Jerry Richards - VP and CFO Michael Covey - Chairman and CEO Eric Cremers - President and COO.

George Staphos - Bank of America Collin Mings - Raymond James Gail Glazerman - Roe Equity Research Ketan Mamtora - BMO Capital Mark Weintraub - Buckingham Research Paul Quinn - RBC Steve Chercover - D.A. Davidson.

Good morning. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch First Quarter 2017 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, Karen, and good morning. Welcome to Potlatch's investor call and webcast covering our first quarter 2017 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 a reconciliation of non-GAAP measures can be found on our website at www.potlatchcorp.com.

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

Thank you, Jerry. Good morning. Our leverage to lumber prices was evident in our first quarter results. This was a strong start to what we think will be a very good year as domestic lumber demand continues to grow and duties in the Canadian lumber trade case are implemented.

We were pleased with the preliminary countervailing duty announcement on Canadian lumber earlier this week and look forward to the antidumping announcement near the end of June. The preliminary countervailing duty was in line with our expectation and is an important step in the process to allow the U.S. industry to grow to its natural level.

We continue to believe that our market share based quota is the appropriate long term solution. We continue to expect 1.25 million to 1.3 million housing starts in the U.S. this year, and we benefited from an early start to the building season in parts of the country. Builder confidence and the consumer sentiment, both remain at high levels.

Mortgage rates remain affordable with rates still in their historic lows and single family home construction continues to grow, both in absolute terms and as a percent of total housing starts. This trend is meaningful because a single-family unit uses about 3 times more lumber than a multifamily unit. The repair and remodel market remains strong.

The low inventory of existing homes for sale, coupled with favorable economic backdrop has made expanding and remodeling homes attractive. This is an important market segment that consumes more lumber than the U.S. new housing market.

Only timberlands in Northern Idaho provides -- continues to provide the opportunity to participate in a robust cedar sawlog market. We have locked in prices for nearly all of our cedar sawlog volume planned for this year and expect that this will result in a $7 million increase in EBITDA compared to 2016.

We also remain encouraged by the amount of capital being invested in manufacturing operations in our southern wood baskets.

While we believe that improvement in Southern sawlog prices is still several quarters out, the longer term outlook for our wood baskets is improving with capacity additions and expansions as well as the favorable long term outlook for lumber prices following the CBD determination.

Our Wood Products mills are operating very well, and we expect to exceed the 700 million board feet of lumber that we shipped in 2016. Higher volume and stronger lumber prices should result in a meaningful increase in the segment's EBITDA this year. Turning to the balance sheet.

Cash balance increased $19 million during the quarter and what is normally a seasonally weak quarter and now exceeds $100 million. Our top priority for this cash remains bolt-on acquisitions in the central Gulf South states. Our stock prices increased 12% thus far this year and is up over 50% since the beginning of 2016.

We opted not to repurchase any shares in the first quarter this year. Potlatch has a lot of wind in our sales, and we expect 2017 to be a very good year. I'll now turn the call back to Jerry to discuss the quarterly results, and then we'll take questions..

Thanks, Mike. Beginning with Page 3 of the slides accompanying this call, we reported net income of $16.9 million or $0.41 per diluted share in the first quarter. This compares to net income of $14.4 million or $0.35 per diluted share in the fourth quarter. EBITDA was $35 million in the first quarter, equal to last quarter.

I'll now review the results of our operating segments. Information for our Resource segment is displayed on Slides 4 through 6. Operating income for the segment was $14.9 million in the first quarter compared to $22.7 million last quarter. The decrease in earnings is largely due to seasonally lower harvest volumes in the North and the South.

While down sequentially, the 882,000 tonnes that we harvest in the first quarter exceeded the range that we provided on last quarter's call. I'll now provide more color as I cover each region. Turning to Slide 5. We delivered 354,000 tonnes of sawlogs in the North in the first quarter.

This is a normal seasonal decline in volume and is due to constraints imposed by winter weather. Northern sawlog prices increased 3% on a per ton basis in the first quarter. Demand and prices for cedar sawlogs continue to be very strong.

The average price for cedar sawlogs increased 15% on a dimensional basis in the first quarter compared to the fourth quarter. The strength in cedar sawlogs more than offset the seasonal decline in northern sawlog prices that normally occurs in the first quarter. I'll now turn to the South on Slide 6.

