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Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic Third Quarter 2020 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] Thank you.
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.
Good morning, and welcome to PotlatchDeltic's Third Quarter 2020 Earnings Conference Call. 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.potlatchdeltic.com.
I'll now turn the call over to Mike for some comments, and then I will cover our third quarter results and our outlook.
Thank you, Jerry, and good morning. Historic third quarter spotlights the power of PotlatchDeltic's leverage to lumber prices. Timberlands and Wood Products as well as the total company all established new quarterly EBITDDA records this quarter. Although lumber prices are currently declining from unprecedented highs, we expect fourth quarter EBITDA will be higher than third quarter's $135 million.
As a reminder, we expect to close a large Minnesota conservation sale in the fourth quarter. We also believe that strong housing fundamentals point to a solid outlook for lumber pricing.
I want to thank our employees, whose outstanding execution on all three businesses drove our strong quarterly results. This includes their continued focus on operating safely during this challenging time. Safety remains our top priority in managing the risks presented by the COVID pandemic requires continued diligence.
Our Wood Products business generated $82 million of adjusted EBITDA in the third quarter. We ran as much overtime as we could in our sawmills to meet strong customer demand, and our Saint Maries and Warren sawmills, both set quarterly shipping records.
Overall, our lumber shipments exceeded the top end of the range that we provided on last quarter's earnings call by 11 million board feet. We ended the third quarter with a lumber order filed that extends into early November. While it will be down sequentially, we expect Wood Products' adjusted EBITDA to remain well above trend levels in the fourth quarter.
Our Timberlands business harvested 1.7 million tons in the quarter, which is a quarterly record. Given that about 70% of our Idaho sawlog deliveries are indexed to lumber prices on about a six-week lag basis, we expect our Idaho timberlands adjusted EBITDA will remain strong in the fourth quarter.
Sawlog pricing remains relatively flat across our Southern markets, with little change expected anytime soon. In our Real Estate business, we continue to expect that the sale of approximately 72 acres in Minnesota to the conservation fund for about $48 million will close in the fourth quarter.
In addition, sales activity in our Chenal Valley Masterplan community in Little Rock has fared better than we expected when the COVID pandemic began, and we expect to sell approximately 130 residential lots for the year.
Looking ahead, housing fundamentals are stronger than at any point since the great financial crisis. This sets the stage for continued growth in lumber demand. U.S. single-family housing starts continued to increase through the summer and exceeded 1.1 million units in September.
That's single-family alone. This was a 9% increase from August, and is up 22% compared to last year. Single-family starts are important to lumber demand, because each single-family home utilizes three times more lumber than does a multi-family start.
Many industry experts believe that the new residential construction -- that new residential construction is on the cusp of a multiyear boom. Massive underbuilding since the great financial crisis, record low inventories of homes for sale, historically low mortgage rates and millennials entering their prime home buying years, all set the stage.
U.S. housing permits at 1.55 million units in September, homebuilder confidence at an all-time high and September order growth of 49% reported by four homebuilders last week, all suggest that housing construction will remain robust in the near-term. Additionally, a shift from urban to suburban living appears to be positively affecting housing demand.
The repair and remodel segment is also expected to continue to grow. That view is supported by the age of U.S. housing stock, which is now 42 years on average high levels of home equity and the work-from-home trend.
The random lengths framing lumber composite peaked at $955 per thousand board feet in September, or 64% higher than the prior nominal peak which was reached, in June of 2018. The record high prices reflected industry inventory drawdowns at the beginning of the COVID crisis, combined with strong demand and COVID-related operating disruptions.
Now the long order files stretch into a seasonably weaker part of the year, the pace of new lumber orders has slowed down and as expected lumber prices have begun to retreat. That said, underlying lumber demand remains strong. And lumber inventories are estimated to be at the low end of their historic range.
The strong housing and repair and remodel outlook, coupled with the limited announced lumber supply increases suggest that lumber prices should settle, at attractive levels. We are very optimistic about the setup heading into the 2021, building season.
Switching now to capital allocation for a minute, we returned $96 million to shareholders in the form of dividends and share repurchases, so far this year. We are committed to growing the dividend sustainably which we've increased 116%, since 2012. Discretionary mill capital projects represent some of for our highest potential returns.
