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Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic First Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. And 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. Wayne Wasechek, Interim Vice President and Chief Financial Officer, for opening remarks. Sir, you may proceed.
Thank you, Lisa. Good morning. And welcome to PotlatchDeltic's first quarter 2023 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 regarding the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our Web site at www.potlatchdeltic.com. I will turn the call over to Eric for some comments, and then I will review our first quarter results and our outlook.
Thank you, Wayne. I'll start with a few comments about the press release we issued last week indicating that Jerry Richards is leaving the company to pursue another opportunity. It's with a larger company in a different industry. Jerry was our CFO for 10 years and did a terrific job. Our press release also stated that Wayne Wasechek, our current Principal Accounting Officer, is now our Interim CFO. Wayne has been with the company for five years, having joined us from Vail Resorts. Thankfully, we have a deep bench of talent in our finance and accounting departments. We have a search underway and envision filling the CFO position over the coming months.
Turning to the first quarter. We reported total adjusted EBITDA of $58 million after the market closed yesterday. Our Wood Products segment had breakeven adjusted EBITDA in the first quarter. Lumber prices found a bottom in January. We are encouraged by the upward trend in lumber prices as we head into a spring building season that has been delayed by winter weather in the Northern tier of the country. Also, I am pleased with the team's strong safety performance in the first quarter. As we have discussed on the last two calls, we successfully completed our Ola, Arkansas sawmill rebuild and restarted the large log line in the third quarter of 2022. While the start-up phase has taken a bit longer than we had anticipated, we are very happy with the new equipment. The mill's operating run rate has reached its expected annual capacity of 100 million board feet per year. As a reminder, Ola's rebuild significantly lowers the mill's cash cost structure. Last year, we announced a $131 million project to modernize and expand our Waldo, Arkansas sawmill. Activity is currently focused on site prep with the majority of equipment delivery and installation to come in 2024. The project will increase the mill's annual capacity by 85 million board feet and significantly reduce the mill's cash cost. The existing mill will continue to operate during the project with approximately three weeks of downtime expected in 2024 to tie in the new equipment. Project completion is expected by the end of 2024.
Our Timberlands segment generated adjusted EBITDA of $47 million in the first quarter. We harvested 2.1 million tons, which is higher than planned and is also a company record. Both our teams in the north and in the south contributed to that result. Our harvest plan remains unchanged for the full year. Speaking of our Southern team, we completed the process of insourcing the management of CatchMark's timberlands in the first quarter. As a much larger company, we can conduct these same types of activities internally at a much lower cost. In this case, in-sourcing resulted in a synergy of $3 million per year. Our Real Estate segment had another solid quarter with adjusted EBITDA of $19 million. On the rural side of the business, we sold 6,900 acres at nearly $2,600 an acre. In development, we sold 24 lots at an average price of $116,000 per lot in our Chenal Valley master plan community in Little Rock. Our team continues to make progress on natural climate solutions opportunities. We are working on a carbon credit project. We are also exploring opportunities to supply mill residuals and/or pulpwood to pellet manufacturers. Finally, we have over $100 million of potential future solar land deals and leases in the pipeline. We expect solar opportunities will increase as the team finishes stratifying CatchMark's acres in the second quarter. As a reminder, we completed our first solar related rural land sale a year ago. While it will take time for the carbon and pellet efforts to pay off, we are optimistic about overall growth tied to providing natural climate solutions, and we believe these efforts will result in higher returns as well as higher timberland values.
Shifting to housing. We continue to believe there are strong positive tailwinds over the long term. Our view is based on a fundamental shortage of housing stock due largely to the combination of under building after the great financial crisis and favorable demographics in the form of millennials who have reached prime home buying ages. In our view, the final element needed for housing construction to rebound is lower interest rates. To that end, we are encouraged by the recent easing in mortgage rates. Acknowledging it will take time, we continue to expect that US housing starts will return to levels above the long term average of 1.5 million units per year once mortgage rates ease further making homes more affordable. There's also a near record low inventory of existing homes for sale in the US, forcing buyers to look at purchasing a new home versus an existing home. New home sales data released just this morning was also favorable. Turning to repair and remodel, which is the largest market segment for lumber demand. The underlying fundamentals continue to be favorable for a variety of reasons. Existing US housing stock remains the oldest in the history of this statistic at 42 years on average. This is important because older homes are significantly smaller than new homes on average. Remote work means people need more space, older homes typically need more repairs and higher mortgage rates mean that people are much more likely to stay in their existing homes. Remodeling is a very attractive option for homeowners given the strong levels of home equity across the US and robust job market and the fact that consumer balance sheets remain in good shape. Our home center customer takeaway remains strong, and we continue to be optimistic about lumber demand in the repair and remodel market segment.
