Plum Creek weathers challenging year

A tough third quarter left its financial mark on Plum Creek Timber Co. by the end of 2007, despite a fourth quarter that was much stronger than a year earlier.

Wildfires and a national housing-market downturn translated into third-quarter earnings of $33 million less than a year earlier. Then the sale of 100,000 acres of Wisconsin timberland in the fourth quarter helped turn earnings into a $49 million gain over the final three months of 2006.

Even so, the company's overall earnings for the year were $35 million less than reported for all of 2006.

Western Montana fires last summer damaged about 41,000 acres, or about 0.5 percent of the company's total timberlands in 18 states. Timber operations were shut down here because of fire risk during August, resulting in a sawlog harvest 150,000 tons lower than projected in the company's Northern Resources segment.

Plum Creek tagged it for a $4 million non-cash fire loss.

But Director of Communications Kathy Budinick, based in Seattle, said the company already has started salvage operations and expects a portion of the standing timber to be harvested.

Elsewhere the company bought 69,000 acres of what it called high-quality, investment-grade timberlands in Georgia and Oregon. Georgia is part of Plum Creek's Southern Resources segment.

Plum Creek workers in the Flathead came out in better shape overall.

The Flathead and most of Montana had extremely low unemployment in 2005 and 2006, sending employers to temporary employment agencies for the workers to fill their openings.

But Vice President for Northern Resources and Manufacturing Hank Ricklefs, based in Columbia Falls, said that's changing.

"It appears to have eased in the past six months," Ricklefs said. "That enabled us to bring on more people as full-time Plum Creek people."

Historically, he said, Plum Creek's total compensation package, with wages and benefits, is about 50 percent higher than Montana's average. But to sweeten the deal in the tight labor market and get more people to sign on as permanent employees, "we wound up improving our starting wages and reducing the time at which employees were eligible for full benefits."

Of the corporation's 2,100 employees nationwide, more than 1,400 work in Montana, and they are primarily in Flathead, Lake and Lincoln counties.

Ricklefs said that for every Plum Creek job - most of which are high-paying primary manufacturing positions - economists estimate another 3.4 jobs are generated elsewhere in the state.

Plum Creek's direct spending with other businesses in Montana amounts to $180 million annually, he said, and gets multiplied by half-again in indirect spending from those secondary businesses.

Plum Creek's rural land sales continued to grow in 2007, President and Chief Executive Officer Rick Holley reported in the year-end financial statement - including the 100,000 acres of Wisconsin timberland mentioned above.

"Revenues from the sale of smaller tracts of rural land grew nearly eight percent to $332 million for the full year as the troubles in housing markets did not appear to influence the interest in rural land," he said.

Those land sales go primarily to people wanting to build homes or simply broaden their investment base, Budinick said.

Plum Creek owns land in 18 states, including 1.256 million acres in Montana, exclusively in the northwest part of the state. Last year, Budinick said, the company sold about 30,000 of those acres with somewhere between 3,000 and 4,000 acres going into housing development projects.

The 30,000 acres sold last year figures out to 2.3 percent of the company's total land holdings in the state. The company also sold 680 acres on the Bull River to Montana Fish, Wildlife and Parks for wildlife habitat.

In 2005, The Conservation Fund in Lincoln County took on 1,034 acres on the Bull River for habitat mitigation. Fish, Wildlife and Parks also took on management of 48 acres of Plum Creek land for a public park at Lake Mary Ronan in 1997.

The Thompson-Fisher conservation easement on 141,983 acres was negotiated with the Trust for Public Lands and other parties in phases from 2000 to 2003.

Holley also reported that the company's non-timber resource businesses - selling off assets below the land surface, such as water or construction materials including limestone, gravel and decorative rock - continued to grow. Those accounted for $17 million in operating profit during 2007.

While timber harvests and recreational access (which Plum Creek traditionally allows on all its land) are important in Northwest Montana, its manufacturing plants have a huge presence here.

That segment reported a $1 million loss for the fourth quarter of 2007, half the loss reported in the final three months of 2006. The company chalked up the gain to improved performance in its lumber and medium density fiberboard businesses. Plywood prices were steady but prices for medium density fiberboard were up six percent compared with the fourth quarter of 2006.

Columbia Falls is home to the company's only two medium density fiberboard facilities in Montana.

The rest of Plum Creek's nine facilities in Montana are concentrated in Flathead, Lake and Lincoln counties - four lumber mills, two plywood plants, and a remanufacturing plant in Evergreen.

The remanufacturing plant, Ricklefs explained, buys low-grade two-by-four and two-by-six lumber, finger-joints pieces together for the residential construction industry, and sells them almost exclusively to major urban markets in the Mountain West.

Ricklefs pointed to a few challenges facing the forest industry overall.

"The first is the steepness of the decline in lumber due to the housing crisis - customers are not needing lumber," he said. "It is a serious falloff from 2005, and we haven't seen the bottom yet … Northwest Montana has had a lighter touch."

Demand here is lower, he said, but the situation is not as severe as in metropolitan areas.

It's not only demand that's lower, though. So is the timber supply.

"Overall timber supply from a combination of public and private lands continues on the decline over the long term, going back to the late '80s and early '90s" when timber available from federal forests declined, Ricklefs said.

"There's also been a reduction from most other sources in the private sector. It surged up in the mid-'90s to cover some of the decline" in supply from federal lands.

"But over time, this is a very slow-growth area for trees," he said, and when Montana's harvest on trees that take 70 years, on average, to grow to sawlog size was maxed out, they had to "gradually ratchet down the harvest."

And global competition has taken its bite out of Plum Creek's market.

"We compete with pine boards coming from overseas," he said. Plum Creek ships to both coasts, where merchants also are served by lumber suppliers in Europe, South America, New Zealand and elsewhere. "But the weaker U.S. dollar in the past six months has helped hold off on some of those imports."

Reporter Nancy Kimball may be reached at 758-4483 or by e-mail at nkimball@dailyinterlake.com