© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Celine and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic First Quarter 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [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. Good morning, and welcome to PotlatchDeltic's first quarter 2021 earnings conference call. Joining me on the call is Eric Cremers, PotlatchDeltic's President and Chief Executive 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.potlatchdeltic.com.
I'll now turn the call over to Eric for some comments, and then, I will cover our first quarter results and our outlook.
Well, thank you and good morning everyone.
The year is off to an extraordinary start, which is saying a lot given our incredible financial performance last year.
Consolidated EBITDA was $195 million in the first quarter of 2021, which is our third consecutive quarter of record financial performance. All three of our business units performed well in the quarter.
Our Wood Products segment generated a record $126 million of EBITDA in the first quarter. To put that amount in perspective, Wood Products earned nearly as much in the first quarter as it did in all of last year. Our employees did an excellent job and remain focused on meeting our customers needs safely, despite challenges presented by extreme winter weather in the South and lingering effects of the COVID pandemic.
Our Timberland segments EBITDA of $68 million was also a quarterly record. The performance highlights the value being added by our Indexed Idaho sawlog sales contracts, which are unique in the industry. Our Idaho team took advantage of favorable logging conditions to capture prices that remain near record levels and our Southern team did a good job mitigating the effects of extreme winter weather on harvest volumes.
Our Real Estate segment also had a strong quarter as demand for rural and development land remains robust. And in our Chenal Valley master-planned community in Little Rock, Arkansas, we raised residential lot prices approximately 10% and still sold 51 residential lots in Q1, along with completing a $3 million commercial sale.
In Idaho, our Real Estate team has done a magnificent job capitalizing on the surge in demand for rural acreage. Our team is creating small rural lots for sale about 10 to 20 acres in size and we expect to sell about 40 of these lots this year for about $5 million at a price that is multiples of the underlying timber value.
Looking ahead, we expect housing fundamentals will remain very strong. U.S. housing starts increased to just over 1.7 million units on a seasonally adjusted annual basis in March, which is the highest level since June of 2006. Total permits remained above 1.7 million units, which is well above consensus expectations of about 1.5 million units for the year.
On a macro level, the stage for robust housing demand was set by massive underbuildings since the Great Financial Crisis, record low inventories of homes for sale, historically low mortgage rates, and millennials entering their prime home buying years. On the first point, Freddie Mac recently stated that the shortage of U.S. single-family homes has grown to 3.8 million units. These factors all suggests that housing construction will remain very active for the foreseeable future.
The repair and remodel market, which represents about 40% of lumber demand is also expected to continue to grow. Key drivers include the age of U.S. housing stock, which is now around 42 years on average, high and increasing levels of home equity, and the work-from-home trend. Positive demand signals include recent commentary from the Big Box home supply stores like Home Depot and Lowe's, the Harvard Joint Center for Housing Studies, and the National Association of Homebuilders Remodeling Market Index, which hit a new high in the first quarter. It has been challenging for the industry to catch up to stronger than expected lumber demand. This is evidenced by lumber inventories that remain at historically low levels despite lumber production remaining at its highest levels since the Great Financial Crisis.
Truck and rail transportation bottlenecks may also play a role, particularly as we head into produce season in the South. Absent a significant increase in mortgage rates or a COVID resurgence, it is hard to imagine what could cause lumber demand to drop and prices to moderate in the foreseeable future. Our leverage to lumber strategy is perfectly situated to continue to drive strong financial performance for the remainder of 2021 and beyond.
Turning to capital allocation, returning cash to shareholders remains a top priority. We're positioned well for our board to consider distributions beyond our current annual dividend of $1.64 per share per year. This discussion typically occurs at our December board meeting each year.
Our strong balance sheet and $761 million of liquidity provide a solid platform as we consider additional investments in our existing mills or accretive acquisitions. We're interested in acquiring Timberlands, Mills, or a combination of the two near our current operating areas.
We're excited to publish our second environmental, social and governance report in the coming weeks, which will add disclosures of Scope 2 greenhouse gases, expanded information about our carbon sequestration, and storage and climate-related analysis. PotlatchDeltic is a leader in sustainable forest management and we're committed to environmental and social responsibility and to responsible governance.
To wrap-up my comments, PotlatchDeltic is very well positioned to take advantage of favorable industry fundamentals and our strong liquidity and prudent capital allocation strategy positions us to continue increasing shareholder value.