Moving to capital allocation. Our top priority is to grow our regular dividend sustainably. The key to doing so is by increasing our stable cash flows through accretive acquisitions, such as the CatchMark merger and the bolt-on timberland transactions that we completed in 2022. We increased our regular dividend 2.3% last December. We also remain committed to repurchasing our shares only when they trade at a significant discount as part of our overall focus on growing shareholder value over time. To that end, we have an active 10b5-1 share repurchase plan in place. In total, we have 150 million remaining on our 200 million repurchase authorization. We will also continue to carefully balance share repurchases against other capital allocation options like M&A. At the end of the quarter, we had $326 million of cash on the balance sheet and liquidity of $625 million. Our leverage remains low and our financial strength provides a solid platform to continue growing shareholder value. Regarding environmental, social and governance, our reporting team is hard at work preparing our fourth annual ESG report, which we plan to publish in May. Recently, we are also one of six finalists for IR Magazine's Best Mid-Cap ESG reporting board. PotlatchDeltic has a strong ESG story and we are committed to doing our part to mitigate climate change and continue our legacy responsibility across the ESG spectrum. To wrap up my comments, PotlatchDeltic remains very well positioned with a strong balance sheet and liquidity to continue increasing shareholder value.
I will now turn it over to Wayne to discuss our first quarter results and our outlook.
Thank you, Eric. Starting with Page 4 of the slides. Adjusted EBITDA was $58 million in the first quarter compared to $52 million in the fourth quarter. EBITDA increased quarter-over-quarter as the sale of more rural acres in the first quarter more than offset the effect of lower lumber and index sawlog prices. I will now review each of our operating segments and provide more color on our first quarter results. Information for our Timberlands segment is displayed on Slides 5 through 7. The segment's adjusted EBITDA decreased from $51 million in the fourth quarter to $47 million in the first quarter. Our Idaho team leveraged favorable logging conditions and strong mill demand to harvest 471,000 tons of sawlogs in the first quarter. The first quarter harvest volume was higher than planned and the team is off to a good start in 2023. Our Idaho sawlog prices were 19% lower on a per ton basis in the first quarter compared to the fourth quarter. The decline in sawlog prices reflects lower index prices and seasonally heavier sawlogs. In the South, we harvested 1.6 million tons in the first quarter, which is a record. This reflects our successful completion of the CatchMark merger, along with $101 million of bolt-on timberland acquisitions in the South last year. Also, solid execution and flexibility by our Southern timberlands team, coupled with strong demand in Arkansas and Mississippi were key to achieving the record harvest. Our Southern sawlog prices were 3% lower in the first quarter compared to the fourth quarter. The decrease was due to 2% lower pine sawlog prices and a seasonally lower mix of hardwood sawlogs.
Moving to Wood Products on Slides 8 and 9. Adjusted EBITDA declined from $2 million in the fourth quarter to breakeven in the first quarter. Our average lumber price realization decreased 8% compared to a 10% decline in random lengths framing lumber composite price in the first quarter compared to the fourth quarter. As a reminder, the lag we experienced between booking and shipping orders is not captured by the composite, which is a close to real-time indication of price. Our lumber price realizations increased each month in the first quarter. Specifically, our average lumber price realizations per 1,000 board feet were $413 in January, $439 in February and $453 in March. Lumber shipments increased 2% to 262 million board feet in the first quarter. As Eric mentioned, the team has made good progress at Ola. During the quarter, higher Ola lumber shipments more than offset the effect of planned maintenance at our other two Arkansas sawmills.