Logging conditions remain favorable in the first quarter due to drier than normal conditions. As a result, we were able to harvest 470,000 tonnes in the quarter, which exceeded our expectation by almost 100,000 tonnes. We still plan to harvest 4.2 million tons in total this year.

Sawlog prices in the South decreased 9% due primarily to a seasonally lower volume of hardwood logs in the sales mix. The price of Southern pine sawlogs declined slightly quarter-over-quarter, which is largely the result of a higher mix for the small diameter logs. Results for the Wood Products segment are displayed on Slides 7 and 8.

Operating income was $8.7 million in the quarter, which was up slightly from the $8.3 million earned in the fourth quarter. Our average lumber prices increased 7%, while lumber shipments were 7% lower in the first quarter. All of the mills were operating well and prices and shipments both exceeded our expectations.

The sequential decline in lumber shipments was due to 3 weeks of scheduled downtime at our Warren, Arkansas sawmill for boiler maintenance and replacement of pollution control equipment in the first quarter. Lost production and repair and maintenance expenses had a negative effect on EBITDA of about $3 million in the quarter.

I'll now shift to our Real Estate segment on Slides 9 and 10. Real Estate's operating income was $8.6 million in the first quarter compared to $6 million last quarter. The average sales price increased from $1,200 per acre in the fourth quarter to $2,200 per acre in the first quarter.

This was primarily due to a large HBU conservation sale in Alabama, for almost $2,600 per acre. The segment sold 9% fewer acres in the first quarter. Turning to financial highlights on Slide 11. We ended the quarter with cash of $101.7 million. We also have $249 million available on our revolver. Our leverage metrics continue to improve.

Our net debt to enterprise value is down to 20% and net debt to EBITDA is now under 4 times. Capital expenditures were $6.3 million in the first quarter. We are on track to spend capital of $27 million this year. Now I'd like to comment on our outlook, which is summarized on Slide 12.

We expect to harvest between 775,000 and 825,000 tons in the second quarter. The decline in volume relative to the first quarter is normal and is due primarily the spring break up in Idaho. Slightly more than half of the total harvest volume in the second quarter is planned to occur in the South.

Sawlogs are anticipated to represent approximately 90% of the harvest in the North and 45% of the harvest in the South, including stumpage.

Our outlook assumes that Northern sawlog prices will increase about 10% per ton in the second quarter due to higher prices for cedar sawlogs, the effect of higher lumber prices on indexed volume and seasonally wider logs. We expect Southern sawlog prices to decline modestly in the second quarter.

This is primarily due to a higher proportion of smaller diameter pine sawlogs in the sales mix. We are also assuming that Southern pulpwood prices will decrease about 5% in the second quarter due to high inventories at our pulp mill customers.

Resource earnings will decline 15% to 20% in the second quarter compared to the first quarter as a result of seasonally lower harvest volumes and based on these price assumptions. Turning to Wood Products. We expect lumber shipments to be 190 million board feet in the second quarter.

This would establish a new quarterly lumber shipment record for Potlatch. Our forecast assumes that the average lumber price realized will be about 5% higher in the second quarter compared to the first quarter. Wood Products earnings would double compared to the first quarter of these volumes and prices. Shifting to Real Estate.

We anticipate selling just under 5,000 acres at an average price of $1,400 per acre. We estimate that land basis in the quarter will be 15% to 20% of revenue. We expect that corporate expenses will be just over $9 million and that interest expense will be $7.5 million in the second quarter.

Lower interest expense in the first quarter was due to receipt of our annual patronage distribution related to our farm credit debt. We estimate an annual tax rate of 15% to 20% in 2017. The consolidated tax rate should be about 30% in the second quarter due to strong Wood Products earnings and seasonally wider Resource earnings.

Overall, we expect operating earnings for our three business to be slightly higher in the second quarter compared to the first quarter. This is in spite of the fact that the second quarter is typically our seasonally weakest quarter of the year.

We anticipate higher lumber shipment volumes and higher prices for lumber and cedar sawlogs will more than offset seasonally lower harvest volumes and the sale of fewer real estate acres. That concludes our prepared remarks. Karen, I'd now like to open up the call to Q&A..

[Operator Instructions] And your first question comes from the line of George Staphos of Bank of America..

I wanted to start on Resource. Just I want to make sure I understood.

Jerry, did you say Resource earnings would be down, did you say 15% sequentially, I want to make sure that I heard that correctly?.