I'll turn it over to Jerry to discuss first quarter results and our outlook. Jerry?
Thank you, Eric.
Starting with Page 4 of the slides, adjusted EBITDA increased from $164 million in the fourth quarter to $195 million in the first quarter. This is the third quarter in a row that we have set a new quarterly EBITDA record, and we have generated $530 million of EBITDA over the last 12 months. The effect of higher lumber prices more than offset the 72,000 acre Minnesota land sale completed in the fourth quarter, seasonally lower harvest volumes, and lower lumber shipments.
I'll now review each of our operating segments and provide more color on the first quarter results. Information for our Timberlands segment is displayed on Slides 5 through 7. The segment's adjusted EBITDA increased from $63 million in the fourth quarter to $68 million in the first quarter. Our team leveraged good logging conditions and strong markets to harvest 427,000 tons of sawlogs in the North in the first quarter. This volume is higher than the 378,000 tons that we harvested in the fourth quarter. Northern sawlog prices were 1% lower on a per ton basis in the first quarter compared to the record fourth quarter price. Higher sawlog prices mostly offset the negative effects of seasonally heavier sawlogs and the timing of price resets on the Indexed volume.
For example, indexed prices were at their lowest recent point in January and sawlog shipments seized mid-March with the onset of Spring breakup right as lumber prices were surging.
In the South, we harvested 893,000 tons in the first quarter. As Eric mentioned, our Southern Timberlands team did a really good job making up most of the shortfall caused by extreme winter weather in February. Our Southern sawlog prices were 1% lower in the first quarter compared to the fourth quarter, primarily due to seasonally lower hardwood volumes in the mix.
Turning to Wood Products on Slides 8 and 9, adjusted EBITDA increased from $70 million in the fourth quarter to $126 million in the first quarter. This is a new quarterly EBITDA record for the segment.
Our average lumber price realization increased 41% from $629 per 1,000 board feet in the fourth quarter to $890 per 1,000 board feet in the first quarter. To provide context, it's helpful to look at our lumber prices by month. Our average lumber price realizations per 1,000 board feet increased from $817 in January to $880 in February and to $961 in March.
Lumber shipments decreased from 274 million board feet in the fourth quarter to 258 million board feet in the first quarter. We lost a week of production at our three Arkansas sawmills due to the winter storm that hit Texas and Arkansas in February. We also had planned maintenance downtime during the quarter. The lower production hours negatively affected fixed cost absorption. Higher indexed log costs in our Idaho Mills also affected margins.
Moving to Real Estate on Slides 10 and 11, the segment's adjusted EBITDA was $17 million in the first quarter, compared to $57 million in the fourth quarter. As a reminder, fourth quarter included a 72,000 acre Minnesota transaction for nearly $48 million.
Shifting to financial items which are summarized on Slide 12, our total liquidity increased to $761 million. This amount includes $382 million of cash as well as availability on our undrawn revolver. We did not repurchase any shares during the first quarter. As a reminder, we have a 10b5-1 plan in place. This reflects our ability and commitment to repurchase our shares at attractive prices as part of a broader capital allocation strategy focused on increasing shareholder value over the long-term.
Capital expenditures were $14 million in the first quarter. Note that the amount I just mentioned includes real estate development expenditures, which are included in cash from operations on our cash flow statement and excludes Timberland acquisitions. We continue to expect that our total capital expenditures will be in the range of $55 million to $60 million, excluding acquisitions in 2021.
I'll now provide some high level outlook comments. The details are presented on Slide 13. We expect to harvest 1.1 million to 1.3 million tons in our Timberland segments in the second quarter. Harvest volumes in the North are planned to be seasonally lower due to Spring breakup. We expect Northern sawlog prices to increase in the second quarter due primarily to higher indexed sawlog prices. Harvest volumes and sawlog prices in the South are expected to be comparable to the first quarter.
A lumber order file is currently three to four weeks depending on mill. Our average lumber prices thus far in the second quarter, including orders booked but not yet shipped is approximately 18% higher than our first quarter lumber price. As a reminder, a $10 per 1,000 board foot change in lumber price equals approximately $12 million of consolidated EBITDA for us on an annual basis. We plan to ship 275 million to 285 million board feet of lumber in the second quarter.
