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Plum Creek Timber Company Inc. (PCL - Analyst Report) reported second-quarter 2013 earnings of 28 cents per share, beating the Zacks Consensus Estimate of 23 cents and the year–ago quarter figure of 22 cents. Notably, the reported earnings also came above the company’s guidance range of 20–25 cents per share.

The results at this real estate investment trust (REIT) were driven by the growing demand and increased pricing of wood products stemming from a recovery in the residential construction market. Plum Creek has registered a decent performance across its segments.

Total revenue inched up 3% year over year to $303 million from $294 million. However, this missed the Zacks Consensus Estimate of $304 million. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) came in at $104 million, up about 10% year over year.

Segment Performance

Northern Resources – This segment reported operating profit of $8 million during the quarter, which doubled from $4 million in the year-ago period. Results reflect a rise in the price of sawlogs (11% year over year), driven by recuperated domestic and international demand. Pulpwood prices remained flat year-over-year. Overall, harvest volumes declined 17% year over year to about 160,000 tons. The decrease was due to a reduction in lower-margin pulpwood harvest volume, which was in tune with management's strategy.

Southern Resources – This segment booked an operating profit of $23 million, up about 5% year over year. The rise came on the back of higher pricing for both sawlog (up 5% year over year) and pulpwood (up 10%). However, overall, harvest volumes fell 14% year over year.

Real Estate – This segment generated operating profit of $30 million, up around 4% from the prior-year quarter of $29 million. Results were driven by the disposition of 17,100 acres of small, non-strategic timberlands at an average price of around $1,185 per acre. Moreover, Plum Creek vended 9,800 acres of HBU/recreation lands for approximately $1,925 per acre and around 17,500 acres of conservation land for $835 per acre.

Manufacturing – This segment posted an operating profit of $14 million in the quarter, up 56% from $9 million in the year-ago quarter. Results were driven by increased prices of plywood (up 13%) and medium density fiberboard (MDF) (up 8%), compared with the prior-year quarter. However, lumber prices dipped marginally (1%) during the quarter. Overall, sturdy demand as well as pricing during the quarter continued to drive Plum Creek’s manufactured product line.

Liquidity

Plum Creek ended the quarter with $355 million in cash and cash equivalents, compared with $296 million at the prior-quarter end. However, total long-term debt remained unchanged at $1.8 billion compared with the prior quarter-end.

Outlook

Management narrowed its 2013 earnings per share outlook and now expects it to be in the range of $1.30–$1.45 (prior forecasted range of 1.25 – $1.50). For third-quarter 2013, earnings are projected to be in the range of 38–43 cents per share.

Total harvest volume is expected to be mostly unchanged in 2013 (between 17.5 and 18.0 million tons of timber compared with 17.9 million ton in 2012). Full-year 2013 Real Estate segment sales is projected to range from $260–$290 million (the prior range being $250–$300 million), while third-quarter sales are expected to come between $85 and $95 million.

Overall, management projects sawlog prices to be higher in all regions during the second half of 2013 as compared with the second half of 2012.

Our Take

Though the revenues miss is not-so-encouraging, Plum Creek’s earnings beat signifies benefit from its diversified timber and land base, that enables it draw positives from large economies of scale.

In addition, the upsurge in demographic trends driving the housing markets and demand for real estate properties across the country provides a strong backdrop for the company to demonstrate its solid financial performance in the future. However, significantly declining harvest volumes remains a plausible concern for this Zacks Rank #4 (Sell) stock.

Nevertheless, other REITs that are performing well and are worth a look include Simon Property Group Inc. (SPG - Analyst Report), Kimco Realty Corporation (KIM - Analyst Report) and CBL & Associates Properties Inc. (CBL - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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