Yes. So the specific comment, George, was down 15% to 20% sequentially..

Okay. Fair enough.

And then in terms of Idaho, will you -- do you think you'll be able to recoup that harvest in the second half of the year?.

So typically, George, we have -- winter kind of releases its grip, snow melts in the second quarter. So it's normal for Idaho's harvest volume to be at its low point. And Q3 is the driest quarter of the year. And just like with every year, we expect that our harvest volumes will increase significantly in the third quarter of this year..

Jerry, could you put a sort of round number sort of sequential pickup that you would expect there, just to refresh our memories on that?.

Yes. So overall, we would expect somewhere around 1.4 million tons in Q3 for the company..

Okay. And in terms of Wood Products, you did better than we had expected.

Do you have a new frame of reference from what you think your overall capacity is in lumber given the investments, again, congratulation on the performance in that business and your operating efficiencies?.

Yes. So George, this is Eric. Yes, I think we do -- we continue to push our mills really hard there. As Jerry said, they're all running really well right now. We have a relatively new manager down at our Warren, Arkansas mill. He's doing a great job and he's getting production up. Similarly, we've arranged for some extra kiln capacity at our St.

Maries mill. Combined the Warren and the St. Maries improvements, debottlenecking if you will, should allow us to run about 720 million board feet a year now. So last year, we ran 690 and this year, we think we'll get to around 720..

Okay. My last two and I'll turn it over. When we think about the lumber situation here in the states, at the end of the day, we need Canadian lumber in the U.S. if we ultimately get back to 1.4, 1.5 million starts and Canada needs the U.S. as an outlet.

So that would suggest that at some point, it'll be a negotiated agreement and one that hopefully doesn't take forever.

As you sit here today and maybe you can't comment, but if you could, how long do you think it will take before you ultimately get to some sort of negotiated quota system to what you were saying earlier relative to market share?.

George, we don't know. The two countries continue to negotiate through their trade representatives, dialogues been ongoing for some time. Well, the CBD determination was already on a path and a time line. So I would hope that it can be resolved this year to provide more certainty and less volatility in markets but who knows..

Understood. Last one and also congratulation on Gonzaga, even though you didn't quite get all the way there. In terms of pulpwood pricing there's been this just gradual downward clip in the South.

Recognizing it's not the most important piece necessarily of your business, what do you think is driving that? And at some point, do you see an inflection point in terms of the trend that we've seen there in realizations?.

Yes. Thanks, George. So we have seen a lot of pressure really across the entire U.S. South in pulpwood pricing. Like I do, just go look at the Timber Mart South data and you'll see that just about every market is down year over year. I think it's due to couple of different factors, though. Earlier this year, there were number of mill outages in the South.

So demand was relatively weak compared to normal. So that probably caused wood to back up, I think that's the first factor. And the second factor is that you have a lot of mills in the South that are running -- sawmills that are running really, really hard producing a lot of residuals that are available for the pulp mills to purchase.

I think looking out into the future in our region across our three states, we've talked about it before, but we see about 12 million tons of incremental demand on the horizon and of that 12, it's roughly two thirds pulpwood, one thirds sawlog.

So that extra pulpwood inventory that's out there, hopefully, will get consumed by that new capacity, and we'll see some of the pricing pressure here alleviate..

And your next question comes from the line of Collin Mings of Raymond James..

First, just going back to George's question on Wood Products, the 720 million board feet.

Just curious if there is any additional upside for further capacity going forward just from CapEx, I know you guys have been investing heavily in the mills the last couple of years, or do you really see that as kind of the max run rate going forward?.

No, I wouldn't call that the max run rate necessarily. I mean, we are constantly pushing our mills harder and harder as probably every manufacturer is. I mean, if I go back to 2015, we're running 625 million board feet a year. Last year was 690 and this year we're looking at 720.

I think we're constantly looking for new capital projects and efficiency improvements that allow us to run the mill harder. I can't comment yet on what 2018 is going to look like, but I don't think we're at the end of the road here at all..

Okay. And then just as it relates to Wood Products, it would seem like it would be relatively none have been in terms of guidance you laid out. But there was some media reports about a fire at one of your mills last week.

Can you just touch on that, if anything relevant?.