Shifting to Real Estate on Slides 10 and 11. The segment's adjusted EBITDA was $19 million in the first quarter compared to $7 million in the fourth quarter. EBITDA generated by rural sales increased sequentially due to the sale of more acres. EBITDA generated by our Chenal Valley master plan community declined primarily due to the absence of commercial lot sales this quarter. Commercial sales tend to be lumpy and our pipeline of future transactions remains attractive. We closed on the sale of 24 residential lots in the first quarter at a lower average price in the fourth quarter due to a different mix of price points. Turning to financial items, which are summarized on Slide 12. Our total liquidity was $625 million. This amount includes $326 million of cash as well as availability on our undrawn revolver. We have $40 million of debt that is scheduled to mature in December. The decision to repay or refinance this debt will occur later this year. We still have $250 million of forward starting interest rate swaps on our balance sheet that provide the opportunity to issue debt at well below market rates. We did not repurchase any shares in the first quarter. We put another 10b5-1 share repurchase plan in place in connection with our ongoing commitment to repurchase our shares opportunistically at a significant discount to NAV. Capital expenditures were $13 million in the first quarter. That amount includes real estate development expenditures, which are included in cash from operations in our cash flow statement. For the full year, we are planning to spend $135 million to $145 million, excluding any potential acquisitions. That estimate includes $74 million for Waldo, Arkansas sawmill modernization and expansion.
I will now provide some high-level outlook comments. The details are presented on Slide 13. Harvest volumes in the north are planned to be seasonally lower in the second quarter at a level comparable with the second quarter of 2022. We expect Northern sawlog prices to decline 5% in the second quarter compared to the first quarter. In the south, we plan to harvest approximately 1.3 million tons in the second quarter. We expect our Southern sawlog prices to decrease modestly. We plan to ship 270 million to 280 million board feet of lumber in the second quarter. Our average lumber price thus far in the second quarter is approximately 6% higher than our first quarter average lumber price. This is based on approximately 100 million board feet of lumber. Our lumber prices have been modestly increasing and our spot price is currently about 7% higher than our first quarter average lumber price. As a reminder, a $10 per thousand board foot change in lumber price equals approximately $12 million of consolidated EBITDA for us on an annual basis. Shifting to Real Estate. We expect to sell approximately 2,600 acres of rural land and 35 Chenal Valley residential lots in the second quarter. Additional real estate details are provided on the slide. Overall, we expect our total adjusted EBITDA will be lower in the second quarter due to seasonally lower harvest volume and fewer rural land sales. Having said that, we are encouraged by the recent improvement in lumber prices. We are well positioned to continue growing shareholder value over the long term.
That concludes our prepared remarks. Lisa, I would like to now turn the call over to Q&A.
[Operator Instructions] And we'll take our first question from Anthony Pettinari with Citi.
On Southern log prices, I guess, on a year-over-year basis, they were flattish. And I'm just wondering if it's possible to kind of parse out 1Q price performance between the legacy Southern lands and acquired CatchMark lands, or maybe just directionally? And if you can comment on those two submarkets?
So I think I would characterize it this way. The legacy markets for PotlatchDeltic are relatively flat kind of year-over-year. And I would say the newer CatchMark markets, so we're talking about Georgia, South Carolina, Southeastern Alabama. We're seeing a little bit more price decline in those markets. Not dramatic, it's modestly more. So just to give you a sense of it, in the fourth quarter, we were down 3% in the CatchMark markets and we were down just 1% in Arkansas quarter-over-quarter. And as I reflect on it, what I think is going on here is that those more tensioned log markets, you're going to see log prices fall faster and further when you're in a down market -- down lumber market like we're in today. And it kind of makes sense if you step back and you think about it, it's harder for mills to make a margin in those higher priced log markets like a Georgia, like a South Carolina, where you've got weak log markets like in Arkansas and Mississippi, mills can still make an adequate margin. And so they're going to continue to run hard whereas in those higher-priced log markets, mills aren't going to run quite as hard. So I guess that's the way I would characterize log price movements from the various regions in the South. Does that make sense?
Yes, that's very helpful. And you reiterated the full year harvest guidance, I think 1Q was a bit higher than expected on harvest volumes. You referenced weather. I'm just wondering if there's anything else that was driving that in terms of labor availability or hauling, or in terms of maybe pulling forward some volume in some regions. I'm just wondering if you could give any color there.
