Plum Creek Beats Marginally

Plum Creek Timber Co. Inc. (PCL - Analyst Report), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fourth quarter earnings of $28 million or 17 cents per share, compared to $95 million or 57 cents per share in the year-earlier quarter. 

For full year 2009, the company reported earnings of $236 million or $1.44 per share compared to $233 million or $1.37 per share in 2008. While quarterly earnings marginally beat the Zacks Consensus Estimate by a penny, the fiscal earnings were in line with the Zacks Consensus Estimate.
 


During fourth quarter 2009, Plum Creek reported revenues of $258 million vis-à-vis $461 million in the year-ago quarter. Although revenues and earnings declined year-over-year, the company has witnessed stabilization in most timber markets with modest log price improvements. In addition, Plum Creek is gradually benefiting from its manufacturing downsizing and cost management efforts.
 


By segment, the Northern Resources division reported a $1 million loss during the quarter compared to $8 million operating profit in the previous year, with continued low residential construction activities and adverse effects of recession on softwood sawlog markets. In the Southern Resources segment, operating profit declined to $17 million from $25 million in the year-ago quarter, primarily due to lower sawlog and pulpwood prices.
 


Operating Income in the Real Estate segment decreased to $44 million during the quarter from $104 million in the year-earlier quarter. The Manufacturing segment relatively improved with break even results during the quarter versus $20 million operating loss in the previous year. Plum Creek continued to sell large tracts of rural lands including non-strategic timberlands to raise cash. During the quarter, the company sold 34,000 acres of land, including 26,700 acres of rural lands. 

For full year 2009, Plum Creek reported revenues of $1.29 billion compared to $1.61 billion in 2008. The decline in revenues was primarily due to low residential construction activities that decreased sawlog prices across the U.S. by 16% to 21% year-over-year. Pulpwood prices were also down 4% to 8% compared to 2008. 

In order to capitalize on attractive pulpwood prices, the company focused its harvesting activities on thinning young stands of trees which produce a high proportion of pulpwood. At the same time, Plum Creek maintained a low sawlog harvest level and deferred the harvest of 1.6 million tons of sawlogs. During 2009, the company replanted more than 60 million trees and invested in advanced forestry practices that enhanced the productivity of the existing forests. 

For full year 2009, operating income in the timber resource segments declined a combined $91 million. Operating Income in the Real Estate segment increased to $278 million for full year 2009 from $245 million in 2008. The Manufacturing segment reported a loss of $23 million during 2009 versus $44 million operating loss in the previous year. 

Despite challenging macroeconomic environment, Plum Creek generated $540 million of cash flow from operations in 2009. The company reduced debt by over $180 million, and repurchased $87 million of stock (2% of the outstanding shares). Total selling, general and administrative expenses reduced by approximately $22 million due to stringent cost-cutting measures. At year-end 2009, Plum Creek had cash and cash equivalents of $299 million and total long-term debt of $1.6 billion. 


For full year 2010, Plum Creek expects earnings in the range of $1.25 to $1.45 per share, while earnings for the first quarter are expected in the range of 34 cents to 39 cents. The company anticipates recovery in its core business activities to continue in 2010 as well. We believe that Plum Creek is well-positioned to benefit from the market recovery through its diversified asset portfolio, financial capability and strategic focus. 
 

Over the last 7 days, only one out of the 6 analysts covering the stock increased the estimates for first quarter 2010. Currently, the Zacks Consensus Estimate for first quarter 2010 is 12 cents per share, down 88.1% year-over-year. Over the last 7 days, two out of the 13 analysts covering the stock increased the fiscal estimates for 2010. Currently, the Zacks Consensus Estimate for 2010 is $1.18 per share, down 17.6% year-over-year. 

With respect to earnings surprises, the stock has fluctuated substantially over the last four quarters in the range of approximately 6%-150%. However, the average remained positive at 57%. This implies that Plum Creek has surged past the Zacks Consensus Estimate by 57% on an average in the last four quarters. 

We maintain our long-term Outperform recommendation for Plum Creek as we anticipate the stock to perform well above the broader market.

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