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Plum Creek Timber Co. Inc. (PCL - Analyst Report), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fiscal 2012 first quarter earnings of $29 million or 18 cents per share, compared with $38 million or 23 cents in the year-earlier quarter. The year-over-year decline in earnings was primarily due to lower operating income from the Real Estate segment. The first quarter 2012 earnings missed the Zacks Consensus Estimate by 5 cents.

Total revenues for the quarter were $337 million compared with $275 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $330 million. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for the first quarter of 2012 was $139 million compared to $100 million in the year-ago quarter.

The company witnessed significant fluctuations in revenue generated across the geographical regions. With considerable geographic diversity, Plum Creek was able to adjust its harvest plans to capitalize on stronger markets and protect value in weaker ones. Consequently, management was confident to meet its earnings expectations for 2012.

By segment, the Northern Resources division reported an operating profit of $6 million during the quarter compared with $7 million in the previous year, primarily due to a decline of sawlog prices by $2 per ton – a 3% decrease on a year-over-year basis. However, pulpwood prices were approximately 6% higher ($2 per ton) in the reported quarter compared to first quarter of 2011 due to strong hardwood pulpwood markets in the Northeast. Harvest volumes were 124,000 tons during the quarter (up 13% on a year-over-year basis).

In the Southern Resources segment, operating profit was $21 million compared to $19 million in the year-ago quarter. The year-over-year rise in profit was attributable to higher harvest volumes due to strong demand of pulpwood. Total harvest volumes increased approximately 400,000 tons (up 14%) from the prior-year period. Pulpwood prices during the reported quarter were similar to the year-earlier quarter, although average sawlog prices were approximately 2% lower on a year-over-year basis.

Operating Income in the Real Estate segment was $30 million during the quarter on revenues of $100 million, compared with $38 million in the year-earlier quarter on revenues of $62 million. The Manufacturing segment reported an operating profit of $4 million during the quarter, which was similar to the year-ago quarter.

Plum Creek continued to sell large tracts of rural lands including non-strategic timberlands to raise cash. During the quarter, the company sold 4,400 acres of small, non-strategic timberlands for $1,100 per acre and 70,000 acres of large, non-strategic timberland at an average price of approximately $1,200 per acre. The company also sold 4,000 acres of recreation lands for approximately $2,150 per acre and 1,150 acres of conservation lands at $1,560 per acre.

During the reported quarter, the company completed the purchase of approximately 4.7 million tons of mature southern yellow pine timber in the Gulf South region for $103 million. The acquisition is expected to be accretive to earnings from the second year of the transaction. During the quarter, Plum Creek generated $6 million of operating cash flow compared with $76 million in the year-ago period. At quarter-end, the company had cash and cash equivalents of $273 million and total long-term debt of $1.5 billion.

Plum Creek obtained a new $700 million five-year revolving credit facility during the quarter, replacing an existing $600 million revolving credit agreement. The new $700 million facility is scheduled to mature in April 2017 and bears a lower interest burden than the erstwhile revolving credit facility. The company also obtained a new $450 million seven-year term loan agreement that is scheduled to mature in April 2019.

Management remains overtly optimistic about a strong performance in the current fiscal year. For full year 2012, Plum Creek expects earnings in the range of $1.00 to $1.25 per share, while second quarter earnings are expected to be in the range of 15 cents to 20 cents.

We maintain our ‘Neutral’ rating on Plum Creek. Plum Creek currently has a Zacks #2 Rank that translates into a short-term ‘Buy’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank (short-term ‘Hold’ rating) for Weyerhaeuser Co. (WY - Analyst Report), a competitor of Plum Creek.

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