Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fiscal 2011 first quarter earnings of 23 cents per share, which marginally missed the Zacks Consensus Estimate by a penny.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
Total revenues for the quarter were $275 million compared with $317 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $266 million. The company witnessed significant fluctuations in revenue generated across its geographical regions. With a considerable geographic diversity, Plum Creek was able to adjust its harvest plans during the quarter to capitalize on stronger markets and protect value in the weaker ones. Consequently, management was confident of meeting its earnings expectations for 2011.
(Read our full coverage on this earnings report: Plum Creek Misses Marginally)
Earnings Estimate Revisions- Overview
Fiscal earnings estimates have moved down for Plum Creek since the earnings release, meaning that analysts are bearish about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 7 days, fiscal 2011 earnings estimates were lowered by 1 analyst out of 12 covering the stock, while none have raised the same. For fiscal 2012, 1 out of 11 analysts covering the stock has revised his estimate downward, while none have increased the same. This indicates a clear negative directional movement for the long-term fiscal year earnings estimates of the company.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2011 have dipped by a penny in the last 7 days to $1.32. For full year 2011, Plum Creek expects earnings in the range of $1.25 to $1.45 per share. For fiscal 2012, earnings estimates have also decreased by a penny to $1.63 in the last 7 days, which indicates that while fundamentals are gradually improving, they were still impacted by the challenging broader economic trends.
Moving Forward
The long-term earnings estimate picture for Plum Creek is neutral. Management further observed that although the quarterly results were in line with the company’s expectations and signified a gradual improvement in market fundamentals, global macroeconomic issues contributed to a slower pace of recovery as the industry was affected by rising energy costs and the devastation and loss caused by the earthquake and tsunami in Japan. However, management remained confident of continuing its growth momentum in the coming quarters with strong operational and financial flexibility.
Plum Creek is the largest publicly-held timber REIT, and owns the largest and most geographically diversified private timberland in the U.S. This enables the company to benefit from large economies of scale and capitalize on the increasing value of timber over time to offset several negative effects of cyclical commodity pricing.
In addition, Plum Creek’s diversified timber and land base provides excellent operational flexibility to respond to changing market conditions in a challenging macroeconomic environment. However, the cyclical nature of the business, cutthroat competition, and strict environment policies undermine its growth potential to some extent.
Currently, we maintain our long-term ‘Neutral’ rating on Plum Creek, which presently has a Zacks #4 Rank that translates into a short-term ‘Sell’ recommendation and indicates that the stock is expected to underperform the overall U.S. equity market for the next 1-3 months. We also have a ‘Neutral’ rating and a Zacks #3 Rank (short-term ‘Hold’) for Weyerhaeuser Co. (WY), a competitor of Plum Creek.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
PLUM CREEK TMBR (PCL): Free Stock Analysis Report
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