Yes. No, it was a very, very small file. I'm surprised it got any press whatsoever. It was at our Gwinn sawmill. We blew a bearing in one of our exhaust fans and that caused a small fire. In total, the repair costs are going to be, I don't know, $10,000 or $15,000, something like that.

We lost one shift of production, and we are going to run an extra day to make up for that loss production. So virtually no impact..

Okay. And then switching gears into the capital allocation front. I know in the prepared remarks, and you guys have talked about this before as far as looking at acquisition opportunities and trying to pursue some bolt on acquisition.

But just curious kind of what are you seeing in the environment right now? And then just given the relatively limited other options for your cash right now and that balance continuing to grow given the strength of the businesses, have you been more aggressive on the margin as far as some of your bidding, I presume, some of these timberland deals?.

Well, the bolt on acquisitions as we've stated are what we're prioritizing and to us that means something, that's a $10 million to $50 million in size or perhaps slightly bigger.

And the pipeline of those, there is a, I don't know, a half of dozen or a dozen of those things kind of in play at all times, but we have not been more aggressive in pursuing them just because we have cash, we've been disciplined. I'm using the same kind of fundamentals and assumptions that we have all along.

The bigger acquisitions that are on the market. The big auction processes are kind of beyond our scope, and we are not participating in those. But we continue to be, I guess, somewhat pleased with the fact that timberland values continue to hold up and be strong.

Large Rayonier transaction that happened in the first quarter was, I think, further evidence that the assets are in great demand and people value quality timberland. So that's a positive thing as a large land owner..

Okay. And then just, I think, in the remarks as far as bolt-on acquisitions, primarily focused on the Gulf South.

Just curious would your appetite also be for opportunities in Idaho as well? I believe the TIMOs out there with the package right now, so just trying to gauge your interest and maybe expanding your presence in Idaho as well?.

Sure. We're -- by definition, the bolt-on acquisition would apply to all of our regions. And so certainly, Idaho would be as equal interest to the South if we can find attractively stocked and attractively priced timberland. So absolutely..

The only thing worth noting about that Molpus tract, Collin, is that it is at a higher elevation, and it is further from markets than most of our core timberland in Idaho..

Okay. That's helpful. Last one, I'll turn it over just -- Jerry, just kind of the housekeeping question, if you will. Just as it relates to the potential for a tax reform.

Is there anything associated with your TRS that would limit how you could benefit from that if we did see as a reset in corporate tax rates?.

No, short answer, Collin is there's nothing that would limit the way we benefit. And quite frankly, the 15% rate that was -- has been announced, that would be very favorable, particularly in an environment where Wood Products business is profitable as it is. So we, certainly, would love to see that come to fruition..

Great, appreciate the color guys, congrats on the quarter..

And your next question comes from the line of Gail Glazerman of Roe Equity Research. Q - Gail Glazerman Hi good morning. Just to pick on something. Eric, you mentioned one of the factors going on with pulpwood in the South was increased residuals given the strength in lumber markets.

And I'm just wondering, I guess, you kind of talked about your sawlog pricing being impacted by mix. What are you seeing -- because presumingly that would mean more sawlog demand? What are you seeing in terms of kind of the South? Obviously, you're not looking for near-term move, but Timber Mart-South continues to show erosion.

I'm just trying to reconcile that..

Well, yes. I mean, so we do have, as you know, excess timber in the South, but it's really in sawlogs where that issue is happening, Gail. If you go back to, say, 2006, pine sawlog demand in the South was 80 million tons a year, in the heart of the recession. This is across all the states.

In the heart of recession, it dropped about 50 million tons, and now it's worked its way back up to 60 million tons a year. So we're still below pre-recession sawlog demand levels. However, if you compare that to pulpwood demand, pulpwood demand was 110 million tons a year, back in 2006. Really, didn't drop a whole lot in the recession.

It dropped about 105 million tons, and now it's up to 116 million tons. So it's actually higher than pre-recession levels. So what we need is really incremental capacity on the sawlog side to get those sawlog prices moving higher..

Okay. But you weren't seeing kind of but is not a notable part. The increased sawmill production in the first quarter isn't notable. In cedar, I guess, you said you locked in some volume.

But just in terms of the underlying market, is that still strengthening? Or you're trying to see that kind of stabilize and calm down a little bit?.

Well, we're very pleased with where cedar is at. Full year pricing for us this year, which we've already locked in is about 24% higher than last year's average prices. But cedar, it's used for kind of high end applications in fencing and decking and paneling.

