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PotlatchDeltic Corp (PCH) Q1 2019 Earnings Call Transcript

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PotlatchDeltic Corp  (NASDAQ: PCH)
Q1 2019 Earnings Call
April 30, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the PotlatchDeltic First quarter 2019 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.

Jerald W. Richards -- Vice President and Chief Financial Officer

Thank you Rob, and good morning. Welcome to PotlatchDeltic's investor call and webcast covering our first quarter 2019 earnings. With me in the room are Mike Covey, Chairman and Chief Executive Officer; and Eric Cremers, President and Chief Operating Officer.

This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchdeltic.com.

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

Michael J. Covey -- Chairman and Chief Executive Officer

Thanks Jerry, and good morning. We generated adjusted EBITDDA of $30 million in the first quarter excluding our MDF operations. Our Resource segment operated well allowing us to capture price premiums in the south due to weather related log shortages. Conversely, all of our Idaho customers built substantial log decks early in the quarter in anticipation of spring break up and log deliveries were curtailed in the latter half of the quarter. Our annual harvest plan remains intact with a shift of deliveries into the second half of the year to account for the first quarter shortfall in Idaho. As expected, log prices in Idaho fell in the first quarter due to our indexing arrangements. Real estate development sales were down seasonally as expected. We continue to be excited about rural land sales opportunities on the Legacy Deltic timberlands in Arkansas.

Lumber prices are a key driver given that we are the timber REIT with the most leverage to lumber prices. Our average lumber price increased 4% in the first quarter which was just under the 5% level that we'd expected. A series of external issues hampered our ability to manufacture and ship lumber during the quarter including a train derailment in the west, extraordinary rainfall in the south, which resulted in log shortages and extreme cold weather in the Lake States. Improvement in lumber prices stalled in the first quarter as the spring building season was delayed by incredibly wet weather in many regions of the country. While current lumber inventory throughout the system is adequate for many customers to obtain just in time deliveries, markets could tighten based on further developments in the Canadian supply related issues. We remain optimistic that lumber prices will improve in the near term once the delayed building season gets under way in earnest and we were encouraged by the improvement in Western Lumber prices reported by Random Lengths last week. Strong builder confidence, the recent drop in mortgage rates, stronger new home sales and solid growth in repair and remodel spending all underpin our confidence.

During the first quarter, we closed on the previously announced sale of our Dorado, Arkansas MDF business to Roseburg Forest Products. After paying taxes and assigning $29 million of revenue bonds, net proceeds were approximately $43 million.

Our balance sheet remains strong and provides flexibility to grow shareholder value. Share repurchases were our main priority for excess cash during the quarter. We used $10 million to repurchase 279, 000 shares at an average price of $36 per share in the first quarter. Our stock continues to trade at a significant discount to our net asset value in addition to yielding over 4%.

I'll now turn it over to Jerry to discuss the quarter and talk about our outlook. And then we'll take questions.

Jerald W. Richards -- Vice President and Chief Financial Officer

Thanks Mike. I'll start with Page 4 of the slides. Excluding results of the MDF mill, total adjusted EBITDDA was $30.1 million in the first quarter, compared to $34.5 million in the fourth quarter. The sequential decline in EBITDDA is due to seasonally lower real estate sales and harvest volumes, partially offset by a modest improvement in lumber prices.

I'll now review each of our operating segments and provide more color on the first quarter results. Information for our Resource segment is displayed on Slides 5 through 7. The segment's adjusted EBITDDA was $26.9 million in the first quarter, compared to $29.8 million in the fourth quarter. We harvested 374,000 tons of sawlogs in the North in the first quarter. This is down seasonally from the 388,000 tons that we harvested in the fourth quarter. Northern sawlog prices were 9% lower on a per ton basis in the first quarter, compared to the fourth quarter. Roughly half of the price decline reflects the lagged effect of lower Q4 lumber prices and the other half was due to the seasonal increase in the density of logs.

Turning to the South, we harvested 828,000 tons in the quarter. This was down seasonally from the 912,000 tons that we harvested in the fourth quarter, but was slightly higher than we had planned. Our employees did a good job managing through a wet quarter, which captured a small premium caused by log shortages.

Our Southern sawlog prices were 3% higher this quarter. The weather-related premium we realized on pine sawlog sales was more than offset by the effect of a seasonal decline in hardwood sawlog harvest activity. We think that Southern pine sawlog prices will revert to normal trading levels once conditions dry out and logs are more readily available.

