My paper on the Deltic Timber Corporation provides an overview of the company, and through using Porter`s 5 forces model, presenting the strategic analysis of both the company and its industry.

Authors Avatar by stixy (student)

My paper on the Deltic Timber Corporation provides an overview of the company, and through using Porter`s 5 forces model, presenting the strategic analysis of both the company and its industry. The report also presents financial statements and ratios information through which we can understand its competitive performance in the industry. And I have analyzed earnings, historical stock price performance and I have valued the stock price based on DDM and FCF models. Based on my research and different analyses I have given final recommendations about the price ranges to buy, sell, or hold the stock.


Deltic Timber Corporation (Deltic) is a natural resources company engaged primarily in the growing and harvesting of timber and the manufacture and marketing of lumber. Deltic owns approximately 445,800 acres of timberland, mainly in Arkansas and north Louisiana. The Company’s sawmill operations are located at Ola in central Arkansas (the Ola Mill) and at Waldo in south Arkansas (the Waldo Mill). In addition to its timber and lumber operations, the Company is engaged in real estate development in central Arkansas. The Company also holds a 50% interest in Del-Tin Fiber LLC (Del-Tin Fiber), a joint venture to manufacture and market medium density fiberboard (MDF). The Company is organized into four segments: Woodlands, Mills, Real Estate and Corporate. The Company’s principal products are timber, timberland, softwood lumber products (primarily finished lumber), residual wood products, hunting land leases, oil and gas lease rentals and royalties, and real estate.


It becomes clear that the company` strategy is diversification because it engages primarily in manufacturing of lumber but it is organized in four segments. However, to reach to this strategy we can follow Porter`s 5 forces analysis.

  • The threat of new entrants.

Deltic Timber Corp., operating in lumber industry, suffers very high competition. While the barriers to start up a lumber manufacturing corporation are not impossible to overcome, the threat of new entrants is big.

  • Power of suppliers.

Historically, retailers have tried to exploit relationships with suppliers. In this business the suppliers do not have  so high influence. Deltic  timber Corp. has 480 acres of forest and it supplies its manufacturing on its own. Thus, it is not dependable on suppliers.

  • Power of buyers.

Individually, customers have little bargaining power with it because the demand for wood is big. However, if customers demand high-quality products at bargain prices, it helps keep retailers honest.

  • Availability of substitutes

There are many substitutes of wood. For example, we can use other non-wood materials. Viewed from another aspect wood can substitute the usage of fossil fuels and vice versa.

  • Competitive Rivalry.

Deltic Timber Corp. main USA competitors are Louisiana-Pacific Corp., Weyerhaeuser Co., etc.

Deltic Timber Corp., like USA operating corporation - it can suffer stiff competition not only from other USA corporations in the wood industry, but also from Canadian corporations products encountered in the same industry, throughout their big exports to the USA. We can see such factors looking at the official website of U.S. Lumber Coalition (2012):

The U.S. softwood lumber industry is under severe strain from unfairly traded imports of lumber from Canada. Canadian lumber producers claim that any disadvantage for U.S. producers is due to inefficiency in the U.S. industry. But, the U.S. lumber industry is highly competitive and is rated among the most efficient lumber industries in the world.

        So the competitive rivalry is high.

Finally, we can understand that for Deltic Timber Corp. the best strategy is diversification – operating in different segments gives it the opportunity for compensating the losses from one segment with revenues from others, and as a whole, to work in profit.

Moreover, something about Dletic` s current strategy we can see at the First Q-2012 Deltic Timber Profits Conference Call – Final (2012):

RAY DILLON ( President and Chief Executive Officer of Deltic): As we have said many times our strategy is to harvest the forest on a sustainable yield basis and do that consistently. We believe that's the appropriate approach to maintaining the forest and maximizing growth rates, and maintaining the overall health in the forest.

What about the opportunities for growth? We can know enough things looking again at the First Q-2012 Deltic Timber Profits Conference Call – Final (2012):

STEVE CHERCOVER (analyst, d.a. davidson & co): Perfect. Maybe just if I can get you to elaborate on that, are you -- we know that you're acquisitive. Are you seeing any opportunities for growth?        

RAY DILLON (President and Chief Executive Officer of Deltic): Let's just call it no major opportunities. We participate in small opportunities when available, and certainly would be looking forward to participating in a larger opportunity but we don't see any of those on the horizon right this moment.

Thus, we have learned from this conference call that there are no major opportunities for growth.


         Financial statement analysis is important for the evaluation of future company performance. Thus, in my paper, I take some tables from Form 10-K for Deltic as Balance sheet, Income, Cash flow and Retained Earnings statements (See Appendix 1,2,3 and 4) and based on the data I calculated some financial ratios (See appendix 5) to make some analysis.

Join now!

Firstly, liquidity ratios measure a firm's ability to meet its current obligations. Working capital ratio for 2011 (3,618) is higher than this of 2010 (2,520), thus Deltic Timber Corp. is less able to borrow on short notice in 2011 than in 2010. Moreover, current ratio also provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities, which value we can see in the Appendix 5, too.

Secondly, profitability ratios measure management's ability to control expenses and to earn a return on the resources committed to the business. For example, Return on ...

This is a preview of the whole essay