So the old expression, you got to make hay while the sun is shining, is applicable when it comes to harvesting timber. We had an extended winter here in Idaho and it allowed our resource team, timberlands team in Idaho to harvest longer into Q1 than normal. So in Idaho, we got roughly 100,000 tons ahead of plan for the year. And that's advantageous when you think about how our volumes tend to really peak as you get out into Q3. It really stresses the contractor pool in Q3 when that happens. But when you can get more volume in Q1, effectively you're taking out volume from Q3. Now this particular year, that incremental 100,000 tons we got in Q1 is going to come out pro rata of volume that we were planning for Q2, Q3 and Q4. So again, make hay while the sun is shining in Idaho. Now in the South, the spring generally has really wet weather and April has been just terrible. So our Southern team similarly got ahead of plan, they’re about 130,000 tons ahead of plan. And we expect to give much of that outperformance right back in Q2 since we're having such a wet April. So really, this is all about managing through weather and also making sure that you're utilizing your contractors as best as you can, particularly in Idaho.
We'll take our next question from Ketan Mamtora with BMO Capital Markets.
First question, maybe a little more near term oriented, either Wayne or Eric. Is there a way to ballpark log cost relief in Q2 in the book product side from Idaho log prices easing?
So yes, we had lower log costs both in Q1 as well as we expect to have lower log costs in Q2. So going from Q4 to Q1, we estimate that our mills in total were favorably impacted by about $2 million. So St. Maries was favorably impacted by about $3 million and the other mills actually went the other way down about $1 million. So net, we were favorably impacted about $2 million. Now going from Q1 to Q2, we think other mills are going to be flat and St. Maries is going to see an additional, I don't know, perhaps $3 million benefit in Q2.
And then I was wondering, Eric, you mentioned in your prepared remarks about some of the alternative streams of revenue in timberlands, whether it's solar or carbon. As you think about the back half of the year '24, what are the mile markers that we should be thinking about as we look at how this opportunity pans out over the next two to three years?
I would say -- so the two most logical opportunities here -- well, I'll start with the first one, which is solar. We've already done a solar deal. We did one last year in Mississippi. We have a number of tracks that are under option right now with the solar developers. They make option payments to us each and every year. And so they can pull the trigger on one of those solar developments whenever they want. So it's hard to predict exactly when those are going to happen but there are several properties that are under option right now. So that's hard to predict. The other one, the carbon deal that we're working on, we want to do this the right way. There was a lot of greenwashing that's going on in the world right now. We want to avoid being one of those companies. We want to keep our reputation intact. And so we're very careful with the project that we're working on. And it all starts with verifying the particular track that you're talking about, how much carbon is there today and put yourself in a position so that you can turn around and measure that carbon each and every year thereafter. So that project is taking some time. We also need to get a private letter ruling from the IRS that this is good REIT income. The IRS takes its time. I think the key milestone for that carbon deal will be late this year or early next year, that's our current guesstimate as the time line. And I think we can just update you on each of these calls with our expected timing for that particular project.
And just final question from my side. You all did not repurchase any shares in Q1. I'm just curious kind of how do you approach in 2023, especially related to kind of share repurchases, given some of the uncertainty in the market, obviously, cash flows this year are going to be lower, but the stock is also trading below NAV. So how do you approach that, and also keeping in mind that you've got the Waldo project that's ongoing?
I would separate out the Waldo project, Ketan. When we plan that $200 million authorization that we put in place last year, we knew about the Waldo project. So they’re really two separate thoughts. It really comes down to for us repurchasing shares opportunistically. We're going to do it when the share price is at a significant discount to NAV. It's a very important part of our capital allocation strategy. We do believe we've increased our NAV over the past several years. And along with it, we've increased our share repurchase limit price over time. But a couple of things here. In Q1, we put a new 10b5-1 plan in place and that takes, we call it seasoning, you can’t be in the market buying when the 10b5-1 is seasoning, that's like a 60-day period. And then also we're out of the window, two weeks before we release our results. So we were kind of had to be out of the market for much of Q1. The other important thing to highlight here, to comment on, is that we’re always comparing our capital allocation options one against another. And so a lot of the stuff that we work on is kind of predictable but there is stuff like M&A that’s not predictable. And so to the extent that we see an M&A opportunity that may or may not be on the market, by the way, and we're looking at it, we're thinking about, okay, is this going to be a user of our capital and would this be a better way to use capital than share repurchases? So sometimes we have to go to the sidelines to evaluate M&A opportunities, and that can take us out of the market too. But the bottom line is we're never going to be fast movers when it comes to things like share repurchases. We're going to be very thoughtful, very judicious, and we're only going to buy when we think we're on sale.