I'll now shift to wood products, which is covered on Slides 8 and 9. Excluding results of the MDF mill, the segment's adjusted EBITDDA was $9 million, compared to $1.7 million in the fourth quarter. Our average lumber prices increased 4% from $367 per 1,000 board feet in the fourth quarter to $380 per 1,000 board feet in the first quarter. Lumber shipments decreased 27 million board feet to 238 million board feet in the first quarter, which was well below our plan for the quarter.

As Mike mentioned, we experienced shipping and operational challenges in the first quarter. This included disruption caused by a train derailment in the Pacific Northwest, log shortages in the South due to the wet weather and the effect of the polar vortex on our Lakes States mills. We're on track to make up most of the shortfall in the second quarter and still expect to ship approximately 1.1 billion board feet of lumber for the year.

I'll now cover our Real Estate segment on Slides 10 and 11. Real Estate's adjusted EBITDDA decreased $9.9 million in the first quarter. Chino residential lot sales were seasonally lower. In addition, there were no commercial land sales in Chino in the first quarter compared to $4.5 million of commercial land sales in the fourth quarter. There continues to be good interesting commercial acres.

Shifting to financial items, which are summarized on Slide 12, we ended the quarter with $105 million of cash. We closed the previously announced sale of the Deltic MDF mill in February. The buyer assumed $29 million of industrial revenue bonds related to the mill and we expect to net approximately $43 million of cash once we pay taxes on the transaction. We used $10.2 million of cash to repurchase 279,000 of our shares in the quarter. The average price was just over $36 per share. Our dividend is well covered, excluding Deltic merger costs and the voluntary pension contribution that we made in the third quarter of 2018, our payout ratio was 67% on an LTM basis.

As a reminder, we completed the refinance of our $150 million of Senior Notes in the first quarter. This reduces our interest expense $4.4 million on an annual basis. We expect the first annual Farm Credit patronage payment related to this debt to reduce interest expense a further $1 million beginning in the first quarter of 2020. Capital expenditures were $9.8 million in the first quarter. Note that this amount includes $1.8 million of real estate development expenditures which are included in cash from operations in our cash flow statement. We continue to expect that total capital expenditures including real estate development will be in the range of $65 million to $70 million for 2019.

I'll now provide some high level outlook comments. The details are presented on Slide 13. Harvest volumes in the North are expected to be seasonally lower in the second quarter compared to the first quarter due to spring break up. We expect Northern sawlog prices to increase about 10% in the second quarter due both to resetting the price of index volume to reflect improved Q1 lumber prices and seasonally lighter logs. Harvest volumes in the South are expected to increase 10% to 15% in the second quarter assuming drier conditions. We expect Southern sawlog prices to be flat sequentially as a seasonal increase in the mix of higher priced hardwood logs offsets elimination of a wet weather premium for Pine sawlogs.

Our average lumber price is currently about $400 per 1,000 board feet on a spot basis which is about 5% higher than the average lumber price that we realized in the first quarter. We expect further improvement in lumber prices and our internal forecast estimates our average second quarter lumber price to be about $410 per 1,000 board feet. As a reminder, a $10 per 1,000 board foot change in price represents about $12 million in total adjusted EBITDDA on an annual basis. We expect to ship 280 million to 295 million board feet of lumber in the second quarter.

Shifting to Real Estate, we closed on the sale of 8,000 acres of non-strategic timberland in Minnesota to a conservation entity yesterday at a price of just over $800 per acre. This transaction was contemplated in our plan to sell approximately 20,000 acres of rural land this year.

Overall, we expect an improvement in lumber prices, a seasonal increase in Southern harvest volume and sale of more rural acres to result in higher second quarter adjusted EBITDDA compared to the first quarter.

That concludes our prepared remarks. Rob, I would now like to open the call up to Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Your first question comes from line of John Babcock from Bank of America. Your line is open.

John Babcock -- Bank of America -- Analyst

Hey good afternoon -- good morning. Just want to start out on the lumber front, I was wondering if you could talk about overall conditions in the market and where inventories stand right now and ultimately how optimistic you are,you know for prices kind of moving higher from here?