Shifting to Real Estate, we expect to sell approximately 2,500 acres of rural land and approximately 15 Chenal Valley lots in the second quarter. Lot demand remains strong. But there will be a pause in the second quarter as builders digest recent lot purchases. We continue to expect to sell approximately 145 lots for the year. Additional real estate details are provided on the slide.
Corporate expense is expected to be higher than the typical level in the second quarter primarily due to bonus accruals related to our strong results. For the year, we expect corporate expense to be $45 million to $50 million.
We also expect our consolidated tax rate will be approximately 20% in the second quarter and for the full-year. Overall, we anticipate second quarter total adjusted EBITDA will be higher than the first quarter, which would establish a fourth consecutive new quarterly record for the company.
We remain very bullish on industry fundamentals. And we believe that our integrated operating model and leverage to lumber prices are aligned with those fundamentals. We're well positioned to continue growing shareholder value over the long-term.
That concludes our prepared remarks. Celine, we'd now like to open the call to Q&A.
Thank you. [Operator Instructions].
We have our first question coming from the line of Ketan Mamtora with BMO Capital Markets. Your line is open.
Thank you. Good afternoon or good morning, over there. Congrats on a very strong quarter. Maybe first question, probably start-off with the capital allocation priorities. Eric, you alluded to it in your prepared remarks around kind of distributions beyond your regular dividend. And recognizing you don't want to jump before the board, but I mean, what are the different options on the table as you think about these distributions, is it more like a special dividend, are you thinking about kind of a variable two tier dividend, perhaps any thoughts will be helpful?
Yes. So Ketan, good morning or afternoon, I guess, depending upon where you are. Yes, the dividend is an important issue. We've got a history of raising our dividend on a sustainable basis slowly but surely over time, and we've increased that dividend 30% since 2012, on a per share basis, including the recent 2.5% increase in Q4. So we're very mindful not to let the cart get ahead of the horse here. Slow and sustainable is strategy that we want to employ here. We're just beginning to have those conversations with our board. So it's probably a little bit premature as to what that dividend increase might look like later in the year. But certainly, it's something we'll be exploring along with all the other capital allocation opportunities that we have. So I guess to answer your question, it's still a little bit of to be determined.
Understood. So is it fair to then say that, at this point, the way you're thinking about it is still kind of an increase in regular dividend. But not kind of considering things like, a special dividend or a variable dividend? Is that a fair characterization?
No. I don't -- I wouldn't go that far. I would say we're exploring it. The notion of a steady increase to the dividend, but we're also going to have to think about the extraordinary amount of earnings that we're making in our REIT right now may force us into a larger dividend distribution, than we're used to. So it's still early in the year. And we really haven't gotten into those discussions yet with our board. So it's too soon to say how it's going to play out.
Understood. And Eric or Jerry is there a way to think about sort of what is the kind of cash cushion you want to build? I mean, obviously we're in extraordinary times, given how strong lumber prices are and your unique positioning with Idaho log prices, you already kind of just 0.7 times levered by the end of Q2, you may be less than half a times levered. How do you think about kind of having that cash cushion?
Good afternoon, Ketan. This is Jerry. So in terms of a cash cushion I mean, one as you know, we tend to manage the balance sheet fairly conservatively. Now, having said that, a cash generation really haven't kicked into gear with these higher lumber prices, we're accumulating cash well belong beyond any sort of cushion that we normally would want to hold through a cycle. And what that does is it creates certainly opportunities, as Eric mentioned, you think about a full suite of capital allocation opportunities and priorities to drive shareholder value.
But, to answer your specific question, we like to hold enough cash to make sure that we can opportunistically buy shares that tends to happen when business conditions aren't very good, just like a year ago in March, we were actively buying shares when markets panicked over COVID. And fortunately, we had that that strong balance sheet allowed us to go take advantage of that opportunity. So there's a base level, it's certainly not $382 million, that is something that's probably well below $382 million.
Understood. Okay, that's helpful. And then is there any change in thinking around kind of build versus buy for sawmills?
Well, we look at the economics of Greenfield mill construction, from time to time. And frankly, Ketan, historically spending our capital on discrete projects in our existing mills, that's true whether they increase production or lower costs, or improve grade yield, those projects tend to have higher returns and are therefore more attractive than the Greenfield option.
In the current environment, it costs around 700 bucks, 1,000 of capacity to build a new mill, and it takes about two years to get it built. So in addition, there are staffing challenges, and there's a lengthy start-up curve. So I think to answer your question, we're going to continue to explore and think about the idea of a Greenfield mill. But frankly, our preference is to go the low risk route that's proven very successful for us and make incremental improvements to our existing mills.