We'll take our next question from Kurt Yinger with D.A. Davidson.
I just wanted to start off on Southern harvest volumes, and two questions. I mean, first, pretty big increase in stumpage in Q1, maybe you could talk about the drivers there. And then second, perhaps stumpage is included in kind of the sawlog mix that you've guided for the full year. But if not, it would kind of imply you're going to sell a million tons of sawlogs in the south in both Q3 and Q4, which is pretty significantly above what we've seen in the last couple of quarters, even including CatchMark. So can you just talk through that and any risk you see to what looks like a pretty big back half on Southern sawlog volumes?
So stumpage prices are going to bounce around quarter-to-quarter, simply based upon mix of what the stumpage deal is. So it's hard to read too much into stumpage price trends whatsoever. And stumpage was high in the first quarter. We were very opportunistic with our stumpage deals that we completed in the first quarter. So I don't think we'll have a similarly high number the rest of the year. Most of the quarters are in the 200,000 to 250,000 ton range Q2 through Q4. The typical sawlog harvest fee harvest for us for the rest of the year will be between 600,000 tons and 750,000 tons more or less. And that's a relatively stable outlook for our timberlands business in the south.
And then Eric, you touched on home center demand being pretty strong still. I guess could you maybe talk in a little bit more detail about the trend as the quarter progressed and here through April, and whether that's been similar in terms of the progression relative to what you've seen in the past or whether there's perhaps been some delay in terms of an inventory build ahead of spring?
Kurt, I would say that home center demand was probably weaker at the start of the quarter than it was at the end of the quarter. But I think that's also kind of a natural phenomenon in that when it's winter weather outside, especially in the Northern tier of the country, home center demand is a little on the weaker side just because people aren't outside doing yard work and fences and decks and things. So I wouldn't say that -- I wouldn't try to read too much into that. But I would say the demand probably progressed as we move through the quarter and it's very consistent with what our plan was for the home centers.
We'll take our next question from Mark Weintraub with Seaport Research Partners.
First is a quick follow-up. You mentioned that it's been very wet down in the south. Sometimes that can have impacts on people they almost get into the woods and that then on pricing itself. Has that happened yet as well or not so much?
Well, we struck a really sweet pulpwood deal with one of our large pulp mill customers that managed to get themselves cut short. So we've seen a little bit of a price response but not entirely across the whole south, Mark, and not really seeing it much in sawlogs yet.
And so no real weather impact though from the wetness yet?
Yes, I would say no real impact other than we had a really strong deal in Q1, in fact, with the pulp mill.
And then there's been a pretty wide divergence during the first quarter and what happened with Southern lumber prices versus what was happening out west. Do you have kind of any thoughts on that and what might happen going forward on a relative basis in those regions?
It's amazing to me what's happened with lumber prices depending upon the different regions. The traditional price premium of Southern Pine to SPF is like normally in this $50 to $70 kind of range. And today, the spread is more like a whopping $150. So it's really, really broken out. I think there's a couple of different reasons why Southern Pine is outperforming here. First, Southern Pine is proximate to where consumption is in the US. I think I read the other day that something like seven of the top 10 housing markets in the US are in the south. So relatively close to Southern Yellow Pine mills, think about Florida, think about Texas. I think even Tennessee is one of the -- Nashville, I think is one of the top 10 markets. So those mills are close to where the demand is. And builders, they frankly, they just don't want to be exposed to lumber price swings. So they're utilizing increasingly this kind of a just-in-time lumber delivery strategy. And if you're going to use a just-in-time lumber delivery strategy, you can't wait to get it from a railcar from Alberta that takes a month. The second thing that I would say regarding this price spread is the north had a really long winter and that impacted home construction in the north. And that's, of course, the traditional home for SPF lumber. So I think that's probably also pushing down SPF lumber prices and relatively speaking to the benefit of Southern Pine.