We recently added $14 million of new projects to the slate, with a weighted average IRR of about 35%. We plan to complete these attractive projects, over the next 18 months. Accretive acquisitions represent the third leg of our capital allocation priorities. We are invested in acquiring timberlands, mills or a combination of the two, near our current operating areas.
We recently published our inaugural environmental, social and governance report in September. PotlatchDeltic has a strong ESG story. And we're committed to do our part, to mitigate climate change. And continue our legacy of responsibility, across the ESG spectrum. We look forward to updating you regularly on our progress in this area.
To wrap-up my comments, business conditions remain good. We expect to report strong results for the fourth quarter as well. PotlatchDeltic is well positioned to take advantage of favorable industry fundamentals. And our strong liquidity and low leverage provide a high degree of flexibility, as we seek to maximize shareholder value.
I'll now turn it back to Jerry, to talk about the third quarter and our outlook.
Thank you, Mike. Starting with page four of the slides, adjusted EBITDDA of $135 million, in the third quarter was $100 million higher than the second quarter. The increase was driven primarily by the historic run in lumber prices. And seasonally higher harvest volumes.
I'll now review each of our operating segments. And provide more color on the third quarter results. Information for our Timberlands segment is displayed on slides 5 through 7. The segment's adjusted EBITDDA was $59.7 million in the third quarter, compared to $25.6 million in the second quarter.
We harvested 555,000 tons of sawlogs, in the North, in the third quarter. This is up seasonally from the 303,000 tons that, we harvested in the second quarter. Northern sawlog prices were 30% higher on a per ton basis in the third quarter, compared to the second quarter.
The higher sawlog prices were primarily the result of significantly higher prices, for indexed sawlogs. In the South we harvested 1.1 million tons in the third quarter. This was 15% higher than the second quarter and reflected strong sawlog demand. Our Southern sawlog prices were 2% higher in the third quarter compared to the second quarter.
A higher proportion of higher-priced hardwood sawlog of volume, more than offset slightly weaker pine sawlog prices. Turning to Wood Products on slides 8 and 9 adjusted EBITDDA was $81.7 million in the third quarter, compared to $10.9 million in the second quarter.
Our average lumber price realization increased 55% from $412 per thousand board feet in the second quarter, to $637 per thousand board feet in the third quarter. Note that, the effect of increasing lumber prices on our results lags the spot prices reported by random links by roughly four weeks due to our record order file link.
To provide context, it's helpful to look at our lumber prices by month. Our average lumber price realizations increased about $100 per thousand board feet in July relative to our second quarter average. They increased another $100 per thousand board feet in August and then accelerated to $779 per thousand board feet in September. The September average price is 22% higher than the third quarter average.
Lumber shipments increased from 249 million board feet in the second quarter to 291 million board feet in the third quarter. Higher production hours led to better fixed cost absorption, which more than offset the effect of higher index log costs in our Idaho mills.
Moving to Real Estate on slides 10 and 11. And the segment's adjusted EBITDDA was $13.4 million in the third quarter compared to $9.3 million in the second quarter. The increase was primarily due to sale of more rural acres compared to the prior quarter.
Shifting to financial items, which are summarized on slide 12. Our total liquidity remains strong at nearly $530 million. This amount includes $149 million of cash and availability on our revolver, which remains undrawn. We did not repurchase any shares during the third quarter.
The 10b5-1 plan that we announced last month becomes effective this Thursday. This reflects our ability and commitment to repurchase our shares at attractive prices as part of our broader capital allocation strategy focused on increasing shareholder value over the long-term.
We plan to refinance $46 million of debt scheduled to mature in December 2020 and have locked the interest rate. Annual interest expense will decline approximately $800,000 on this debt beginning in December.
Capital expenditures were $10.7 million in the third quarter. As Mike mentioned, we added some high-return mill projects to the slate. We currently expect that our capital expenditures will be $46 million to $49 million in 2020. Note that the amounts I just mentioned include real estate development expenditures, which are included in cash from operations in our cash flow statement and exclude timberland acquisitions.
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 fourth quarter compared to the third quarter. We expect Northern sawlog prices to increase significantly in the fourth quarter due primarily to higher index prices as well as higher cedar sawlog prices.