Eric J. Cremers -- President and Chief Operating Officer

Yeah, John this is Eric, good morning or afternoon depending upon where you're at. But what happened to lumber prices in Q1, well, you know, as we discussed back in Q4, we thought that prices had bottomed and that we would move higher, as we got into Q1. Sure enough in Q1, prices did move higher as Mike and Jerry spoke about earlier, we were generally in line with Random Lengths for the quarter. We did slightly better than the Random Lengths Index, but we're not the same product mix, so that's to be expected. So what happened to lumber prices since Q1 ended? Well, the increase in lumber prices that we've seen since December has now paused, as we got out into April and it varies by market, Western markets have shown a little bit of an increase over the last week or so, with a lot of announced curtailments, but we haven't seen a similar response from Southern markets or from Lakes States starts. Inclement weather in the first quarter held back housing starts. I think it's been and there's been a lot of press on that. There's also been a lot of press that builders have been destocking their inventories, starting middle of last year, as they saw interest rates moving higher and affordability issues come into play. They started pulling down their inventories and that just reverberated itself all through the supply chain. But we're now starting to see signs of improvement. You saw the new home sales that were announced, what I guess was late last week, were actually the second highest monthly number since the Great Recession. And that has come from both more affordable houses with interest rates coming down but also builders are now making houses smaller and therefore more affordable. So our view is that lumber markets are starting to firm up, but we'll see how that plays out as we move through the year.

John Babcock -- Bank of America -- Analyst

Okay, and just to confirm, did I hear correctly you guys at least within the forecast are expecting $410 per million board feet or per 1,000 board feet?

Eric J. Cremers -- President and Chief Operating Officer

That's correct John.

John Babcock -- Bank of America -- Analyst

Okay. Thank you. And then if you could just talk a little bit about essentially kind of the operational impact from from the vortex and also kind of the train derailment if you could just provide a little more detail on that and also if there was any carryover into April?

Eric J. Cremers -- President and Chief Operating Officer

Yes. So as Mike and Jerry spoke about our lumber shipments were impacted pretty significantly by some really tough weather conditions in the first quarter. Actually there was a number of different factors held back shipments by 25 million to 30 million feet in the quarter. Weather was roughly 30 million feet of that shortfall. Some of that was due to running out of logs down in Arkansas due to all the wet weather and some of that was due to the polar vortex in the Lakes States that impact shipments by about 8 million feet. We also had a train derailment out in Eastern Washington that backed up inventory into our St. Mary's mill that held back shipments about 5 million feet and also due to other transportation challenges, we had about 5 million feet that was above normal in transit shipments to the quarter. So they didn't -- they'd ship -- they left the mill, but they hadn't arrived at the customer's location. So they couldn't be be booked as a sale. So all-in, the tough weather really impacted us 25 million to 30 million feet in the quarter. But moving into Q2, things have eased quite a bit and transportation issues have really gone away.

John Babcock -- Bank of America -- Analyst

All right, So the majority of it was resolved in 1Q. So we don't really have to worry about much of that this quarter?

Eric J. Cremers -- President and Chief Operating Officer

That's correct.

John Babcock -- Bank of America -- Analyst

Okay, and then I just want to confirm I thought that the guidance, if I'm not mistaken, was around kind of 6 million to 6.1 million tons for the year in the Resource segment. Could you just kind of provide an update on what you're thinking as far as volumes there?

Michael J. Covey -- Chairman and Chief Executive Officer

Yes, so we're still planning on 6 million to 6.1 million tons for the year. We're after, I would say a little bit of a slow start this year in the Morth, mills are relatively full right now and pricing is on the weak side. So we're not anxious to force wood into an oversupplied market, but we'll go through the normal seasonal increases that we go through each year in Q3 and even into Q4 and we expect to hit our harvest targets of about 1.8 million tons in the North. In the South, the tough weather conditions have held us back a little bit. We are running a little bit behind. That being said, we had a pretty solid Q1, our teams did a great job taking advantage of relatively high sawlog and pulpwood prices and got over 800,000 tons into the market and we expect them to get just under 1 million tons in Q2. There's still some wet conditions in the South. It's impacting one of our districts in Arkansas in particular, but nonetheless we expect as things dry out moving into Q3 and Q4, we will hit our harvest targets for the year.

John Babcock -- Bank of America -- Analyst

Okay. Thank you. That's all I have for now.

Operator

Your next question comes from line of Chip Dillon from Vertical Research. Your line is open.

Salvator Tiano -- Vertical Research -- Analyst

Hi guys. It's Salvator Tiano, filling in for Chip. How are you?