And you guys are obviously much more heavy in the south. And so I mean, is it reasonable to expect -- and I think the numbers you provided suggest that -- so your average pricing 2Q versus 1Q, at least at this point, is better than like the random length composite. Is that fair?
Yes, we're doing a little bit better than the random length composite and our Southern mills are doing better than our Northern mills. And I think pricing, if you compare the spread, it's like versus our plan, the south is ahead by like $40 a 1,000, and the north is behind like $40 a 1,000. So it's interesting how the stuff you read about is actually -- it's feeding right through to our mills.
And then one last one for me is, where are we in process in terms of new capacity or new sawmills starting up in regions where you produce? And sort of relatedly, because you actually at least historically have bought a bit more than you've sold, I don't know if that's changed in the US south in terms of timber. I mean are there certain submarkets where you're long versus where you're short, which are worth highlighting as we think about the possibility of timber prices going -- moving up in the future?
Well, all of our mills in the south are in Arkansas. So if you think about outside of Arkansas, so the acreage we acquired from CatchMark, for example, our acreage in Mississippi or Alabama, all of that is -- so that's roughly 600,000 acres, that's not going to our own mills. So I would say that if you step back and look at the mills, our mills where we operate at we're internal at the three mills in the south. We're using about 50% internal logs and 50% external logs. And there really hasn't been much of a change in that regard.
We'll take our next question from Paul Quinn with RBC Capital Markets.
Just [interesting] to see your performance in real estate was interesting and the guidance for [18,000] acres of rural land in 2023 with a little bit of a surprise. I thought it was a couple of quarters ago that you were seeing now that you sold Minnesota, it was going to go to about half the run rate of what you were doing at the time, which was about 23,000. So just wondering if ‘23 here with the 18,000 is a novelty and then ‘24 will go back to something significantly lower, or where do you sit on that?
I think when we -- you're right, I mean when we look at -- in '22, we sold over 10,000 acres of land in Minnesota. And so we've essentially completed that process to liquidate our Minnesota holdings. So I think now our regional mix shift in '23 is -- and along with the CatchMark merger, that provides new opportunities in new markets. So we're really excited about that. We've got markets in South Carolina, Georgia and Eastern Alabama. So really, I think we'll see that kind of shift more to the south. And I think moving forward, over time, I think we've have a proven track record of say, approximately 1% of our holdings that will -- or 1% of our acres that we've been able to find opportunities for. So you think about that and that's about 20,000 acres or so. We're slightly below that this year. But rural sales can be lumpy and it takes time to develop some of these opportunities. But over time, we have a track record of finding these opportunities. So I really think this is sustainable and we kind of look to that 18,000 to 20,000 going forward.
So that is sustainable at that level. And then just flipping over to some of the things you're doing on the carbon side and the solar opportunities. I mean lots of companies are announcing these things, no companies yet to come forward on any kind of economics or financial metrics around them. Maybe you could just sort of help us understand what the potential upside could be on some of those?
Well, I think that's a tricky one, Paul. We had a solar deal last year. As you may recall, that one was done for $7,500 an acre, that was in Mississippi. It was a $13 million transaction more or less. I think that's representative of what the potential is for solar. Every deal is going to be a little bit different. The economics are going to be a little bit different but I think that's representative of where the market is.
And then what are you expecting on the carbon side?
Paul, that's the million dollar question here. So this first project that we're going to do, it's exploratory. It will be meaningful, but it will be exploratory. We're taking our time to make sure that we do it right. We think the carbon value that we're going to get is, I don't know, somewhere between 50% and 100% higher than what the value would be had we harvested these trees. So it's meaningful. But we still have several quarters to go to get it across the goal line. I still don't think carbon values are high enough in the forestry sector to cause us to change our harvesting practices on our plantations. So basically, Southern Yellow Pine sawlog is worth far more to a lumber mill than it is to somebody looking to buy carbon offsets. It's in these weaker timber markets where suddenly the opportunity for carbon, those values are higher than what stumpage is worth to a mill. So it's going to take time to prove this out. We've got our start growing trees for mills so we like plantation forestry. And so there will be a subset of our acres, I think, that in time, we're going to have more value in carbon versus producing logs for mills, but that's totally dependent upon what the carbon price is.
