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Plum Creek Surpasses Estimates

PCL WY

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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 earnings of $36 million or 22 cents per share in the second quarter of 2012, compared with $44 million or 27 cents in the year-earlier quarter.

The year-over-year decline in earnings was primarily due to higher operating expenses during the reported quarter. The second quarter 2012 earnings beat the Zacks Consensus Estimate by 4 cents.

Total revenues for the quarter were $294 million compared with $284 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $275 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the second quarter of 2012 was $95 million compared to $109 million in the year-ago period.

The company witnessed significant fluctuation 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 that it would meet its earnings expectations for 2012.

By segment, the Northern Resources division reported an operating profit of $4 million during the quarter compared with $3 million in the previous year, primarily due to favorable harvesting conditions that yielded relatively more timber. While sawlog harvest increased approximately 160,000 tons (34%), pulpwood harvest increased 70,000 tons (29%) year over year.

Sawlog prices remained fairly stable during the quarter compared to the prior year at $71 per ton. However, pulpwood prices were 5% higher ($2 per ton) in the reported quarter at $42 per ton compared to the second quarter of 2011.

In the Southern Resources segment, operating profit was $22 million compared to $15 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, and higher sawlog and pulpwood prices (approximately $1 per ton each). Pulpwood volumes increased 341,000 tons (up 21%) from the prior-year period, while that of sawlog surged by 406,000 tons (up 36%).

Operating Income in the Real Estate segment was $29 million during the quarter on revenues of $47 million, compared with $50 million in the year-earlier quarter on revenues of $79 million. The Manufacturing segment reported an operating profit of $9 million during the quarter, compared with $5 million in 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 small, non-strategic timberlands for $1,150 per acre and recreation lands for approximately $2,000 per acre.

During the reported quarter, Plum Creek generated $83 million of operating cash flow compared with $81 million in the year-ago period. At quarter-end, the company had cash and cash equivalents of $260 million and total long-term debt of $1.5 billion.

Management remains overtly optimistic about a slow yet steady performance in the current year. For full year 2012, Plum Creek reiterated its earnings guidance in the range of $1.00 to $1.25 per share, while third quarter earnings are expected to be in the range of 32 cents to 37 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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