Harvest volumes in the South are expected to decrease seasonally in the fourth quarter. We expect Southern sawlog prices to be comparable to the third quarter. We ended the third quarter with a lumber order file that stretched into early November. Our average lumber price thus far in the fourth quarter, including orders booked but not yet shipped is approximately 7% higher than our third quarter average lumber price.
We expect the long order files will dampen the sequential decline in our fourth quarter realizations relative to print prices. 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. We plan to ship 260 million to 270 million board feet of lumber in the fourth quarter.
Shifting to Real Estate, we expect to sell 73,000 to 74,000 acres of rural land and approximately 60 to 70 Chenal Valley lots in the fourth quarter. We still expect to close the previously announced 72,000 acre Minnesota transaction in the fourth quarter.
Overall, we expect fourth quarter total adjusted EBITDA to be higher than the third quarter, which would establish a new quarterly record for the company. The amount of the sequential increase depends upon the level at which lumber prices settle.
The primary risk to achieving our fourth quarter outlook remains the pandemic's potential to disrupt our mill operations. We're encouraged by industry fundamentals and we believe that we are well-positioned to grow shareholder value over the long term.
That concludes our prepared remarks. Lindsay, I'd now like to open the call for Q&A.
[Operator Instructions] Our first question comes from the line of Ketan Mamtora with BMO. Your line is now open.
Good afternoon, Mike, Eric and Jerry. And congrats on a strong quarter.
Thank you.
Thanks.
First question maybe to start-off on that. Some of the projects that you all highlighted on the lumber side, can you just clarify how much of that will show up in 2020 versus maybe 2021? And if you can just highlight kind of maybe one or two kind of big projects within that and what you all are doing there?
Yes. So Ketan, this is Eric. As Mike and Jerry had mentioned, we're going to pull forward about $14 million of capital projects into our current thinking for our [Indiscernible]. Of that $14 million, roughly $6 million will get spent this year, $5 million will get spent in 2021 and then about $4 million is going to get spent in 2022.
Some key projects that we've got at our Ola sawmill, we're going to put in a green stacker, a new stacker. Right now, that mill's production volume is constrained by the stacker. And by adding the new stacker which will happen early next year, we expect our production volumes to increase at that Ola sawmills. Another key project for us is, also -- this will happen in Q2 of 2021. But our Bemidji mill, we are going to put in a new auto grader.
As you probably are aware, our recovery -- excuse me, our grade yields at our sub mills are really important and help us serve our home center customers. So that new auto grader is going to increase our high-grade subs that we produce at that Bemidji sawmill. Those are just some examples.
Got it. That's very helpful. And then, just turning to lumber realization and I was a little bit surprised at pointing to Q4 realization kind of just down quarter-over-quarter, given sort of the lengthy order files and given how much prices continue to go up through Q3. Maybe just help provide some sort of color on what are the -- either sort of the offsetting things or some other things that I may be missing?
Yes. So Ketan, our price in Q3 was around $637, it was our gap price. We are expecting prices to fall in Q4 mid single-digit kind of a number. If you look at what resi is thinking, if you look at what FEA is thinking, they're talking about 15%, 20% kind of drops for lumber prices in Q4. So you saw a gap in Q3. It looks like the index did a lot better than us due to the lag in prices, but now, it's going to reverse as we get out into Q4.
And while we were shipping in August and September out into October and November, there is going to be a December price and that December prices who knows where it's going to settle out it, but it may be down in the $500 kind of range. So, that's going to pull the average down for the quarter. But like I said, we expect to do much better than the index for the quarter.
Got it. So, did I hear you correctly that, you said you expect your realizations to be down sort of mid-single digits on a percentage basis in Q4?
That's correct.
Got it. That's very help. And then just final question from my side, before I turn it over. On capital allocation, net leverage is down to just a little over two times. Q4 should be another strong quarter from a cash standpoint. Just sort of -- I'm just curious to sort of understand, how you all are thinking about whether it's in terms of leverage target or do you sort of feel comfortable building some sort of cash considering the volatility in lumber prices?
So Ketan, this is Jerry. In terms of leverage, our overall goal is to keep leverage kind of under four times through a cycle. And certainly, it's moving towards one as we've talked -- as we've discussed publicly recently. So, leverage is really low. And certainly, you look at it on a relative position that gives us a lot of strength and a lot of financial flexibility as we think about allocating capital to grow shareholder value over time.