And then just lastly, I was kind of surprised with the no share repurchases in Q1. Given some of the things you're seeing late last year on the ability that you've had to increase your net asset value. Just wondering if you were fully restricted in Q1 from buying that back, especially early in the quarter?
No, we were not fully restricted. There was a period of time where we could step in and buy, but it wasn't a very long period of time. But you've known us for many years, Paul, we're cautious. We're looking for deep discounts and there's a lot of uncertainty that's in the market right now. And so we're looking for those big dislocations to step in and buy.
We'll take our next question from George Staphos with Bank of America.
Just a couple of quick ones for me. So I want to go back to home center demand and what you're seeing. I think, Eric, you mentioned that demand was more or less as you expected in the first quarter. But what were your expectations? You put a bit more guardrail or two around that. And when you talk to your customers and you outlined what the secular trends are in terms of why you're optimistic on, first, to new construction as well as repair remodel. What concerns you the most or what concerns your customers the most about the repair remodel outlook when you talk to them? What would -- if we saw it in the journal tomorrow what would cause us to maybe start to lower our forecast there?
I would say we never -- you go back over the last couple of quarters, we could all see that the Fed was jacking up interest rates, and there was a little bit more economic uncertainty. We never expected our repair/remodel business to fall off. Other pundits had been expecting it to fall off and we never thought that it would. And in fact, it hasn't or it didn't. So it kind of met our plan. If you look at the home center comp store sales numbers, they haven't fallen off a cliff either. They're like, I don't know, zero to minus 1 or something like that. But remember, all along the way, lumber has gone from $1,400 a 1,000 to $400 a 1,000. So yes, prices have come off and their comp stores are flat to slightly negative, but lumber prices have just completely collapsed. And so from a volume standpoint, that means their volumes across the store are hanging in there. And I listened to what the home centers say, they don't have a dire outlook, they just talk about businesses kind of flat, and that's kind of how we see it. But I think flat in a market where housing is in a recession, generally speaking, flat is good on the repair and remodel side. So what would cause R&R to go backwards here? I don't know, maybe credit availability for some of these larger projects. I mean, certainly, you see banking stress across the country, Silicon Valley Bank and Signature Bank and whatnot. Does that feed into limited credit availability for large remodeling projects? I suppose it's possible. But there's so much home equity that's been built up over the past couple of years, and there's so much demand for labor in this country. Unemployment rate is still at [3-6] last I saw. It's hard for me to see that being an issue, but it's certainly a possibility.
But it sounds like -- and I appreciate all of that. It sounds like the risks are skewed to the upside from what you see. We kind of bump along here unless there's some sort of other credit issues that arise and hopefully not. But otherwise, we're flat to up over time from what you're seeing over the next couple of quarters. I'm not trying to put words in your mouth and obviously, no guarantees in life.
Yes, I would say my expectation is we kind of just keep bouncing along here, steady demand in R&R. And I think we've got probably two or three quarters to go of kind of a little bit of rough sledding here on the new residential construction. But we get out to 2024, almost every report I read says lumber demand is going right back up for new residential construction as housing starts come back. D.R. Horton had very favorable things to say in their recent earnings release, Pulte, just said some great things. I think home sales or home starts were up, some data released by the government this morning showing month-over-month, I think, starts -- no sales, new home sales were up 10%. So I think to summarize, I think R&R is stable and I think the opportunity is for new residential construction to really pick up the pace as we get out a year from now.
You showed in your waterfall obviously, manufacturing costs in wood, I think, benefited results overall by about a couple of million dollars. From where you sit and given what you can lay, what would you, if you were in our seat, be building into our waterfalls over the next two, three quarters on the manufacturing side for the Wood segment?