And, frankly, the only real substitute for cedar is a composite product that is relatively more expensive. So we have had a great run in cedar and demand remains very robust. So we'll see how it plays out beyond this year. But right now, we're very happy..

Okay. And then just one last one.

Can you give any insights into what you think the Canadian producer behavior has been kind of ahead of the duty announcements? Did you see them materially redirect tonnage? Or as prices have come up, have you seen any kind of just shift in flows that you've noted in your business?.

Gail, what I'd say is people have commented on the Canadians put in place seller strike in the first quarter. There were a couple of times when they withheld product from the market in attempt to recoup increased costs. Frankly, it seems to be pretty effective.

And since the duty was announced just days ago basically, there was a stalemate between buyers and sellers. Very little volume is being transacted right now. Buyers seem to think prices are headed lower and sellers seem to think prices are headed higher.

So we had a bit of a stalemate, but at some point in time, this will break and business will resume..

I think the only thing I'd add is the largest, perhaps, product shift that we've seen as a result of the duty determination leading up to the retroactivity of the duties is significantly less lower grade lumber being shipped from Canada to the U.S.

So that's raised the price of so called economy grade lumber that we might produce at one of our stud mills, which has been very beneficial..

[Operator Instructions] Your next question comes from the line of Ketan Mamtora of BMO Capital..

I want to come back to the bolt on acquisition that you all referenced.

Is that limited to only timberland? Or does that potentially include just sawmills as well?.

No, we've stated for some time that timberland acquisitions are our top priority. But if they were coupled with a saw mill, we would certainly entertain that, and it would be complementary to our business that we're already in.

So to use example of a family that might own 100,000 acres of timberland, and they happen to own and operate a saw mill as well, and they want exit the entire business. We certainly would be willing to entertain that and purchase both, whereas, I think most of the TIMOs would not have an interest in the manufacturing we would..

Right.

But would you go for just sawmills alone without the timberland?.

Not unless the saw mills were proximate to the timberland that we already own. So we would not purchase a standalone sawmill and I may cut up Georgia, where we don't own any timberland today. But if there were meaningful opportunities to purchase a saw mill that was already proximate to the company's timberland, we'd certainly evaluate that..

Got you. That's helpful.

And then can you just help me what drove the upside in Q1 harvest?.

Well, yes, in the U.S. South, conditions were very, very favorable. It was pretty dry this year relative to prior years. For us, we tend to -- our harvest in the South tends to peak in Q3 with significantly higher volumes. So this year, our outlook is for roughly 700,000 tons in the South compared to the 470,000 tons that I referenced.

So the sooner we can get after our harvest volume for the year if operating conditions are good that's what we'll do. And so we had a good first quarter this year into South from volume perspective just because we're trying to get that amount that we have to get in Q3 to get it lower..

And your next question will come from the line of Mark Weintraub of Buckingham Research..

In the past, you've been very consistent that the dividend is largely going to be driven by what you see with Southern log profitability. I think the extended profitability in lumber probably has been even greater than you might have anticipated.

When does that? Or does it not begin to factor into your thoughts about the dividend?.

Well, as you just to reiterate what we've consistently said is that we think a turn-up in Southern log prices is something that will be sustainable long term and therefore, that translates into sustainable cash flows from southern Resource business, which gives us more confidence to raise the dividend.

The lumber business is terrific right now, and we think it's going to be that way for a few years, but you don't have to go any further back in 2015, when we had a very weak year in Wood Products. So we are more reluctant to set a dividend on the Wood Products earnings as compared to the Resource cash flows.

But as cash continues to build, certainly, I think the board will be forced to look at all options and perhaps the Wood Products earnings will play out a role in the dividend determination. It's premature to say we typically review that in the fourth quarter with our board..

Okay. And recognizing, you don't have the crystal ball to say when duties might become quotas.

But can you remind us last time around in the process of duties going to kind of the tariffs, how long that process was?.

I don't remember. That's readily available in the literature. We'll research and give you an answer off-line, but I don't recall. I thought that the duty determination happened in around '01 in that lumber trade case and it seems like the tariff system was finally put in place in like '05, but I could be wrong about that..

Okay. But it can be a long period of time that the point being....

Yes..

Our next question comes from the line of Paul Quinn of RBC..