Michael J. Covey -- Chairman and Chief Executive Officer

Good.

Salvator Tiano -- Vertical Research -- Analyst

So my first question is on the MDF plant, just trying to understand a little bit now that it's sold how your revenues and operating profitability will look like. And if I understood correctly, essentially you're saying that the plant generated an EBITDDA loss in Q1. So can you elaborate a little bit on that and how we should think about the foregoing EBITDDA for the remaining of the year?

Michael J. Covey -- Chairman and Chief Executive Officer

So to start with Salvator, first part of your question is, yes,there was an EBITDDA loss of $1.8 million for the quarter for MDF, there was a fair number of charges and kind of housekeeping type unusual expenses, that we incurred leading up to the sale. So you know, that is correct, in terms of EBITDDA for the mill, I mean we haven't reported it separately in the past, you know back to under Deltic, it was probably in the $8 million to $10 million EBITDDA range, in terms -- in terms of revenue, it's probably somewhere probably the $40 million range or so, maybe $30 million, something in that range. So that will give you some sense as to what the go forward business looks like.

Salvator Tiano -- Vertical Research -- Analyst

Okay. So essentially the fact that has an EBITDDA loss, doesn't mean you're going to benefit in the next few quarters from the sale right. it's just one-time items maybe. Okay great. And the second --

Michael J. Covey -- Chairman and Chief Executive Officer

MDF sold John, as of the point we closed the transaction in February.

Salvator Tiano -- Vertical Research -- Analyst

Yeah. And then the second question is on capital allocation and buybacks, you know this is the quarter where you got the cash essentially and I think your net debt is down by over $50 million, from where it was at the end of the year. So I'm thinking a little bit you know -- as the share price already $39, it was $35, $36, how you think about buybacks about the rest of the year? And was there any -- and how are you thinking about M&A versus that, especially given that the stock price was at a greatly attractive level, you know earlier as you were getting the cash, and you know which only $10 million worth of shares being bought back?

Jerald W. Richards -- Vice President and Chief Financial Officer

So in terms of the capital allocation, I mean, first off, you're correct, we continue to trade at a pretty sizable discount on our stock price, especially when you factor on a 4% dividend yield on top of it, is at a really attractive level. I think part of what you touched on in your question was how do we think about buybacks versus acquisitions and certainly right now I think the implied in the math this morning and the implied value of our trees, it's trading in the public market is about 1,400 bucks an acre which is well below what those trees are worth on average. And when you think about buying trees, ours are much more attractive at the current point than any outside trees. So we would continue to prioritize share repurchases over any acquisitions and it's a situation where we'll continue to be opportunistic and we certainly have plenty of available cash to continue to execute against that program.

Salvator Tiano -- Vertical Research -- Analyst

Great. And just one, last one. You do mention, you're a net log buyer in the US South, right, and many companies noted how due to weather will have their saw wood price a little bit higher. What's the impact on your wood product operations from these net short position material to these $2 million EBIT generation or was that the material it won't really help next quarter?

Michael J. Covey -- Chairman and Chief Executive Officer

No, it was immaterial impact and those inventories turn over quickly this time of year when we have a couple of days of inventory at each mill, so it was immaterial and it won't have an impact on 2Q.

Salvator Tiano -- Vertical Research -- Analyst

Okay, great, thank you very much.

Jerald W. Richards -- Vice President and Chief Financial Officer

I would add add Salvator is -- again being almost perfectly hedged where it's a plus in one segment, so Resource this quarter it's a -- it's -- offsets the negative in wood products largely so. So that's part of our color behind why it's immaterial.

Salvator Tiano -- Vertical Research -- Analyst

Okay, great. Thanks.

Operator

Your next question comes from the line of Ketan Mamtora from BMO Capital Markets. Your line is open.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Thank you and congrats on a good start to 2019.

Michael J. Covey -- Chairman and Chief Executive Officer

Thank you.

Ketan Mamtora -- BMO Capital Markets -- Analyst

First question, on the wood products side, can you talk a little bit about debottlenecking projects that may be going on at your sawmills and what kind of capacity that you may have at the end of 2019 on the lumber side?

Michael J. Covey -- Chairman and Chief Executive Officer

Sure.