So we're not going to borrow money just for the sake of keeping leverage higher in the range, within the range of our target. In fact, we're getting ready to refinance some debt, but certainly don't have any near-term plans to borrow. If we were, it most likely be because, there was an attractive large acquisition. So, the short answer is, I think it's most important to invest the excess cash in the right type of return opportunities as opposed to putting it to work near term. And given high valuations on the mill side as well as kind of light activity on the timberland side, I think it's fair to say that we probably will hold a bit excess cash for a bit, but we are very excited about the opportunity to look for opportunities to put that cash to work.
Got it. That’s very helpful. I will turn it over.
Our next question comes from the line of Steve Chercover with D.A. Davidson. Your line is now open.
Thanks. Good morning, everyone.
Hi, Steve.
So I wanted to start with Minnesota. Once you've completed the land sale there, I think, you'll be down to about 30000 acres in the state so I would assume that's barely operational scale. So does the residual land there consist of HBU?
Yes. So what's going to happen after we sell a large number of acres to the conservation fund here in the fourth quarter, we're still going to have some residual acres left over maybe 20000 or so. But don't forget that 16 of those are already contracted for again with TCS and what we call the Plan B transaction. About half of that is going to go in 2021 and half of that is going to go in 2022. So there's going to be a couple of thousand acres left over once we're done here that are unspoken for. And we continue to believe we'll sell those out probably in 2021 if I had to guess.
Got it. Okay. Thanks for clarifying that. And then I want to talk a little bit about the Saint Maries sawmill. I mean that's -- I think -- it's 185,000 board feet. Can you tell us how much of that is cedar? Because cedar has still got ahead of steam and it looks like it's going to be really good for 2021.
Yes. Steve, we don't produce any cedar at our Saint Maries sawmill. We do produce a lot of cedar volumes about 10% of our Idaho sawlog harvest each year is cedar. And cedar continues to perform very well. Prices were up about 20% in Q3 and we're looking for about another 12% here in Q4. Cedar demand is really driven by a lot of the repair and remodel work that you hear about. So we're continuing to be optimistic about Cedar.
We sell those logs to half a dozen customers in the Northwest.
Yes. And they process them.
Got it. Okay. Thanks for that clarification. And then given your optimism for 2021, maybe you can hazard a guess of what your 2021 tax rate might be?
Steve, we will come back to you on that one once we go through our budgeting process. So not prepared to give any, sort of, 2021 guidance on this call. We'll do that on the Q4 call.
Can’t blame us for trying. Okay. Thank you.
Thank you.
[Operator Instructions] Our next question comes from the line of Paul Quinn with RBC Capital Markets. Your line is now open.
Okay. Great. Thanks, guys. I got to call late so I sort of missed some of the front-end stuff, but I'm just curious as to your -- I mean, obviously, balance sheet is in a great spot and it looks like it's going to improve going forward. But what are your capital allocation priorities at this point?
Well, this is Mike. We spoke to that a little bit earlier, but so far this year, we have done a combination of -- in returning cash to shareholders and the share repurchase that we executed on in the first half of the year as well as obviously the dividend continues. With the cash that we have on the balance sheet and growing, we're certainly in a meaningful position to do an acquisition if one should come along that is either timberland or timberland and mills that are adjacent to our own property that continues to be one of our priorities for kind of geographic compatibility with where we already are.
We stepped up and accelerated a little bit Paul some CapEx this year in the Wood Products business just $14 million. It's kind of above and beyond the normal amount on some attractive high-return projects. So I think in sum -- and as you probably can infer the balance sheet's in solid shape. We've got debt in a position where we really can't do much more with a weighted average cost of debt of about 2.3% I think. So there's really not a lot of opportunities there. So really it comes down to acquisition opportunities growing the dividend. And if we see our stock fall significantly below what we think is fair value then we'll buy back our stock through a 10b5-1 program we just put in place which goes effective this Thursday.
Okay. That's great. And then just talking about the M&A opportunities. I think you referenced high valuations at the mill side. Just wondering how high those are and what the expectation on the timberland side for potential acquisitions?