Got it. So on the same -- same, Eric, what is it that you could potentially produce this year at your sawmills if demand were to remain strong, and if your customers are asking for it?
When you say what kind of mills produce in terms of volume or --?
Yes, sorry. Yes, in terms of volume.
Yes, I think this year we're probably looking Ketan at about, I don't know a 2% increase in volumes compared to last year about 20 million feet. We've got a history here over the last several years of increasing production shipments anywhere from 1% to 4% per year, just depending upon the timing of capital projects and weather events and things like that.
Last year, we got hit with COVID that impacted production 3% to 4%. Well, now this year we're lapping that which is great news. We're not having big impacts from COVID. But on the other hand, we just had a storm hit in Texas, and Arkansas that that set us back 10 million feet. But I think over the long haul, you'll see us increase our shipments this 1% to 4% range or like this year, it's going to be about 2%.
Got it, very helpful. I'll jump back in the queue. Good luck for the rest of the year.
Thanks.
Thanks.
We have our next question coming from the line of John Babcock with Bank of America Merrill Lynch. Your line is open.
Hi, everyone. This is Staphos [ph] sitting here for John Babcock today. Just kind of returning to the discussion on outlook for the rest of the year. Just wanted to get your take on kind of the current view of how you expect the lumber market to play out in the balance of the year. And then relatedly how are inventories in the channel right now versus how they were at the end of the quarter?
I'll answer the second one first, which is that inventories are at absolute rock bottom levels. Just, it's incredible. I can tell you the story about a fence blue down in my backyard. My landscape construction guy had to drive 100 miles outside of town to find new fence posts to put it in. But anyway, inventories are incredibly low levels.
So back to the first part of your question on lumber prices, our Q2 lumber prices to-date as Jerry mentioned, they're about 18% higher than Q1 based on shipments and prices included in our order files have stretched into late May at this point. And prices frankly have continued to increase the last couple of weeks. I think our spot prices are maybe up 19% today compared to where we finished Q1. So the full-year -- for the full-year demand indicators, they're expected to remain strong both for new homes and for repair and remodel market segments. Builders are reporting record home sales. And they're going to need that that wood to build those homes.
In addition, as I just mentioned, field lumber inventories remain at historically low levels. So as we talked about unexpected large increase in mortgage rates or a resurgence in COVID it's just hard to imagine what could cause lumber prices to correct in the foreseeable future.
In fact, RCI just raised their 2021 North America lumber demand by 1.3 billion board feet in their April forecast compared to their March forecast. And it's now expected to be 3.3 billion board feet higher. That is demand than last year. So we think we're in unprecedented territory here and RCI recent price forecasts for full-year prices to average just about $1,000 doesn't seem out of the realm of realistic.
We have our next question coming from the line of Mark Weintraub with Seaport Global. Your line is open.
Thank you. Congrats on a great quarter. Eric, I'm sure you are enjoying the CEO role here. So firstly, the Timberland acquisition pipeline can you give us some color on what you're seeing and whether there's been any change in the pipeline in the last six, 12 months?
Yes, Mark. We've seen a market increase in M&A opportunities in the Timberland space. Last year was, there was a dearth of deals to be done, with COVID, people couldn't get out and travel it's hard to kick the tires on stuff and so very little activity last year. And I would say starting in the fourth quarter of last year, activity started to pick up, we started to hear things and now as we get into the first quarter and the second quarter, activity is really picking up. We're looking at about five different deals right now. And we missed one in South Alabama, somebody paid a little bit more than we were willing to pay. But we're more optimistic of those five deals that we're looking at that we're going to get one or perhaps two of them done, remains to be seen.
But I can assure you of one thing, which is we're not going to do a transaction unless it creates shareholder value. Each one of our deals we will determine what's fair price, that creates value and we will draw the line at that price. And that's how we missed that one in South Alabama.
Understood. Are you seeing any change in the way folks are thinking about pricing Timberlands and kind of relatedly, is there any sign yet of this remarkable run in lumber in the U.S. South in particular translating into higher timber pricing and/or any color on your thoughts as to if and when that might happen?
Yes, Mark. So those log prices in the South, they have just been flat for over a decade now. And every time maybe there's a weather event, maybe there's a mill startup that kicks prices up a buck or two, but it quickly recedes. So we're seeing no price tension in logs across the South for any measurable period of time.