Eric J. Cremers -- President and Chief Operating Officer

Yes, So ketan, we've got a number of different projects under way at our different mills to try to bottleneck to improve or increase production. At St. Mary's, we're in the process of trying to install a new kiln out there. We have been held up, getting a permit from the EPA to construct and install that kiln. We hope to have that done and installed and operating by the end of the year. We think that will improve production at our St. Mary's Mill who knows 15 million-20 million feet a year. We also are installing at our Waldo sawmill down in the South. We've had shipping challenges as we've talked about over the last year or so. With rail issues, we're not getting enough cars, so we're going to install another rail spur at our Waldo mill,which will help us increase our shipping capacity and lower our freight costs at our Waldo mill. And in addition, at the same Waldo mill, we're going to install a new green stacker, which will allow us to improve our cut per hour and reduce labor and other related costs. And we think that's going to allow us to expand our Waldo mill another 15 million to 20 million feet. And then finally, at our Warren sawmill, I think we've spoke about this previously, but we're installing two new continuous kilns at our Warren sawmill. And that too will allow us to drive more lumber , have higher quality, more improved shipments there another who knows 15 million, 20 million feet. So all in ,we hope to get shipments up to a little over (inaudible) this year and then we intend to grow shipments from there another 2% or so as we look out into 2020, although I don't --(inaudible) to give you guidance on 2020, because we haven't done all our detailed planning yet.

Ketan Mamtora -- BMO Capital Markets -- Analyst

That's fair. But this is very helpful. And then turning to the cedar markets up North, can you provide any update on what you're seeing there in terms of how the markets are right now and where current cedar log prices are?

Michael J. Covey -- Chairman and Chief Executive Officer

Yeah, so as we talked about on the last call, cedar prices have been under a little bit of pressure. We had really high prices back in 2017, I think was the peak year for cedar. A lot of cedar logs came out of the woods so to speak and no inventories got relatively full, based upon those high prices. And if you look at cedar prices, our forecast for this year versus last year, we expect cedar prices to be down about 18% full year over full year and that may sound like a lot, but if you take a look at Northern sawlogs excluding cedar, which would be stuff like Doug Fir and Hem Fir, those prices are expected to be off about 17% full year over full year. So it's really experiencing something similar that we're seeing in our regular Northern Resource business unit. Now, if we look specifically by quarter, our cedar prices here in Q1 versus Q4 were down 15%, but in Q2, we expect them to go up 14% and then in Q3 another 16%. So it feels to us like prices have now bottomed.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it. And what would be the driver of those big increases in the second quarter and the third quarter, Eric?

Eric J. Cremers -- President and Chief Operating Officer

What would be the driver of what?

Ketan Mamtora -- BMO Capital Markets -- Analyst

Yeah, of this big jumps?

Eric J. Cremers -- President and Chief Operating Officer

Well, it's just our outlook for what we're hearing from customers on -- these are deals that we're cutting as we speak.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Got it, understood, that's helpful as well. And then just turning to Southern log prices, obviously Q1 had a weather element in it, but outside of that, are you seeing kind of signs of pricing tension in any of the wood baskets that you guys operate in?

Eric J. Cremers -- President and Chief Operating Officer

Very little tension. I mean we're getting a nice lift today that may last through the end of Q2, but we expect prices to move back lower again as we get around to Q3 and Q4.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Understood. And then just one final question more of a clarification Jerry, on Q1 share repurchases, were there any limiting factors like blackout period or anything of that kind which prevented you from buying back more shares?

Jerald W. Richards -- Vice President and Chief Financial Officer

Yes, so we had an open window, I mean it, I mean like we talked on our last quarter's call that it opened second day after we released earnings, so we certainly had an open window to work through and then there's the normal SEC guidelines on restrictions but when you look at the level of repurchase, no, it was not constrained relative to what we could have done.

Ketan Mamtora -- BMO Capital Markets -- Analyst

Understood, OK. That's super helpful. Good luck for the rest of 2019, thank you.

Jerald W. Richards -- Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Collin Mings from Raymond James. Your line is open.

Collin Mings -- Raymond James -- Analyst

Hi, good morning out there. Just a couple of questions for me. First, just really a point of clarification, just you touched on this in the prepared remarks and an earlier question, but as far as the anticipation that pricing in the US South would revert to lower levels as what weather conditions subsided, have you actually seen that pricing tension ease in recent weeks or is that just an expectation as you kind of move through the quarter?

