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Plum Creek Timber Co. Inc. (PCL - Analyst Report), a real estate investment trust (REIT) that owns one of the largest private timberlands in the U.S., reported fiscal 2010 second quarter earnings of $35 million or 21 cents per share, compared with $32 million or 19 cents per share in the year-earlier quarter. The earnings exceeded the Zacks Consensus Estimate by 6 cents.
During second quarter 2010, Plum Creek reported revenues of $258 million vis-à-vis $272 million in the year-ago quarter. Although total revenues declined year over year, the company reported better-than-expected performance across all the segments with stabilization in most timber markets and 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 an operating profit of $3 million during the quarter compared with an operating loss of $7 million in the previous year, primarily due to improved sawlog demands and higher prices. Average sawlog prices increased by more than $15 per ton on a year-over-year basis. In addition, fiscal 2010 second quarter sawlog harvest was 484,000 tons, which was 113,000 tons more than the year-ago period.
In the Southern Resources segment, operating profit was $24 million compared to $23 million in the year-ago quarter as higher pulpwood prices were offset by lower sawlog harvest volume. While pulpwood prices increased $12 per ton year-over-year, harvest volume decreased 400,000 tons during the quarter compared to the year-earlier quarter.
Operating Income in the Real Estate segment was $26 million during the quarter on revenues of $43 million, compared with $44 million in the year-earlier quarter on revenues of $78 million. However, operating income in the second quarter of 2009 included a gain of $23 million from the sale of timberlands in Wisconsin. The sale was worth $38 million. The Manufacturing segment reported an operating profit of $10 million during the quarter versus breakeven results 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 18,000 acres of recreation land for $2,200 per acre, and 2,000 acres of non-strategic land for $1,100 per acre. In addition, Plum Creek sold 215 acres of conservation land for $1,450 per acre and 60 acres of development land for $6,000 per acre.
During the quarter, the company utilized cash generated from asset sales to repurchase 1.37 million common shares at an average price of $36.37. Plum Creek generated $78 million of cash flow from operations during the quarter. At quarter end, the company had cash and cash equivalents of $250 million and total long-term debt of $1.6 billion.
Although the second quarter results improved year over year, management felt that the overall pace of recovery was slow. It further observed that demand for pulpwood products has improved considerably, while that of sawlog has decreased as repair and remodel end-use markets and residential construction markets remain near historic lows.
For full year 2010, Plum Creek expects earnings in the range of $1.35 to $1.50 per share, while third quarter earnings are expected to be in the range of 20 cents to 25 cents. We maintain our Neutral rating on the stock with a Zacks #3 Rank, which translates into a short-term “Hold rating.