When do I think that that could change or what could cause that to change? We obviously we need -- there needs to be more capacity in the U.S. South to put more pressure on timber inventories. I think the data that I see suggests that timber inventories in the South won't peak for another four to five years. And there is more mill construction, there's more steel going up in the South for sure, which will eat into that timber inventory. But they're still not supposed to peak for yet another four or five years, so they continue to increase every year.
So I think maybe at that point in time, there could be a little bit of price pressure. But for how long can you have a disparity, $45 sawlogs in the South and $160 sawlogs in the Pacific Northwest. That is just a huge, a huge gap. And that's going to continue to drive new capacity in the South. So I guess to answer your question is we're not seeing any price tension in the South, and maybe they'll start change in four or five years.
Great. And then that first part on Timberland valuations themselves, obviously, not seeing much in timber. Are discount rates changing or anything like that, or the price levels you're seeing for Timberland is pretty similar to what they had been?
Yes, Mark. I would say if you look at the history of Southern timberland prices, which is where the majority of the activity is, it's been about 1,800, 1,850 an acre over the last decade hasn't really changed a whole lot. And that's probably consistent with prices not changing a lot. So I don't think people are really thinking about the different ways of evaluating that ground. It's based on the same 45 to 50 bucks of EBITDA per acre and you do the math, you wind up at 1,850 an acre.
Great, appreciate it. Good luck for the coming quarter.
Thanks.
We have our next question coming from the line of Kurt Yinger with D. A. Davidson. Your line is open.
So you started the year I think pointing to flattish kind of harvest volumes, it looks like in Q1, you ran a little bit ahead of schedule. But if we kind of factor in the Q2 guide, it seems like you've got to make up some ground versus last year to get there. So could you maybe just talk about, how you're thinking about the full-year harvest plan at this stage? And what factors kind of might impact that going forward?
Yes, good morning, Kurt. So in terms of full-year harvest levels, I'll start by saying; we still plan to harvest about 6 million tons for the year. And as you noted, we got a bit ahead in Idaho, we had favorable conditions and good markets in Q1. So, we got off to a really good start in Idaho, and ultimately made up some good ground in the South. So we were pleased with the harvest levels for Q1.
But to get to your question turns out how the year plays out, if you look at our guide at 1.1 million to 1.3 million tons, I would suggest that year-on-year, we're down about 100,000 tons. And, some things to lay out there on Q2, one, Idaho probably looks the same year-on-year. So the decline really is in the South. And when you go back to last year, a key part of that reason why the South is down this year versus last year is timing of stumpage contracts. So some of those push out later in the year.
The other dynamic that we had is coming out of the -- the -- kind of the COVID pandemic window in the quarter; sawlog demand was extraordinarily strong in last year. So sawlogs are probably a bit higher than our plan in Q2 of 2020. So you'll see something that's more normal this year.
And then a partial offset is pulpwood demand was really weak last year. And in fact, we ended up guiding that we were going to be down for the year because of shortage of pulpwood due to mill outages. So you probably have a little bit of an offset there in Q2 of this year.
And then when you roll that to get to 6 million ton harvest level for the year, that suggests that when you think about Q3 in particular, which is our best seasonal quarter typically ends up being a pretty robust Q3 versus last year.
Got it, okay. That's helpful color. I appreciate that. And then, just on the cost side, could you talk about any inflationary pressures you're seeing within Wood Products in Timberlands that are kind of worth calling out. And then, I guess remind us for Wood Products, specifically how we should be I guess thinking about or handicapping the cost impact from those higher sawlog prices in Idaho?
Yes, so I'll take the first part and then Jerry will take the second part.
On the cost inflation and Wood Products I mean I would say the biggest thing that we're -- we've got our eye on right now are transportation issues. We're managing through that right now. But our rail and truck transportation is getting increasingly challenging to find and we're having to pay more for it. Usually, this happens to us in the South in the summertime, when the produce crop is moving. But it's happening earlier this year.
Now, we've still been able to pass those costs through, it's not significant, it's not material. But we've got over -- we've certainly got our eye on it. And I would say that's really the only real cost pressure that we're seeing at this point. Jerry, you want to talk about --
Yes. You bet.
Log prices?