Michael J. Covey -- Chairman and Chief Executive Officer

No, I'd say it's an expectation Colin. We think there is a chance that these better prices with mill log decks being relatively low. There's a chance that these, I'd call them elevated, but about $2 a ton or $3 a ton isn't really all that elevated weeks. There's a chance that's going to last through Q2 but then we think it's going to move back lower as we get out into Q3.

Collin Mings -- Raymond James -- Analyst

Okay. That's helpful clarification there. And then just I want to talk a little bit more about just cost pressures more broadly just recognizing obviously you guys have been focused and remain focused on projects that will improve efficiency in your cost structure and again both kind of whether that be mill operations as well as different things that you've identified through the merger on the Deltic side. But just maybe can you expand on kind of what you're seeing out there in terms of cost pressures on the labor or transportation front as we've kind of moved through this year particularly given some of the weather conditions?

Michael J. Covey -- Chairman and Chief Executive Officer

Yeah, you know, Collin, I would -- I would say the inflationary -- the pressures that we're feeling on the cost side, they're really just inflationary, it's nothing extraordinary. Transportation issues seem to come and go based on the season, the winter months tend to be really tough on rail and even some trucking problems. Then you get out into this climate we're in today, things are -- transportation issues are, you know I wouldn't say non-existent, but they're not all that significant you know, as we get out into the summer months, we're going to have to start competing with (inaudible) shipments. That's certainly going to be an issue for trucks in the South. We see truck pricing issues in Idaho in the Resource business. It's becoming a tougher and tougher occupation to get people to go into. But these are all relatively small cost pressures at the end of the day. You know typical inflationary kinds of things, 2% to 4% per year. I wouldn't describe it as anything beyond that.

Collin Mings -- Raymond James -- Analyst

Okay, that's helpful. Bigger picture just as it relates to trade relations between the US and Canada on the lumber front, maybe just an update and kind of update recognizing part of the US lumber coalition following some of the WTO proceedings.

Jerald W. Richards -- Vice President and Chief Financial Officer

Well there have been some kind of technical rulings as you know in the last few weeks. We continue to think that's going to take several months, if not a year or more to sort its way through the system with WTO hearings later this -- late in the fall of this year or perhaps into next year, election season in both countries. All those things point to the fact that it's going to take a long time for this trade dispute to work its way through the legal process. We continue to believe that a negotiated settlement between the countries that's quota based makes the most sense.

Collin Mings -- Raymond James -- Analyst

Okay, it sounds like not really expecting much to change on that in the near term at least?

Jerald W. Richards -- Vice President and Chief Financial Officer

No.

Collin Mings -- Raymond James -- Analyst

One last question just Jerry, more housekeeping,just looks like there is a big swing in deferred taxes in 1Q. Just what was going on with that line item,I don't know, if there's maybe something I've missed in the footnotes, but just if you could provide some color on that , that'd be helpful.

Jerald W. Richards -- Vice President and Chief Financial Officer

So that swing in deferred taxes is really related to the MDF sale. So when we -- so we had very low carryover basis in the assets when we merged with Deltic. So we set up a pretty sizable deferred tax liability in part of purchase accounting. And now what we sold that mill, I mean the cash taxes become due and that's why you're seeing that flip.

Collin Mings -- Raymond James -- Analyst

Okay. All right. Thank you all very much.

Operator

Your next question comes from the line of Steve Chercover from Davidson. Your line is open.

Steve Chercover -- Davidson -- Analyst

Thanks. And forgive me I was kind of toggling between a couple of things, but in the South, the sawlog and pulpwood prices were elevated due to wet weather and you expect it to be flat in Q2. Is that because, there's continued wet weather? Or are we seeing any tightening because I think I also heard you say it could reverse in Q3.

Jerald W. Richards -- Vice President and Chief Financial Officer

Yes. So Steve this is Jerry. So what you heard Eric talk about is -- they're still elevated, but we expect that pine sawlog prices will moderate during the quarter as mills rebuild inventories. The offsetting factor is hardwood seasonally increases as part of the mix of the harvest volume in Q2 and hardwood sells for a significantly higher price than pine sawlog.

Steve Chercover -- Davidson -- Analyst

Sure. now I mean this is probably almost speculative, but there's been on and off chatter about a huge mill in Arkansas. Have you heard any updates on that and would it benefit you?

Jerald W. Richards -- Vice President and Chief Financial Officer

Absolutely would benefit us, it's a pulp mill that's expected to be sited in Arkadelphia, Arkansas which is very proximate to our ownership, but it remains what I would consider to be speculative at this point. Construction permits, environmental permits to our knowledge have not been issued although the investor continues to work on the process. But if it were to happen, I think we're talking about years away, not quarters away.

