Plum Creek Timber Company Inc. reported third-quarter 2013 earnings of 44 cents per share, beating the Zacks Consensus Estimate of 42 cents and the year-ago quarter figure of 36 cents. Notably, the reported earnings also came above the company’s guidance range of 38–43 cents per share.
Results at this real estate investment trust (REIT) were driven by notable performance across all business segments, especially southern resources, real estate and manufacturing. Growing demand and elevated price of wood products stemming from a recovery in the residential construction market also acted as tailwinds.
Total revenue inched up 3.4% year over year to $366 million and also exceeded the Zacks Consensus Estimate of $355 million. Also, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) upped 4.1% year over year to $152 million.
Northern Resources – This segment reported operating profit of $5 million during the quarter, flat year over year. This included the effect of non-cash fire loss worth $4 million. Results reflect a rise in the price of sawlogs (over 14% year over year), driven by domestic sawmill facing strong export demand on the West Coast. Also, pulpwood prices increased $1 per ton year over year. Overall, harvest volumes declined 9% year over year to about 100,000 tons, in tune with the management's strategy.
Southern Resources – This segment booked an operating profit of $27 million, up about 17.4% year over year. The rise came on the back of higher pricing for both sawlog (up 8% year over year) and pulpwood (up 12%). Increasing log demand drove the sawlog prices. On the other hand, rising demand from pulp and paper mills and oriented strand board (OSB) producers aided the pulpwood prices. However, sawlog harvest remained flat year over year.
Real Estate – This segment generated operating profit of $63 million, up around 16.7% year over year. Results were driven by $53 million worth of disposition of 15,000 acres of Oregon timberland.
Manufacturing– This segment posted an operating profit of $11 million in the quarter, up 22.2% year over year. Results were driven by increased prices of plywood (up 6%) and medium density fiberboard (MDF) (up 7%), compared with the prior-year quarter. Also, strong pricing for panel products and high lumber sales volumes impacted the operating income. However, introduction of lower–valued stud lumber developed by the re-opened sawmill led to 5% year over year decline in lumber prices.
Plum Creek ended the quarter with $439 million in cash and cash equivalents, up from $355 million at the prior-quarter end. However, total long-term debt remained unchanged at $1.8 billion compared with the prior quarter-end.
Management expects 2013 earnings per share to be in the range of $1.30–$1.45. For fourth-quarter 2013, earnings are projected to be in the range of 26–31 cents per share.
Also, Plum Creek expects total harvest volume to be about 17.5 million tons in 2013.
We are encouraged with Plum Creek’s impressive results in the reported quarter and believe that its diversified timber and land base enable it to benefit from large economies of scale. Notably, the upsurge in demographic trends driving housing markets and demand for real estate properties across the country provide a strong backdrop for Plum Creek to demonstrate its solid financial performance in the future. However, declining harvest volumes remain a plausible concern for this Zacks Rank #3 (Hold) stock.
Nevertheless, other companies that are performing well and are worth a look include Universal Forest Products Inc. (UFPI - Analyst Report), Rayonier Inc. (RYN - Analyst Report) and Boise Cascade Company (BCC - Snapshot Report). Universal Forest Products carries a Zacks Rank #1 (Strong Buy), while Rayonier and Boise Cascade carry a Zacks Rank #2 (Buy).