Hi thanks very much and good morning guys. Mike, you made a comment that you expect the improvement in the U.S. side of sawlog prices several quarters out.

Why not several years out? What gives you the confidence that it's only a number of quarters out?.

Well, I think, again, we have to speak to the marketer, where we operate, which is the Central Gulf U.S. South in that area of Alabama, Mississippi and Arkansas, we've seen 15 announcements for capacity additions or expansions in mills that service -- that are proximate to our timberland.

And in fact, for almost all of those that are up and running have been completed the Biewer mill, the Louisville plywood plant, a number of others. We're already delivering logs to those.

So that's why I think for us we look at and say, hey, this is probably a few quarters away before the incremental demand in the area allows us to reach equilibrium on pricing and then eventually an increase versus several years, which might happen in some parts of the South, but in our operating areas we think it's quarters..

How quick do you think that lift will be? Like what do you look at that slope in terms of the price rise? Is that a quick lift? I mean, we are at pretty low prices right now, and especially compared to where we were at 2007, 2000 early part of 2008?.

It's hard to know. But I think as you think about sawlog pricing across the South, I would expect it's on a gradual slope. It's not a robust snap that all of a sudden happens. I think it's slow and steady and that's -- frankly, that's good for our business..

Okay. And then just looking at that last RISI timber report, they were mentioning some softness, potential softness in timberland values based off increased discount rates, and I guess, a disappointment in Southern sawlog pricing.

You seem to suggest that timberland values are pretty steady right now, is that your expectation?.

Yes. I mean, just go look at that Rayonier transaction in the first quarter, Paul, I mean, it's -- that was a pretty good number and the stuff that we're seeing and we're competing in, we've seen no letup in pricing..

I think you always have to look at what was the quality and stocking of the timberland that was purchased. And I think high quality, well stocked Southern U.S. timberland continues to have benchmark prices that are in this $2,000 an acre kind of a range sometimes higher, sometimes a little lower. But we haven't seen any change..

Yes. I'm assuming, I'm still shaking my head over that Rayonier transaction myself. So maybe just asking a question on lumber. You get the forecast for Q2 up 5%, but Eric, you mentioned the seller strike in Q1 that sort of pushed up prices. We're seeing weakness in the futures market.

I guess, it comes down, I guess, do you think the buyers are going to lose out here and the producers are going to get prices up in Q2?.

Well, just bear in mind the prices have had a huge run here in Q2 already. I mean, if we look at where Random Lengths is today, Paul, that's a 400 -- last one I saw was $437. That's up from $83 in Q1. So that's meaningfully higher than kind of the 5% that we referenced here.

So prices today are transacting at levels higher than what we expect them to be for the full quarter. So our view is consistent with what you're seeing in the futures market, which is that things are to come off a little bit here, yet in Q2. Not a precipitous drop though..

We got six weeks of pretty good pricing in the bag..

Yes..

That's really what we're saying..

Your next question comes from the line of Steve Chercover of D.A. Davidson..

Can you hear me now? I apologize for that. So first of all, can you remind us or if you know the mechanics of how the tariffs are going to work as they currently exist? And will they be collected by the U.S.

Treasury and distributed to those who petitioned for the antidumping, or retained by the treasury?.

I don't think we have the last word on that. My understanding is they're going to be collected by the treasury, but there's no thoughts to distribute them to the petitioners, none that we're aware of. We, certainly, don't expect that..

Okay.

And then with respect to pulpwood and why the demand has grown? Do you think it's because sawmill residuals are scarce? Or because of biomass demand? Or is there something else that's driving the increase in pulpwood demand?.

I think it's a host of factors, Steve. It's partially pulp mills, it's partially OSB mills. It's strength throughout the pulp industry. I mean, the only sector I can think of as weak is maybe papers. But it's probably driven mostly by OSB and by biomass..

Got it.

And final question and recognizing that you're not currently exploring very large transactions, but with your shares at current levels will you be willing to use it as a currency if the proper acquisition presented itself?.

I mean, we'd look at our balance sheet, our equity and all available forms of financing and absolutely, if it made sense, we do it..

And there are no further questions. I now turn the call back over to management for closing remarks..

All right. Thank you, Karen. We certainly always appreciate everybody's interest in Potlatch. We feel really good about this year and moreover the path we're on. Thanks much, and we'll talk to you soon..

This does conclude today's conference call. All participants may now disconnect..