Steve Chercover -- Davidson -- Analyst

Certainly thanks. And then finally, again, forgive me if you've mentioned it, but can you quantify how much you have outstanding on the repo either by dollar value or the number of shares?

Jerald W. Richards -- Vice President and Chief Financial Officer

Yes, Steve. So we -- so the overall authorization is $100 million. We used $10 million in the quarter, so we have round numbers $90 million that's left under the authorization.

Steve Chercover -- Davidson -- Analyst

Thanks, Jerry. Okay. Thank you.

Operator

Your next question comes from line of Mark Weintraub from Seaport Global. Your line is open.

Mark Weintraub -- Seaport Global -- Analyst

Thank you. First, you had mentioned early in your remarks regarding lumber that Western Canadian supply factors you thought would come into play. Is that just a reference to the recent curtailment announcements or could you expound on that a little bit more please?

Eric J. Cremers -- President and Chief Operating Officer

Yes, Mark, this is Eric. So you've seen a number of curtailment and closure announcements both in the Pacific Northwest and up in British Columbia and I think I heard the tally totaled something like 40 mills now. Our Western dimensional lumber business competes directly with those products and so there has been an improvement in pricing particularly for Western lumber. We haven't seen the same impact over in the Lakes States in our stud mill business over there or in Southern yellow pine. But that may yet be coming.

Mark Weintraub -- Seaport Global -- Analyst

Okay. So what though is a reference to what is happening now not necessarily something that would be happening in the future. Just -- I just wanted to clarify that?

Eric J. Cremers -- President and Chief Operating Officer

Yes, what has happened is Western has improved and we have not yet seen improvement in pricing in either the Lakes States or the South but that may be coming.

Mark Weintraub -- Seaport Global -- Analyst

Okay. And also thanks for the updates on harvest and lumber shipments. I guess the one area, any updates in terms of the outlook on real estate vis-a-vis sales and expected acres sold and average prices, somewhat noticeable that the second quarter, quite a few acres being sold at a relatively moderate price.

Michael J. Covey -- Chairman and Chief Executive Officer

Yeah, Mark, so I would say our real estate business is kind of back half loaded, if you will, both in rural land sales as well as on the development side, particularly on the development side, we have more lots, two-thirds of our lots will be sold in the second half of the year and our commercial acres also generally tend to be so late in the year. So the real estate business is skewed toward the second half versus first half.

Jerald W. Richards -- Vice President and Chief Financial Officer

Let me just comment on the large planned sale, the one we just closed in Minnesota. That is a multi-year commitment that we have with a conservation group in Minnesota to sell very rural land. I think this latest tranche was sold at $800 an acre. I think the one last year was around $900 an acre, depends on appraisals annually, but that's still a significant premium to its embedded timberland value and makes a lot of sense for us. So I don't think you should get overly concerned about the $800 an acre number. It makes good sense for a small transaction.

Mark Weintraub -- Seaport Global -- Analyst

Okay. And then the full-year outlook that which you provided last quarter is a good starting point for this year still?

Jerald W. Richards -- Vice President and Chief Financial Officer

That's correct Mark.

Mark Weintraub -- Seaport Global -- Analyst

Okay. Super. And then I guess just one last one if you, so it's interesting you have, it seems pretty good visibility on cedar logs. So you're certainly, you're cutting deals now for second and third quarter. Do you also have that type of visibility on the other Northern logs or is it just to really to lumber index or is there some component that's not lumber indexed?

Michael J. Covey -- Chairman and Chief Executive Officer

No it's -- that's more lumber indexed.I mean, there is a small portion that is not indexed, but when you start looking at taking out cedar which is not part of the indexed arrangements, it's pretty small.

Mark Weintraub -- Seaport Global -- Analyst

So maybe you're not the best people to ask and so is that the type of variation you're seeing in cedar, is that likely to be happening in Northern log markets in general outside -- again outside of the stuff that you have indexed or is it kind of not a window you have a view on?

Michael J. Covey -- Chairman and Chief Executive Officer

No I don't think it's a window we have a view on Mark, I mean that 70%, you know, you tell me what lumber prices are going to do and I'll tell you what log prices are going to do and that other, the non-indexed portion tends to go up and down along with the index, but they're not going to move exactly the same.