So in terms of log prices in Idaho and that cost pressure, I mean we provided really good insights on kind of log prices with our Timberland segment in Idaho. And to put in context, year-ago log prices were running at about $100 a ton whereas Q1, we just reported $178 per ton and moving up from there in Q2. So that provides kind of the price part of that equation. And the other important part from a modeling standpoint is about 40% of our harvest in Idaho goes into our no complex, so that will give you the proportion of kind of the volume the defects. So now you have both sides of that equation. So it's a pretty significant lift from a cost standpoint.
The important thing is to keep in mind that again only 40% of those logs go to our complex and so there is another 60% in the Timberlands segment that we're certainly benefiting from these high price have dropped to the bottom line.
Great, great. Okay. Yes, that's helpful. All right and then I guess my last one, I guess started to see some anecdotes about Southern Yellow Pine kind of shifting further out as a substitute for I guess products coming out of Canada [ph] and other Western B.C., could you just talk about some of the dynamics there and what significance if any you think that could have for the market going forward?
Yes, your observation is correct. Recently Western SPF is trading at a premium to Southern Yellow Pine. That's a bit of an anomaly. From a historical standpoint, usually Southern Yellow Pine tends to trade at a premium. But I think with all those mill closures that have happened up in B.C. and now we're getting into kind of the spring summer months when building activity in the North and the West really starts to pick-up. Those high Western SPF prices are causing builders to substitute with Southern Yellow Pine. So Southern Yellow Pine's reach is probably as far as it has ever been and this really should come as no surprise to anybody. If you think about like again getting back to those $45 logs in the South compared to $150, $160 whatever a ton in the North and the West. Southern Lumber production as a percent of North American production has now increased over the past 10, 12 years from roughly 26% market share now all the way up to 35%. Meanwhile B.C. has gone from 20% -- which is of course Western SPF producing regions has gone from 25% down to 15%. So yes with Southern Yellow Pine is slowly moving across the country in the farther territory than it has previously and I frankly expect that trend to continue.
Got it, got it. I appreciate that. All right. Thanks for the details and good luck here in Q2 guys.
Thanks.
Thanks.
We have our next question coming from the line of Buck Horne with Raymond James. Your line is open.
Hey, thanks good morning guys. First question, just maybe explain in just more color maybe re-explain it if you will. Understanding the latency of how the Idaho Indexed Log contracts in terms of your price realizations for those, how they track, what's happening in the spot market for lumber prices, of course Northern pricing in the first quarter was kind of flattish versus the fourth quarter. So how does that set up for the remainder of the year in terms of how we could think about, how current lumber price conditions will affect the timing of the realization on those contracts?
Good morning, Buck. So in terms of the most important thing to keep in mind in terms of those Idaho Indexed log prices is the price gets reset on about a four weeks lag. So when you see a reported lumber price today, that won't show up until in the form of sawlog price until about four weeks later. So that's probably the most important thing and in fact when we take the random links lumber composite and we offset it by a quarter or by a month, excuse me, the pattern of the and the kind of the slope of the line looks very similar to what's happened in our Idaho sawlog, so that's probably the most important thing in terms of modeling.
And then certainly we have density. So in the winter logs absorb more water, they're heavier, customers don't pay us for water. So they reported price per ton will go down in that season. So generally in Q1, you see about a 5% headwind in terms of the density factor, Q2 that turns around as a bit of a positive.
And then probably the other third thing to keep in mind is cedar. So cedar is normally about a sawlog that's worth probably three times a normal mix sawlog. So kind of a mix the volume of cedar in the mix is usually other factor. But most important of all those is to kind of take that lumber price, reported lumber price and lag it by about a month.
Got it, very helpful. And last thought for us -- thought was with the excess cash and understand you got the 10b5-1 plan in place for stock repurchases now. With this extra buffer that you got in place now, do you think that there is an opportunity to maybe establish some programmatic or more consistent level of stock repurchases to the capital allocation plan?
Yes, I’ll take that one as well, Buck. Our strategy around share repurchase has really been more opportunistic. As I mentioned, a bit earlier in the call, about a year-ago when our stock price got down to the $30 per share and below level, my eyes got big and we started aggressively buying shares. So we tend to look at it, we have a strong view and conviction on our -- what we think the intrinsic value of this company is and really look for a wide discount. And the reason for that is we have a number of investment opportunities to think about, certainly we've talked about mill CapEx, discretionary projects can generate returns north of 30%. So that’s pretty attractive.