Well. The timberland acquisition pipeline is -- it's been pretty quiet, for the whole year. But it's starting to see a little bit of life. We've seen a couple of properties that have come to market, through investment bankers and others. So, there's starting to be a little bit of activity on the timberland side and at least in the U.S. South.
And on the mill side there's not been a lot of transactions. But certainly based on the cost of some of these new construction projects, which I think are north of $600 per thousand board feet. You have to think that the valuations on the mill side are pretty high. And obviously buying at the top of this cycle has never been a way to measure success.
All right, that's all I had. Best of luck, guys.
Thanks.
Our next question comes from the line of Mark Weintraub with Seaport Global. Your line is open.
Thank you. And just one more on capital allocation, in particular, how would you be thinking about the dividend recognizing it's a Board decision. It's been a few years, since you made a move on it. What sort of would have changed, in terms of the cash-generating capability that would support a type of move in the dividend? And if there's any sort of, directional sense you could share that be appreciated.
Well. We always use the word sustainable and dividend, in the same sense. We've tried to make dividend increases that are sustainable. And we don't want to have to go through a period of either suspending it, or lowering it.
In the recent events that have given us a bit more confidence certainly the Deltic acquisition is -- I think we've exceeded the synergy expectations that we had there, largely on the backs of a really strong lumber market. And a really strong real estate market on that property that we didn't really foresee.
That's done better than expected. I think that would be one thing, we'd point to today the dividend can be supported by a stronger business there than we thought. The Idaho sawlog price recovery since the great financial crisis has been really exceptional.
The cedar market is part of that. And that's tended to be, I think a sustainable increase step-wise, that's made a difference. The higher return Wood Products projects, those can come and go with the vagaries of the lumber market.
But those are a couple things that we'd point to. And I think we're gaining confidence that especially with the cash balance that we have, that are raising the dividend on a modest amount is a pretty low-risk proposition and is well substantiated by the strength of the business.
The only thing that I would add to what Mike just said Mark, is the fundamental underlying demand for lumber remains pretty positive, the story does, if you think about where housing starts are headed. We've seen a lot of people are forecasting starts are heading back to 1.6, 1.7, over the next few years.
Repair/remodel markets are incredibly strong. So we've got a generally pretty bullish outlook on, lumber demand base case. As Mike said, there's not a lot of new mill construction right now. And it's costing over $600, a thousand of capacity to build a new mill. And it takes two years to get it done. It's hard to see people stepping up to make those kinds of investments. So we have a fundamental, favorable outlook on lumber.
All makes sense. Thank you. Just one little quick follow-up too, on the lumber, you had mentioned, shipments 260 million to 270 million. And then, when you gave the up 7% you noted that, that included shipped plus already booked. Roughly how much of that 260 million 270 million might effectively have been included in the plus 7%, that's a number you have handy?
Yeah. I have that handy, Mark. That's about 90 million feet. And that's a combination of ship to-date. But plus also priced and still in the order file.
Okay. Thank you.
All right, Mark.
Our next question comes from the line of Buck Horne with Raymond James. Your line is open.
Hey. Thank you. Thanks a lot guys, comment on, quite a lot question here. I think you've mentioned it. I just wanted to maybe dive in a little further if you can add any additional color on just the state of how you guys see lumber inventories in the supply chain right now in terms of the kind of the standoff between buyers and sellers at the moment with these extended order files?
And maybe it's a little spec-ed a little bit. How do you think some of this resolves itself? And do you think that, you're going to see more buyers, in anticipation of what's probably going to be a very robust spring selling season for homebuilding and repair/remodel next year? Is there a need to restock inventories, maybe above trend ahead of that, or how do you think the supply chain plays out over the next couple of months?
Yeah. That's a great question Buck. So, our view is that inventories in the supply chain are at relatively low levels. And it kind of makes sense when you step back and you think about it, who would want to overbuild their inventory levels when we're selling for $800, $900 a thousand. There's not a lot of people who want to do that.
People were ordering just to meet immediate needs, is our view. And so they depleted their existing inventories to very low levels, knowing that there's seasonal weakness in the fourth quarter almost every year as you get into wintry weather and construction slows, demand for lumber tends to come off and prices tend to come off.
So, we think lumber inventories are very low throughout the supply chain. And today, most mills are probably living off of lengthy order files from when prices were sky high. There will be price discovery. There is price discovery taking place now as we speak, especially in Southern Yellow Pine.