Mark Weintraub -- Seaport Global -- Analyst

Okay. Thanks very much.

Operator

Your next question comes from line of Paul Quinn from RBC Capital Markets. Your line is open.

Paul C. Quinn -- RBC Dominion Securities -- Analyst

Yes, thank you very much. I heard clearly that you're more interested in buybacks than M&A given that current valuation. But I just wonder if you could comment on M&A opportunities what you're seeing out there it seems like there's still a dearth of properties available to purchase?

Jerald W. Richards -- Vice President and Chief Financial Officer

Yes, it's been -- Paul it's been quite quiet. There's a couple smaller transactions that are out in the marketplace that I'm sure most industry players have looked at, but they're small in size kind of under 50,000 acres. So the market's been been pretty quiet.

Paul C. Quinn -- RBC Dominion Securities -- Analyst

Okay. And then just on the lumber side for capacity additions in the US. So what you're seeing in your areas, are you seeing any activity anything slowing down given the drop in lumber prices?

Jerald W. Richards -- Vice President and Chief Financial Officer

Not really, we've heard anecdotally. Well it's not just anecdotally, some of the equipment vendors now have slots and production tools that are available that weren't available six months ago. So that would indicate that some people perhaps are postponing or canceling projects, but it hasn't had a material impact in the capacity announcements. The mill projects that are under way in our operating areas in Alabama, Mississippi and Arkansas are all continuing as planned as far as we know with the largest one of those being the Interforest project in our Monticello, Arkansas which will have a big impact for us favorably.

Paul C. Quinn -- RBC Dominion Securities -- Analyst

And that project is nearing completion right?

Jerald W. Richards -- Vice President and Chief Financial Officer

I think so. Yes, I think mid summer.

Paul C. Quinn -- RBC Dominion Securities -- Analyst

All right. That's all I had. Best of luck guys. Thanks.

Jerald W. Richards -- Vice President and Chief Financial Officer

Thanks.

Michael J. Covey -- Chairman and Chief Executive Officer

Thanks Paul.

Operator

(Operator Instructions) Your next question comes from line of Chip Dillon from Vertical Research. Your line is open.

Salvator Tiano -- Vertical Research -- Analyst

Hi, Salvator Tiano here again. just a couple of follow-ups. Number one, we talked about M&A in timberlands which you said you don't see as attractive. Is there by any chance you know with all these especially on the West Coast offering, is there any opportunity to expand your saw mill presence or is it something you would not consider?

Jerald W. Richards -- Vice President and Chief Financial Officer

Well, we would not consider an expansion of our wood products manufacturing footprint without a kind of an adjacent timberland transaction to go with it because as a timber read, that only makes sense for us to expand our footprint in both timber and manufacturing just like we did with the Deltic merger but stand-alone wood products purchase is not likely to happen.

Salvator Tiano -- Vertical Research -- Analyst

Okay, great. That makes a lot of sense. And secondly, I know we're still almost in May, just is there any direction about your CapEx budget for next year assuming I guess that it would go lower following all these sawmill upgrades?

Jerald W. Richards -- Vice President and Chief Financial Officer

Yeah, Salvator, this is Jerry. It's way too early to give guidance on 2020. You Know we have not gone through our capital planning or budgeting process for the year. So that's something that we usually talk about on the fourth quarter call of the year.

Salvator Tiano -- Vertical Research -- Analyst

Thank you very much.

Operator

At this time, I'm showing there are no more questions. I'll turn the call back over to Jerry Richards.

Jerald W. Richards -- Vice President and Chief Financial Officer

All right. Thanks Rob. And I appreciate everybody's interest in PotlatchDeltic and participation on the call. I'll be available for any detailed modeling questions the rest of the day. Hope everybody has a good day.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's conference call and you may now disconnect.

Duration: 41 minutes

Call participants:

Jerald W. Richards -- Vice President and Chief Financial Officer

Michael J. Covey -- Chairman and Chief Executive Officer

John Babcock -- Bank of America -- Analyst

Eric J. Cremers -- President and Chief Operating Officer

Salvator Tiano -- Vertical Research -- Analyst

Ketan Mamtora -- BMO Capital Markets -- Analyst

Collin Mings -- Raymond James -- Analyst

Steve Chercover -- Davidson -- Analyst

Mark Weintraub -- Seaport Global -- Analyst

Paul C. Quinn -- RBC Dominion Securities -- Analyst

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