Well, I think what you're going to find, George, is we'll continue to ramp up our volumes at our Ola sawmill. And as we ramp up that volume at Ola in that sawmill, we'll get better fixed cost absorption. And inflation was a huge deal for us last year. I would tell you that inflation -- those inflationary pressures are rolling over a little bit. So processing costs for us for the full year, we expect them on a per thousand basis with the higher volumes coming out of Ola to be up just 1% full year over full year. Log costs are going to be down in total roughly 12% full year over full year and total cash costs for our mills, we expect to be down around 7% full year over full year. So we're going to get a lot of benefit from that Ola sawmill running harder.
And then last one for me and I'll turn it over. And recognizing that you said it earlier, I mean, land sales are lumpy and all that. But when I look at the rural realization that you're targeting, a slight erosion from current trend to the end of the year or the average, what's driving that, if anything, recognizing it's mix? But if you had any points that you want to relate to us, we take it.
On the rural side, we definitely plan probably two larger tracks in '23 and so they just happen to fall in Q1. So it's really no change in our 18,000 acres for the year, it's just timing and definitely the lumpiness of rural sales so.
We'll take our next question from Mike Roxland with Truist Securities.
Just two quick ones here. Eric, going back to your question, your comment on the home center customer takeaways. You mentioned the homebuilders obviously see improved activity, there's better optimism. You have the home centers that are doing where activities picked up again. Lumber inventories still seem to be tight. You have the BC issues that's curtailing lumber into the US. If all that's true, why do you think we haven't seen a more pronounced improvement in lumber prices? I realize that they're up versus earlier in the year. But given all these issues, given more [indiscernible], given some of the builders [Indiscernible] and [Indiscernible] talking about increased contracting activity, given BC, not producing as much. What's constraining a breakout in lumber pricing right now?
So I think it's two things. One, it's -- so demand for new residential construction has softened considerably. I mean we're off, I don't know, 300,000 starts, 400,000 starts per year. So you're right, there's been a lot of curtailments, mostly up in BC that's taken supply off the market, but demand has also dropped here. So that's the first thing is that demand has, in fact, come down quite a bit. But the second thing, and this is really important, is imports coming in from Europe are at a really high run rate right now. I think I read somewhere, they're approaching 10% of US consumption. So Europe has got the spruce beetle issue, they got dead trees, dead and dying trees, they got really cheap logs to their mills. And so we've had a really strong dollar here over much of the past year due to rising interest rates. And Europe has been relatively weak. So they've been -- a lot of lumber they've been producing with these really cheap logs has been on a boat headed to the US. Typically, that would only finds its way into like the Northeastern seaboard. But recently, we've seen it in markets like as far away as Houston. So we've seen a ton of imports coming into the US from Europe. We're expecting that to be flat full year over full year. And then we expect it to come back down again as we get out to 2024 as European demand comes back. Basically, it’s because less Russian, Ukrainian and Belarussian lumber finds its way into Europe, that European wood will tend to stay home and not come to the US. So another favorable thing coming our way next year is less European imports.
And then just one quick one on Southern sawtimber prices. Recent data from trade publication showed a mid single digit percent year-over-year decline in Southern sawtimber prices in 1Q. It appears that you're doing better than that. Any reason as to why there'd be a difference versus that -- versus the publication? Is it where your assets are located, is it mix? So I'm just trying to get a sense of why there's such a -- why the outperformance in your -- with your timber relative to what the publication is showing for the broader US yourself?
I mean it varies by location. We're going to be down -- I guess we were down 1% in Arkansas for Southern Pine fourth quarter to the first quarter. And we were down 3% over in those more tensioned wood baskets over in Georgia and South Carolina. We were down 4% in Mississippi quarter-over-quarter. So it just varies. My outlook for Arkansas in Q2 is flat compared to Q1. So it just -- it bounces around depending upon the specific location. I think the good news is it's not completely going into the ditch, number one. And then number two, any time you have a weather event, that can turn prices around so fast. So it's hard to read too much into these numbers.
And at this time, I'm showing there are no more questions. I'll now turn the call back over to Wayne Wasechek.
Thank you, Lisa. Thank you for your questions and your interest in PotlatchDeltic. That concludes our call. Thank you.
Thank you.
Thank you. That does conclude today's presentation. Thank you for your participation, and you may now disconnect.