You've heard Eric talk about earlier in this call, how we're excited about some of the opportunities, the M&A opportunities that we're looking at and we can grow shareholder value through that at an attractive level then that certainly makes sense.
And then I heard Ketan's question is around kind of dividend and how we’re thinking about that. So we have a number of options to think about. And I would not expect that we move to a programmatic approach. I think we will stick to opportunistic share repurchases and that’s really because it all goes back to overall strategy which is we want to grow shareholder value as much as we can over time. And we think the opportunistic approach is much better suited to fulfill that leg of the strategy than doing something programmatic.
We have our last question coming from the line of Paul Quinn with RBC Capital Markets. Your line is open.
Yes, thanks very much guys. Great quarter but it's exactly we're going to see a lot of that in this range. Maybe I will start with Eric on the M&A, the five deals that you're currently looking at right now, and you're simply pretty bullish on it, what -- any of these deals include tunnels?
I don't want to get too down into the weeds, Paul, but yes.
Okay. And then just back to capital allocation because I'm a little confused there. I mean, the share price is [indiscernible] spend most of the quarter around the $50 mark; you're over $60 here, just wondering why you didn't repurchase any shares in the quarter?
Yes, so Paul it goes back to I mean the answer to the Buck's question is we tend to be very optimistic. There's no question that NAV and intrinsic value moves up. I mean every load of lumber we ship today is creating value. And we certainly have accumulated a lot of cash on the balance sheet, which is obviously adding value when you think about this company, and market cap, et cetera. But it really comes down to the other, we have all kinds of, we have other alternatives in using that cash. And like I said, at the end of the day, we're very excited about the M&A opportunities, good mill CapEx returns, et cetera. So, and there's nothing to be gained by doing things aggressively or quickly as well, as is proven last year, we held some cash. And we took advantage of that in March and bought our shares, kind of around the $30 level. So, at the end of the day, $50 certainly on hindsight looks like a steep discount to today. But again, we take the long-term view here, and we tend to be more of a deep value type investor when it comes to buying our shares.
Okay. And then if I could flip it over on to the dividend, the options around that, I mean, I can understand not trying to get too far ahead of your skis and have that slow, steady approach to the annual but would you also can consider I mean, some of your peers have looked at and warehouses doing a supplemental dividend, just given the extraordinary nature of the cash flow that you'll generate this year. I mean, you're obviously pointing to a record Q2 off the record Q1 herein and the balance of the year, given your commentary is also very bullish?
Yes, Paul, I mean, I think we're going to have to take a closer look at the dividend. As you know, our dividend, it's a very important part of our proposition to our investors to return capital to them. We're not going to waste this capital that we've generated. And we got really three different tools as I think about capital allocation, it's either the dividend, it's Wood Products CapEx, or it's M&A, unless our shares collapse, which that's not going to happen anytime soon, or it's highly unlikely to happen anytime soon, it's going to be hard for us to buy back shares. We're not going to pay down debt, we're already way under levered as is. So that doesn't seem viable. So it's those first three alternatives. And the dividend certainly is at the top of the list. So we'll be looking at the dividend very closely as we move through the year, but nothing is likely to get announced until we get to Q4.
Why is that just in the timing, I mean I understand from a historical perspective that I mean, you've just got cash is building up on the balance sheet at a pretty rapid rate here. It sounds, reasonable to be able to signal to investors a little bit earlier that, this is what we intend to do with the cash balance?
Well, this industry can be volatile at times, things can go up, things can go down, I don't expect things to go down. We're as bullish as we are. I've been with this company for 14 years. I've never been as bullish as I am today. And we've just got a track record of doing our analysis as we move through the year and it culminates in a in-depth discussion to the board in December. And I'm sure we're going to be talking to the board about this as we move through this year and with more energy and enthusiasm than we have in prior years. But given the volatile nature of the industry, we're probably going to wait until the end of the year to decide what to do. But that remains to be seen too. It's really a board level decision.
All right, fair enough. I look forward to the Q2 results. Thanks.
Thanks.
At this time, I’m showing there are no more questions. I'll now turn the call back over to Jerry Richards.
All right, thank you, Celine and also thank you everybody for your interest and participation in the call this morning. Certainly, we'll be available for the detailed modeling questions from the analyst as well as shareholder conversations, once we wrap up here. So again, thank you. Have a good day, and we'll talk soon.
This concludes today's conference call. Thank you for participating. You may now disconnect.