of the Idaho Timberland or maybe even some of the legacy Arkansas to maybe generate some cash to then buyback stocks at these levels, kind of serving the dual purpose of proving out asset value while also gaining a little bit more flexibility on the share repurchase front..

Well I would agree it's an attractive arbitrage given where our stock price is today and what we think are still very high underlying values of our timberland. But you have to think about it on an after-tax basis as well. We are not in a position to get past the time period of built in gains tasks like some of the other timber REITs are.

So the 10 year timeframe in our REIT conversion is up next year and until that time if we sell timberland out of the REIT we have a responsibility for a built in gain tax of 40% or to reinvest in timberland which is really not your point.

So I think for those reasons, we don't find it as compelling at this point in time to pull the trigger on kind of an arbitrage option that you described..

Your next question comes from Steve Chercover with DA Davidson..

So my questions actually circle back to what happened in wood products because that's really where I think the miss was at least from my model.

And I'm just wondering given the investment that you're making, is part of the higher cost a function of having produced wood but not having sold it given that you had to accumulate inventory for Capex that's now under way?.

I'm not sure -- the capital projects that are under way have really had no bearing on the performance of the business in the first quarter, Steve.

We built a little bit of inventory at our Bemidji stud mill but that was in the scheme of things that was fairly insignificant in terms of any balance sheet effect more than any kind of income statement impact.

The results of the first quarter were weak because we had very soft lumber pricing and we did not -- and we had a margin squeeze in the inland mills and in the lake state mills with log costs that were pretty darn sticky. It's that simple..

So you would say you ran well otherwise..

We didn't run great but we ran solid for the first quarter of the year..

I would say our plywood mill ran extraordinarily well in the first quarter and our Warren mill had some operational issues. So it's kind of a mixed bag but generally they performed well..

Thanks for touching on the plywood mill, Eric. I did want to ask about that. If I'm no mistaken the Western comps it was up about $60 Q1 2015 versus Q1 of last year. So I would have thought that would make quite a nice contribution.

Is it just too small to give us the volume pricing for plywood?.

We chose not to break that out given it's just a standalone mill with standalone product line for us, we chose to not break that out several years ago and we're going to stick with that..

But it's doing quite well, right?.

It's doing very well..

Your next question comes from Paul Quinn with RBC Capital..

Just trying to understand on wood products side, revenue up, lumber down. I guess plywood's up and I guess this is to the comment that Eric just made on plywood mill running very well and prices up.

Is that the reconciliation?.

Yes, plywood mill is running well and prices are up..

Okay.

And then just on the lake states log cost issue, both those mills are they small log mills that the majority of the wood that they're coming into those mills is pulpwood?.

Yes. They're small log mills. So what a pulp mill is short of volume, Paul, like they have been in the lake states in the winter months they can seamlessly and easily go after what we consider sawlog bolts that we manufacture into 2X4 lumber and they can easily put them into a wood room at a pulp mill and they do that..

Okay. So I get that, but I guess there is the offsetting higher chip prices aren't a big offset. Is that--.

Not enough of one..

Okay. Just on the lumber side, you reference lower lumber prices and that's very much true in the West but not really in the South. I mean prices are up or down sort of 1% to 3% versus kind of the -- I don't know I'm tracking 8% to 10% in the West here.

So I guess the question that I had is we've got a disconnect between Western SPF prices and Southern [indiscernible] prices historically somewhere around $50 and it's now up at $150.

So wondering why you think that is, what the way forward is, does that mean that gap's got to close and that would mean lower Southern yellow pine lumber prices and then how it relates back to logs..

Well, there is a lot of information in your question there. There is a disconnect between s SPF prices and Southern prices. Southern prices have not been impacted nearly as much as SPF. I suspect it's due to Canadians pushing more SPF across the border. So far this year, we are seeing incremental volume coming out of Canada, down to the U.S.

And part of it was to beat that export tax. But clearly, that's pressuring SPF prices. We continue to believe and I think I've read some commentary about some of the Canadian producers that their Chinese markets have not dried up. They're not improving a lot. They're not declining a lot. But they're holding their own.

And the extra volume that came across the border in March, that's basically going to come out of the month of April. And as we see improved demand particularly as it relates to housing, we ought to see prices rise from here and that ought to eventually put upward pressure on log prices in Idaho. I hope that answers your question..

Okay. And basically you're in keeping with your projection that U.S.

sawlog, pine sawlog prices stay flat for the year?.

Yeah, that's still our expectation..

Okay. And then just lastly, you mentioned the U.S. South 13 different projects, about a third of that on the sawlog side for that 7 million, 8 million incremental tons. If you could give us a little more detail on that..

There is a host of projects. GP, [indiscernible] it's got a bunch of projects under way to expand the facility and that should improve log demand some 400,000 - 500,000 tons a year. Weyerhaeuser has got a project under way in Dierks to replace a mill there that should increase demand ultimately 250,000 tons a year.

There's the El Dorado mill which we've mentioned before, it was purchased by an individual and we think that individual is serious about rebuilding that plant and starting it up. Probably won't happen until 2017 or so, that's 800,000 - 900,000 tons a year.

Just a couple of projects over in Mississippi, there is a plywood mill in Louisville, Mississippi. That's under construction now. That's half a million tons a year. IP has got a saw mill on a site. We think it's rumored to be reopening near Morton, that's another 0.5 million tons a year and that kind of sums it up..

Your next question comes from Mark Weintraub with Buckingham Research..

Just a real quick follow-up from a prior question.

When next year do you anniversary the 10 year built in tax rule?.

So Mark, this is Jerry. It expires as of the end of this year. So beginning of 2016 we'll be out of the built-in gains..

[Operator Instructions]. You have a follow-up question from George Staphos with Bank of America..

Just a quick one, and perhaps you’ve mentioned this in the past but what's your strategy for dealing with the maturities that start coming in 2019.

I know it's a long ways away but here we are several years into the recovery and depending on where you thought we were in the recovery by 2017 or 2018 whether we were still heading toward mid-cycle or peaking out how would your strategy on retiring those maturities or pushing them out change.

Could you give us a bit of color on that? Thank you very much. Good luck in the quarter..

We have $190 million coming due is what George is referring to in 2019. That's comprised of $150 million of high yield debt and $40 million of acquisition debt. And I think when you look at kind of that size of that or the amount of that debt coming due, most likely a good chunk of that will be refinanced. That's current view right now..

At this time there are no further questions..

All right. Thank you. And thank you to all for your interest in Potlatch. I'm going to be heading back to my desk shortly and look forward to your detailed questions..

Thank you for participation. This concludes today's conference. You may now disconnect..