Potlatch Corp., which has posted net losses for five successive quarters, has made significant gains in curbing its costs, a securities analyst says.


Even though the Spokane forest-products company posted a loss of 35 cents a share for the second quarter this year, that was far better than D.A. Davidson & Co., a Great Falls, Mont.-based brokerage, had projected, says the analyst, Steven Chercover, of D.A. Davidsons Lake Oswego, Ore., office.


We were looking for a loss of 61 cents a share, Chercover wrote in an analysts report released last month after Potlatch reported its second-quarter results. We had expected results to improve as a function of better building-materials prices and efforts to decrease energy costs, but we are amazed at how much progress they have made.


In a telephone interview last week, Chercover said Potlatch made most of its cost-containment progress by addressing energy costs at its Lewiston, Idaho, mill complex.


The complex had been hit hard by the run-up in energy prices in the West, and the company had a big challenge to address there, Chercover said. Its done that, although it doesnt mean that there arent additional challenges, he said.


Potlatch spokesman Mike Sullivan said the company reduced electricity consumption at Lewistonto 97.3 megawatt-hours in May from 103 megawatt-hours in Januarywhile also producing much more power there through cogeneration.


The Lewiston site generated 89.6 megawatt-hours of electricity in June, compared with 67 megawatt-hours in January, by capturing heat created in the cooking of sawdust into pulp, increasing steam production from its boilers, and bleaching sawdust and chip pulp more efficiently in the paper-making process, Sullivan says.


That allowed the company to buy all of the power it needed, in addition to what it could generate, at a guaranteed price under contractand avoid having to buy power in the spot market, which was being ravaged by sky-high prices. Our goal was to eliminate our purchases in that market, and we have done that, Sullivan says. He adds that the cogeneration gains were achieved through investments that totaled just $2 million to $3 million.


Chercover wrote that while Potlatchs wood-products business enjoyed a significant turnaround in the second quarter, thanks to improved commodity prices and the timely ramp-up of a new oriented strand board mill in Cook, Minn., the companys printing-paper division lost $9 million, as coated-paper and pulp prices fell.


D.A. Davidson, to reflect its belief that Potlatchs cost savings are sustainable, revised upward its projections of Potlatchs future earnings, Chercover wrote. D.A. Davidson had forecast that Potlatch would lose $1.81 a share in 2001, but now expects Potlatch to cut its losses to $1.63 a share for the year. (The company lost $1.02 in the first quarter.)


For 2002, D.A. Davidson projects that Potlatch will earn 38 cents a share. Previously, the brokerage had forecast that Potlatch would lose 48 cents a share next year.