Prices are starting to find the floor, we think. And so this will continue over the next month, six weeks, eight weeks. And then you're going to see dealers have to step in and build inventories to support the coming season, which as you mentioned, looks like it's going to be pretty strong next year between new housing starts, Mike mentioned, those new homebuilder orders, up 40% pretty spectacular, plus continued strength in R&R.
Both the resi and FEA have indicated they think R&R markets are going to continue to be strong next year. So, our view is that dealers are going to step back in and have to rebuild inventories as we get out into the first quarter. And that should help support industry pricing.
That’s the idea I was hoping to you get [ph]. That's really helpful. Thank you so much for that.
Sure.
And maybe also -- maybe switch gears on to the timber harvesting side. Are there any cost items or things that are moving around that could affect harvesting margins from -- going from the third quarter to fourth quarter? Whether it's diesel fuel or anything else that we should keep in mind in terms of harvesting margins sequentially?
No. Our -- the largest cost item for our timberlands business is our harvesting and our hauling, we call it Log and Haul. And those costs are relatively flat year-over-year. They have been for several years now. There's a little bit of inflationary creep, I suppose. This year prices are a little bit lower perhaps because of lower diesel prices, but not a lot of movement there.
Okay. Perfect. Got it. Thanks, guys.
Thank you.
Our next question comes from the line of John Babcock with Bank of America. Your line is now open.
Thanks for taking my questions. Just actually wanted to quickly follow-up on the Timberland segment. I was wondering, just the solid volumes and the movement that you're expecting from 3Q into 4Q, is that largely seasonal, or is there anything else to be mindful there?
Yeah. The real big effect there, John, is as you probably recall we index about 70% of the price of our sawlogs in our Idaho business. And we have on about a six-week lag. So, we have a pretty significant price move on Idaho sawlogs Q4 to Q3. That would be the other big factor on side.
I guess I was more wondering about volumes than pricing.
Yeah. So in terms of volumes, it's just seasonally down. So we were at 1.7 million tons in Q3, and we've guided a range of 1.3 million to 1.4 million. And it's just a seasonally lighter part of the year.
The other thing is we had pretty favorable harvest conditions for the most part early in the year. So, we were able to get a large part of our harvest complete going into the fourth quarter. That plays a role.
And as you probably recall, we do expect our Southern harvest will be lower than planned this year and that's largely the COVID disruption that occurred early in the year that we've said, we're not going to make that volume up.
Okay. And then just quickly on the dividend. Does the Board meet, is that in December? Am I remembering that correctly?
The Board does meet in early December, yes.
Okay. And then, just the last question. I was just wondering, with the large land sale that you have in real estate this upcoming quarter, the Minnesota timberlands there. Could you give any sense as to whether EBITDA will still be up excluding that land sale?
Will EBITDA for real estate be up excluding that land sale?
No, no overall. So, the short answer is, no. I mean, that sale was about a $48 million sale and what we have is a situation where that particular transaction's effect on EBITDA sequentially will outweigh the lumber price decline and the volume decline that we've talked about, both on the harvest and the lumber shipment side.
Okay. Thank you. That’s all I had.
Thanks.
Our next question comes from Ketan Mamtora with BMO. Your line is now open.
Thank you. Jerry, if I may on the northern sawlog prices, you said a couple of times it will be up substantially. I also know there is this offsetting drag impact in Q4 from density. Is there a way to sort of frame it, sort of its high single digits on a net basis, low double digits? Can you hazard a guess in terms of kind of directionally what it could be?
Yes. So Ketan, this is Eric. Yes, there is going to be a little bit of density drag in the fourth quarter. It's about 5%, 6%. But more importantly, those high lumber prices that we saw particularly in September are really going to work in our favor as we get out into Q4. And we expect our Northern sawlog prices to be up about 40% in Q4 versus Q3.
And this is net of the density or this is without the density?
This is net of the density.
Net of the density. Got it.
That's 4-0, 40% 4-0.
Got it. I have done it all. Thank you.
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, Lindsay. And certainly, I appreciate everybody's interest in PotlatchDeltic. Available for the detailed modeling questions the rest of the day and look forward to catching up on our next quarter's earnings call.
This concludes today's conference call. You may now disconnect.